When faced with major job losses in a single area, how can local policy makers best support those left out of work?
What kind of support is provided to workers affected by major job losses?
Major job losses may occur when large firms close, downsize or restructure in a single town or city; or when the effects of structural change are felt in communities where affected industries are geographically concentrated. These job losses may be highly uneven in terms of job types and occupation, and in terms of types of worker affected. This toolkit focuses on the workers involved, and on interventions to help improve their economic outcomes and life chances. (We use the terms ‘made redundant’, ‘displaced’ or ‘suffering job loss’ interchangeably.)
The most common form of support provided to displaced workers involves redundancy or ‘severance’ pay to compensate the employee for early termination of their contract. Over and above this, support can also include: education and training; re-employment services; support for entrepreneurship; and counselling and psychological assistance. When these services are provided before the worker leaves their existing job they are often referred to as outplacement services.
Support for displaced workers may also be delivered through mainstream active labour market programmes that try to help all unemployed workers (such as the Work Programme) or through bespoke interventions targeted specifically at the affected workforce. These interventions are offered either before, or shortly after, a worker leaves their existing job.
Sometimes responses to major job losses will take the form of policy to support particular industrial sectors or local areas. For example, support might be offered to workers in industries facing increased import competition such as the US Trade Adjustment Assistance programme. In these cases programmes provide additional support for the affected industry (e.g. through measures aimed at technological adoption to improve productivity) or local area (e.g. tax breaks to attract new industries).
How effective are support measures?
The available evaluations raise some doubts about the effectiveness of outplacement services. Of the three evaluations that explore the impacts of outplacement one finds that recipients in Spain experience longer unemployment duration post-redundancy, while a companion study on the same scheme finds positive effects on wages. These findings suggest that the unemployed may hold out longer for a better paying job as a result of outplacement training, whilst those who do not have access to such support accept lower paid employment. A third evaluation, of a Dutch outplacement scheme, finds no significant effects on a range of economic indicators.
Overall results are generally more positive for retraining post-displacement, with four out of five evaluations reporting a positive effect on employment rates or earnings or both (although two of these consider the same intervention). This suggests that retraining or reskilling workers may deliver better outcomes than just making workers redundant.
Only one study looks at large, area-specific support schemes, finding positive employment and earnings effects that generally look larger than those for more traditional schemes. However, costs for these schemes are also considerably larger (see the discussion of cost-effectiveness below and in the Annex).
Findings across all types of support suggest that the success of support may be dependent upon various characteristics of participants, in particular age and gender. Two out of three studies suggest larger wage or earnings effects for younger workers, and two of four studies find stronger employment effects for younger workers. There was only one study which finds no significant differences in either wages or employment effects across age groups.
Six studies consider differences by gender with three reporting higher benefits for men than for women, one reporting no difference and two reporting larger effects for women than for men (although these consider the same intervention). One of the studies showing higher benefits for men, reports concerns about the sample sizes for women. Another examines two interventions, only one of which shows larger effects for men, the other showing no differences. Overall, the evidence suggesting that men see larger benefits than women appears weaker than that suggesting larger benefits to younger as opposed to older workers.
Three studies suggest that a vocational or technical element to training may improve outcomes (although two of these consider the same intervention).
In line with the more general findings from our employment training review, one study suggests that shorter, more intensive support tends to be more beneficial for higher skilled participants; whilst those in employment for less time prior to redundancy, benefit most from longer-term support.
How secure is the evidence?
This toolkit summarises the available ex-post (i.e. after introduction) evaluations of the effect of support for displaced workers. The majority of the existing literature uses case study approaches or qualitative interview techniques, often involving small numbers of participants to assess the impacts of policy responses to economic shock and redundancy. This toolkit does not consider this evidence. Instead, we focus on evaluations that identify effects which can be attributed, with some degree of certainty, to the support provided. (More details and discussion of our inclusion criteria are covered in the annex.)
We found 11 evaluations that meet our minimum evidence standards. These consider seven different schemes (four schemes were the subject of two related studies considering different aspects of the schemes).
The majority of studies evaluate European programmes (in Austria, France, the Netherlands, Spain and Sweden) while three studies consider programmes in the United States.
No studies evaluating UK policies or support mechanisms met the evidence standards for inclusion in this toolkit.
Is redundancy support cost-effective?
There is little information available on the cost-effectiveness of interventions.
The costs of interventions to support workers made redundant as a result of major local shocks can be substantial, in some cases in the order of tens (or even hundreds) of millions of pounds. Unfortunately, it is unclear how to compare these costs to benefits. Calculations in the annex suggest that when comparing two area-based interventions the smaller programme looks more cost-effective in terms of providing support to directly displaced workers, but the larger programme may have delivered wider area benefits that are not considered in the evaluation.
The two studies that consider community college schooling in the US suggest that the benefits outweigh the costs. The benefit cost ratios appear to be higher for younger workers (2.02 for men and 2.55 for women) than for older workers (1.20 for men and 1.62 for women).
One Austrian study compares estimates of increased tax revenues to public sector costs suggesting a benefit cost ratio of around 2.3. However, this calculation ignores private benefits and costs (the majority of the latter borne by the private sector).
Things to consider
- When should support be provided? There is some evidence to suggest that re-training post redundancy may be more effective than outplacement pre-redundancy. This finding runs counter to some of the case study evidence, highlighting the need for further evaluation to help clarify whether the timing of support matters.
- What type of workers will benefit most? There is some evidence that younger workers may benefit more than older workers, especially given that younger workers are likely to stay longer in the workforce. This raises questions about how best to support older workers.
- Should the support provided vary by experience and skill? There is some evidence that a targeted approach, dependent on characteristics of those receiving support, may be more successful. The impacts of training, for example, seem to vary depending on the skills level of the recipient, with higher skilled users apparently responding better to short-term interventions.
- Should training be technical or non-technical in nature? The evidence from two studies (that look at the same programme) suggest that technical courses provide larger wage effects than non-technical courses.
- How long should training courses be? Evidence from one study suggests that shorter courses (less than one year) have larger effects for more experienced workers and longer courses (more than a year) are better suited to less experienced workers.
- Should support be general or tailored to individuals? One study suggests that a higher proportion of expenditure allocated to individual case management is positively associated with re-employment rates.
- Will support provide value for money? The costs can vary a lot across programmes so it is important to monitor and evaluate their impact. In particular, we need to know much more about the wider benefits that arise from area-level schemes as these look expensive in terms of the direct support provided.