An explanation of activation and a Saudi Arabian example

Social safety nets are built to protect the population’s most vulnerable members. They accomplish this by giving financial assistance to the most vulnerable families and individuals in society—often those who, for various reasons, have no or limited employment options due to a disability, childcare responsibilities, or a lack of skills. If some of these recipients of social safety nets may be helped to gain a foothold in the job market through so-called activation or welfare-to-work programmes, that is an important question.

What essential components make up a good activation policy?

A successful activation policy requires three things in particular. First, the financial benefit’s design needs to guarantee that working genuinely pays off. Social safety nets are frequently created so that all earnings are entirely subtracted from benefits, meaning that for every dollar earned, a dollar in benefits is lost. In other words, labour does not pay off when the family has no net gain. The so-called “earnings disregards,” which result in a portion of earned income being excluded from the calculation of the social assistance benefit, are a good illustration of how to fix this. Such earnings disregard for the social safety net was implemented in Finland in 2002, which led to an increase in the number of female social assistance recipients taking up part-time employment.

The importance of earnings disregards is demonstrated in Figure 1. In this illustration, a hypothetical household receives a $40 Guaranteed Minimum Income (GMI) payout. Without an earnings disregard, the benefit would be lowered by $20 if the family took a job that paid $20. (left side of Figure 1). Getting a job does not increase the household’s overall income. Thus there would be no net benefit. In contrast, if a 50 percent earnings disregard were used, the benefit would only be decreased by $10 and the household would earn $10 more overall as a result of working (right side of Figure 1)—a 25 percent increase in total income. This shows that working is worthwhile.

Figure 1 (a) Benefit and total income without earnings disregard, showing the effect of benefits with and without earnings disregard on total income

(b) Benefits and overall income with a 50% earnings disregard

Source: Authors

Second, at least a portion of the social assistance benefit should be tied to employment activity, accepting job offers that are appropriate for the applicant, or engaging in active labour market policies (ALMPs) like training. Only adults who can work and do not have any responsibilities for taking care of children or the elderly should be exempt from this requirement. Germany strictened the criteria for receiving social assistance between 2003 and 2005. However, a recent international meta-analysis indicated that the adoption of job search conditionality favours employment, even though the quality of accepted jobs may decline. It may be argued that the German reforms are somewhat contentious.

The ability to properly connect social assistance beneficiaries with job search support and ALMPs, and monitor beneficiaries’ job search activities is the third and maybe most challenging step that policymakers must take. This calls for creating efficient case management teams composed of social workers and employment counsellors who stay in constant contact with beneficiaries, direct them to job openings, determine whether beneficiaries are actively seeking employment, submit applications, attend interviews, accept suitable jobs, and regularly attend programmes. On a national level, Sweden and Lausanne, Switzerland, are excellent examples of such policies and programmes.

These instances of effective activation strategies are from nations with progressive social policies and initiatives. We look to Saudi Arabia as an illustration of a country with a still-emerging social policy.

Saudi Arabian assistance programme regularly

Saudi Arabia’s social assistance programme, known as Regular Assistance, or “Damman” in Arabic, underwent modification in 2020. It did so with a clear emphasis on creating a contemporary safety net that prioritises activity. The programme was reformed from a category, individual aid programme into a household-based, means-tested guaranteed minimum income programme. That is while evaluating applicants, the income and assets of the entire household are considered, and the difference between those means and the amount of guaranteed programme income is paid as a benefit. A sizeable portion of any household income from employment is considered when determining the use, ensuring that beneficiaries benefit from working. Adult beneficiaries who can work and do not have caregiving responsibilities must also actively seek employment. To support recipients in their hunt for a job, the reform also created a sub-program called “Tamkeen” (Arabic for “enablement”).

Tamkeen: Assisting recipients of social assistance in finding employment

For all Damman beneficiaries who are able and willing to wotakenkeen is required. Participants in the programme are initially categorised into three tracks: (1) Employment for those who are prepared to seek employment; (2) Business for those who can launch their own business; and (3) Rehabilitation for those who require additional support through ALMPs before seeking employment. The initiative is put into action by collaborating with other governmental agencies, businesses, and nonprofit organisations. For instance, the Human Resources Development Fund (HRDF), akin to a Public Employment Service, is the primary partner within the employment track (PES). The programme works with the Social Development Bank for the business track.

What has the programme accomplished so far? Since the program’s launch in 2017, almost 250,000 Damman beneficiaries have registered for Tamkeen. Since then, about 200,000 have successfully activated: 160,000 people got work, while 35,000 launched their businesses. According to a survey of more than 20,000 successful programme participants, the job outcomes are quite sustainable: Only 2.6% of people ceased working two years after they started. The wage distribution among the remaining members has dramatically improved: Over 2,000 fewer people were employed in the lowest pay group (1,000 to 3,000 Saudi Riyals), but more people were used in all higher pay ranges (see Figure 2 below).

Figure 2 shows that successful Tamkeen participants earned more money and that only a tiny percentage were unemployed after two years.

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

Positive effects

The initial outcomes of Tamkeen are optimistic, even though additional work needs to be done to finish the reforms and further build implementation capacities. The Middle East and other developing nations struggle to set up contemporary safety nets, let alone activation programmes. Thus the Saudi changes can serve as an instructive model.

Saudi Arabia is one of the first Middle Eastern nations to implement a contemporary safety net. The Damman programme has all the necessary components to encourage social assistance recipients’ activation properly. To ensure that working is rewarded, it established a GMI design based on the income and assets of the entire household while also applying considerable earnings disregarding income from labour. Additionally, it imposes job search restrictions on household members who are adults and physically able to work. And finally, through the Tamkeen programme, the nation has built the capacity to connect social safety net recipients with job search providers and track their job search activities. Tamkeen’s successful implementation can significantly increase Saudis’, especially Saudi women’s, involvement in the labour force as it is scaled up and continues.

Analysis by: Advocacy Unified Network