How the activation works and an example from Saudi Arabia

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Social safety nets are designed to support the most vulnerable part of the population. They do this by providing cash benefits to the poorest families and individuals in society – often people who, for various reasons, have no or reduced employment opportunities due to disability, caring responsibilities or insufficient skills. An important question is whether some of these beneficiaries of social safety nets can be assisted in gaining a foothold in the labor market through so-called activation or social assistance programmes.

What are the key components of a successful activation policy?

A successful activation policy consists of three main components. First, the design of the cash benefit must ensure that taking up gainful employment actually pays off. Social safety nets are often designed to deduct earnings entirely from benefits, so that for every dollar earned, a dollar is lost in benefits. In other words, if the net profit for the family is zero, then the work is not worth it. A good example of how this can be remedied are so-called employment allowances – i.e. a part of the earned income that is not taken into account when calculating the social assistance benefit. Finland introduced such income deprivation for its social safety net in 2002, leading more female welfare recipients to take up part-time work.

Figure 1 illustrates the importance of income neglect. In this example, a household is paid a hypothetical guaranteed minimum income (GMI) of $40. If the household took on a job that paid $20, for example, the benefit would be reduced by $20 if there was no income deduction (left side of Figure 1). The net profit in relation to the total income of the household would be zero – it is not worth taking up a job. In contrast, with an income deduction of 50 percent, the benefit would be reduced by only $10 and the household would gain $10 in total income from taking up work (right side of Figure 1)—a 25 percent increase in total income to make work pay.

Figure 1. Illustrating the impact of benefits with and without income neglect on total income

(a) Performance and total income without considering income

(b). Performance and total income with 50 percent earnings deduction

Figure 1.b.  Illustrating the impact of benefits with and without wage deductions on total incomeSource: authors

Second, at least some social assistance benefits should be conditional on actively looking for work, accepting suitable job offers, or participating in active labor market policies (ALMPs), such as B. Training to participate. This condition should only apply to adult household members who are able to work and have no care responsibilities for children or the elderly. Between 2003 and 2005, Germany introduced strict job search requirements for its social assistance benefits. The German reforms may be somewhat controversial, but a recent international meta-analysis found that the introduction of job search conditions had a positive impact on employment, although the quality of accepted jobs could suffer.

Third, and perhaps the most challenging, policymakers need to build the capacity to successfully link welfare recipients to job-search assistance, ALMPs, and to monitor recipients’ job-search efforts. This requires the establishment of effective case management teams, which include both social workers and employment counsellors, who are in frequent contact with beneficiaries, directing them to job offers, checking whether beneficiaries are looking for work, applying for jobs, going to interviews, accepting suitable positions and regular participation in programs. Good examples of such strategies and programs are Sweden at the state level and Lausanne in Switzerland at the local level.

All of these examples of successful activation policies come from countries with well-developed social policies and programmes. As an example of a country with a relatively young social policy, we turn to Saudi Arabia.

Regular aid program in Saudi Arabia

In 2020, Saudi Arabia reformed its social assistance program, named Regular Assistance, or “Damman” in Arabic. This has been done with a strong focus on establishing a modern safety net that places a high value on activation. The program has been transformed from a categorical, individual assistance program to a household-based, means-tested guaranteed minimum income. That is, when evaluating applicants, the funds from income and assets of the entire household are taken into account, and the difference between these funds and the guaranteed income from the program is paid as a benefit. It is important that a significant portion of the household income from work is excluded from the calculation of the benefit to ensure that taking up work pays beneficiaries the benefit. In addition, beneficiaries of legal age who are able to work and have no care obligations are obliged to actively look for work. Finally, the reform also established a sub-program called “Tamkeen” (Arabic for “empowerment”) to help beneficiaries find work.

Tamkeen: Helping welfare recipients find work

Tamkeen is mandatory for all Damman beneficiaries who are able to work and available. Initial profiling divides program participants into three areas: (i) occupation for those ready to enter the labor market as job seekers; (ii) business for those who have the ability to start their own business; and (iii) rehabilitation for those who need additional support from AAMP before entering the labor market. The program is implemented by linking with other government agencies, the private sector and not-for-profit organizations. For example, the most important cooperation partner in the field of employment is the Human Resources Development Fund (HRDF), which corresponds to a public employment service (PES). For the business track, the program works with the Social Development Bank.

What has the program achieved so far? Since its launch in 2017, nearly 250,000 Damman beneficiaries have registered for Tamkeen. Since then, almost 200,000 of them have been successfully activated: 160,000 found employment, while 35,000 started a business. A survey of over 20,000 successful program participants shows that job outcomes are quite sustainable: Two years after first starting a job, only 2.6 percent stopped working. For the remaining participants, the wage distribution has improved significantly: the number of those in the lowest wage bracket (1,000 to 3,000 Saudi riyals) has fallen by over 2,000 employees, while it has increased in all higher wage brackets (see Figure 2 below).

Figure 2. Successful Tamkeen participants have increased their wages and few of them are unemployed after two yearsFigure 2. Successful Tamkeen participants have increased their wages

Note: The same beneficiaries are observed twice, once in 2019 and once in 2021. Source: Tamkeen, 2022

Encouraging results

While much remains to be done to complete reforms and further develop implementation capacity, Tamkeen’s early results are encouraging. Many developing countries in the Middle East and elsewhere are struggling to put in place modern safety nets – let alone activation programs – and the example of Saudi reforms can be instructive.

Saudi Arabia is one of the first countries in the Middle East to adopt a modern safety net, and the Damman program has all the key ingredients to successfully promote the activation of welfare recipients. A GMI design was introduced that is based on both income and wealth for the entire household, while significant income deductions are applied to labor income to ensure that taking up work is rewarded. The job-seeking condition for adult household members who are able to work also applies. Finally, the country has developed capacity to actually connect Social Security Net beneficiaries to employment services and monitor their job search efforts through the Tamkeen program. As the successful implementation of Tamkeen continues and expands, it can make important contributions to further improve the labor force participation of Saudis, particularly Saudi women.

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