INCENTIVISING PUBLIC SERVANTS: Evidence from the UK’s welfare reforms

04 Dec 2019

Performance rewards for public employment service staff can be a cost-effective way to help people on disability benefits find jobs. This is the conclusion of new research of the impact of the UK Jobcentre Plus (JCP) reform by Felix Koenig, Barbara Petrongolo, John Van Reenen and Nitika Bagaria which finds that among the disabled, the outflow rates from disability benefits increased by 10% in the longer run.

The study published in the November 2019 issue of The Economic Journal suggests that the reform was cost-effective, despite substantial disruption and a fall in the job-finding rate of those on unemployment benefits when it was first introduced.

The reform introduced modern management practices into the UK welfare system by offering caseworkers more career rewards if they successfully placed disability benefit recipients into work. A caseworker received about three times as many “reward points” for helping a disabled person into work as for helping a short-term unemployed person into work.

This study looks at the rollout of the reform between October 2001 and 2008, using administrative data on 374 districts in Great Britain. It finds that there was significant organisational disruption, with the job finding rate for those on unemployment benefits initially falling by about 5% in the months immediately after Jobcentre Plus was introduced.  In the long term, however, there are positive effects on getting the disabled into work with about 10% leaving the disability rolls (see figure 1), whereas the negative effect on the unemployed disappears (see figure 2).

Figure 1: Effects of Job Centre Plus Policy on Disability (IB) Outflows

Notes: The timing of the impact of the Job Centre Plus policy introduction in an area (district) is shown by the vertical line. On the horizontal axis “t” is in quarters, so “t+2” is six months after policy introduction and “t-2” is six months before policy introduction. The vertical axis is our estimated impact on the percentage change in outflow rates from Incapacity Benefit (IB, the UK’s main benefit for the disabled at the time), so 0.1 indicates a 10% increase in outflows (for example, from 20 percentage points per quarter to 22%) in the treated districts compared to the control districts. The solid line is the estimated treatment effect and 95% confidence intervals are shown in dashed lines.

Figure 2: Effects of Job Centre Plus Policy on unemployed (JSA) Outflows

Notes: Sample as Figure 1, but outcome on vertical axis is policy impact on UK unemployment benefit, Job Seekers’ Allowance (JSA).

The authors argue that these patterns are consistent with the idea that caseworkers diverted their efforts towards disabled recipients and away from the unemployed. In addition, there was a long-term positive effect on both claimant groups through improved information technology and organisational restructuring, but a short-term negative effect from adjustment costs due to organisational disruption.

Improved job-finding rates for the disabled suggest  that better government job search support can reduce the rise in the number of disabled benefit claimants. Strikingly, the growth in the number claiming disability benefits in the UK came to a halt in the early 2000s, followed by a slight fall afterwards, coinciding with the reform. The researchers estimate that 30% of this decline can be attributed to the effect of the reform.

The study concludes that the reform was cost-effective, with higher tax revenues from more jobs and reduced benefit payments outweighing the costs of re-organization. However, the reform did lead to substantial disruption, with the benefits only outweighing the costs six years after the reforms were introduced. This illustrates the difficulty in achieving welfare reform. Policy-makers with a short-run horizon of a year or two will be reluctant to embark on such radical changes.

'Can helping the sick hurt the able? Incentives, information and disruption in a welfare reform' by Felix Koenig, Barbara Petrongolo, John Van Reenen and Nitika Bagaria is published in the November 2019 issue of The Economic Journal

Felix Koenig

Post-doc | Princeton University

Barbara Petrongolo

Professor of Economics | Queen Mary University

John Van Reenen

Gordon Y. Billiard Professor of Management and Economics | Massachusetts Institute of Technology

Nitika Bagaria

Consultant | CRA International