How activation works and an example from Saudi Arabia

Social safety nets are designed to support the most vulnerable part of the population. They do this by paying cash benefits to the poorest families and individuals in society – often people who, for various reasons, have no or fewer earning opportunities due to disability, care tasks or insufficient skills. An important question is whether some of these social safety net recipients can be helped to find a foothold in the labor market through so-called activation or social support programs at work.

What are the key ingredients of a successful activation policy?

There are three main ingredients for a successful activation policy. First, the design of the cash benefit must ensure that starting work actually pays off. Often, social safety nets are designed so that work income is entirely deducted from the benefit, so that for every dollar gained, a dollar of benefits is lost. In other words, when the net gain for the family is zero, the work does not pay. A good example of how to remedy this is what is known as earnings disregard, i.e. part of the income earned is not taken into account when calculating the social assistance benefit. Finland introduced such income exclusions for its social safety net in 2002, prompting more female welfare recipients to take up part-time work.

Figure 1 illustrates the importance of the pay gaps. In this example, a hypothetical Guaranteed Minimum Income (GMI) benefit of $40 is paid to a household. If the household accepted a job paying, say, $20, the benefit would be reduced by $20 in the absence of any income consideration (left side of Figure 1). The net gain in terms of total household income would be zero – taking a job pays nothing. In contrast, if a 50% income exclusion were applied, the benefit would only be reduced by $10 and the household would earn $10 in total income by taking up employment (right side of Figure 1), an increase of 25 % in total income, so work pays off.

Figure 1. Illustration of the impact of benefits with and without accounting for earnings on total income

a) Benefit and total income excluding earnings

Figure 1.a.  Illustration of the impact of benefits with and without disregarded earnings on total income

(b). Benefit and total income excluding 50% earnings

Chart 1.b.  Illustration of the impact of benefits with and without disregarded earnings on total incomeSource: Authors

Second, at least part of social assistance benefits should be conditional on active job search, acceptance of suitable job offers or participation in active labor market policies (ALMPs) , such as training. This condition should only apply to adult household members who are able to work and do not have childcare or eldercare duties. Germany, between 2003 and 2005, introduced strict job search conditionality for its social assistance benefits. Arguably the German reforms are somewhat controversial, but a recent international meta-analysis found that the introduction of job search conditionality had a positive impact on employment, although the quality of jobs accepted can suffer.

Third, what may be most challenging – policymakers must create the capacity to successfully link social assistance recipients to job search assistance, ALMPs, and monitor job search efforts beneficiaries. This requires the establishment of effective case management teams comprising both social workers and employment counselors who are in frequent contact with the beneficiaries, guide them to job offers, check if the beneficiaries are looking for a job, apply for jobs, go to interviews, accept suitable jobs and participate in programs regularly. Good examples of such policies and programs are Sweden at the national level and Lausanne, Switzerland at the municipal level.

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

Regular Assistance Program in Saudi Arabia

In 2020, Saudi Arabia reformed its social assistance program, called Regular Assistance, or “Damman” in Arabic. He did this with a strong focus on establishing a modern safety net that emphasizes activation. The program has been redesigned from a categorical individual assistance program to a means-tested, household-based guaranteed minimum income scheme. That is, when evaluating applicants, the means from both the income and assets of the whole household are taken into account, and the gap between these means and what is guaranteed as income from the program is paid as a benefit. Importantly, a significant portion of any household income from work is not taken into account when calculating the benefit, ensuring that starting work is profitable for recipients. In addition, adult beneficiaries who are able to work and who have no obligation of care are required to actively seek employment. Finally, the reform also set up a sub-program called “Tamkeen” (“empowerment” in Arabic) to support beneficiaries in their job search.

Tamkeen: Helping welfare recipients find work

Tamkeen is mandatory for all Damman beneficiaries who are able and available for work. An initial profiling classifies program participants into three streams: (i) Use for those who are ready to enter the labor market as job seekers; (ii) Company for those who have the ability to start their own business; and (iii) Rehabilitation for those who need additional support through ALMPs before entering the labor market. The program is implemented by establishing links with other government entities, the private sector and non-profit organizations. For example, the main collaborator within the employment sector is the Human Resources Development Fund (HRDF), which is the equivalent of a Public Employment Service (PES). For the commercial sector, the program collaborates with the Social Development Bank.

What has the program achieved so far? Nearly 250,000 Damman beneficiaries have registered with Tamkeen since its inception in 2017. Since then, nearly 200,000 of them have been successfully activated: 160,000 have found a job while 35,000 have started a business. A survey of over 20,000 successful program participants indicates that the employment results are quite durable: two years after initially starting a job, only 2.6% have stopped working. Among the remaining participants, the wage distribution improved considerably: the number of those in the lowest wage bracket (1,000 to 3,000 Saudi riyals) fell by more than 2,000 workers while it increased in all higher salary brackets (see Figure 2 below).

Figure 2. Successful Tamkeen participants have increased their salaries and only a few of them are unemployed after two yearsFigure 2. Successful Tamkeen participants increased their salary

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

Encouraging results

Although much remains to be done to complete the reforms and further develop implementation capacity, Tamkeen’s initial results are encouraging. Many developing countries, in the Middle East and elsewhere, are struggling to establish 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 have implemented a modern safety net, and the Damman program has all the key ingredients to successfully promote the activation of social assistance recipients. . He introduced a design of RMG, based on both income and assets of the whole household, while applying large income differentials on labor income to ensure that taking up work is rewarded. It also applies job search conditionality to adult household members who are able to work. And finally, the country has developed capabilities to connect social safety net recipients with job search services and track their job search efforts through the Tamkeen program. As the successful implementation of Tamkeen continues and scales up, it can make important contributions to further improve the participation of Saudi men in the labor market, especially Saudi women.

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