Key labor market institutions and development of LACI

ALMPs were introduced in the early 1990s as a response to increasing unemployment rates, showing that the development of activation-based policies is rather recent. Following financial problems in the field of social assistance and insurance schemes, activation was introduced in unemployment insurance (AC), social assistance (AS) and invalidity insurance (AI). As the unemployment rates continued to increase, government initiatives towards active social expenses were introduced to increase the efficiency of the policies as well as to decrease the social costs.

After first being implemented in June 1984, the Swiss Law on unemployment insurance (LACI) has followed a development leading to the present form of Swiss unemployment insurance. As an answer to increased unemployment, conditionality for benefit payments was elaborated, the provision of activation programs was enlarged and New Public Management procedures for LACI were introduced. In addition, LACI procedures established differentiated categories of eligible groups and expanded the concept of suitable work in order to avoid long-term unemployment. What turned out to be a strong inclination towards activation programs, started from efforts to decrease financial deficits and to avoid abuse of the benefits. Moreover, the contribution rate to unemployment insurance increased from 2% to 3%. These developments can be seen as an ideological change from passive to active welfare spending (Bonvin et al. 2006).

In the same line, the second revision of the LACI adopted in 1996 changed the rules for calculating the number of benefit days for beneficiary. While the earlier criteria for determining entitlement duration relied on the number of working days that the beneficiary had contributed to the insurance, it now also depended on their situation. These situations are, for instance, age, whether they touch other benefit such as invalidity insurance and if concerned people are close to retirement. As a general rule, starting from 1998, contribution time required for receiving unemployment contributions changed from 6 to 12 months (Bonvin et al. 2006).

Besides, the second revision changed control procedures of the unemployment insurance. Whereas before it was necessary for the beneficiaries to present themselves in the labor offices daily, starting from the revision this was changed to weekly controls at the ORP and in further revisions, the controls became even rarer due to the high number of beneficiaries. When it comes to sanctions, motives for suspending benefits extended to the refusal of participation in a labor market measure and the maximum duration of suspension was extended from 40 to 60 days (Bonvin et al. 2006).

Reforms in the 2000s introduced stricter eligibility conditions for accessing and maintaining entitlement to unemployment insurance benefits. From a revision coming into force in 2003 the duration of the unemployment period was reduced from 520 to 400 days. The necessity to introduce savings in unemployment insurance was due to the increased expenses caused by the high rate of unemployment during the period starting from the 90's. In addition, the idea of being apt to placement was enlarged to include not only the ability to accept a job but the ability to participate in a labor market measure. In practice this meant that refusing a place in a labor market measure equaled to refusing a job. The 2003 revision enlarged the reasons for benefit suspension to include all behavior that compromised or hindered the achievement or continuity of suitable work or participation in a labor market measure.

Alongside the emergence of activation-based policies that evoked a new wave of investment in 'active' labor market expenses, there was also a modernization of the public management. The roots for such a development can be found in the period before the second revision of LACI in 1995 when the funding modalities of unemployment insurance were based on an unemployment rate below 1%, which after increasing unemployment rates became problematic. The need to reform the system led to the regionalization of the work placement and as a consequence, the unemployment insurance introduced the obligation of setting up a national network of regional placement offices (ORP in French) supervised by the cantonal labor offices. The earlier local placement offices with unspecialized staff having a large administrative workload were replaced with pilot programs aiming at improving the placement rates. Moreover, the replacement of the local offices with ORPs enabled the adaptation of their work to the local situation. This meant being able to carry out a selection of the job seekers and adapting service production to the local labor market due to the specialization of the local agents (Bonvin et al. 2006).

As is the case with all the actors implementing the LACI, the ORP's work is based on a provision agreement outlining the tasks to be fulfilled. The task of the ORPs was to manage the claims for unemployment benefits, provide job search activities and access to activation programs and to enforce sanctions in cases of non-compliance. The logistics of the activation measures (LMMT)²⁷ were to be controlled by the cantonal employment offices and financed by the unemployment insurance fund. The LMMTs are in charge of the implementation of labor market measures by taking into account the labor market indications and the needs of the insured. In addition, they define the mandates made with the institutions organizing the measures and control the quality of their services.

This is done in cooperation with the State secretariat of economy (SECO) that is in charge of supervision and evaluation of the performance of the cantons and the job centers as well as of the unemployment insurance fund. Thereby, LMMT is not a provider of the services but is in charge of purchasing them from private and public providers and negotiating contracts. They work in co-operation with the ORPs whose duty is then to suggest jobs and activation services for job seekers.

The inter-organizational co-operation is described in figure 5 that outlines the

27 Logistique des mesures du marché du travail

key stakeholders behind the labor market policies and implementation.

Supervision of cantonal performances by SECO is supported by the Supervisory board of compensation fund of the unemployment insurance in financial issues as well as on the conceptualization of right. Other federal offices also support SECO in issues of legislation, immigration or issues related to social insurance, such as old age, invalidity or the family. Cantonal authorities, in turn, are responsible for the implementation of the employment services. For instance, in the canton of Vaud, Service de l'emploi (SDE) is in charge of the regulation of the labor market, unemployment compensation and reintegration of job seekers.

Further responsibilities are to protect employees, to prevent illicit work and wage dumping. Private and public unemployment funds verify the rights and entitlements of the beneficiaries and allocate the benefits whereas placement agencies create contacts between employers and employees.

The lowest level of the diagram indicates that the cantonal authorities are in charge of the implementation of labor market policies through LMMT, which handles the purchase and contracting of services under the supervision of the cantonal authority. In addition, the cantonal labor offices supervise the work of ORPs, which in turn give guidance to and place job seekers while monitoring their job search activities. Moreover, the ORPs are in charge of placing the job seekers in labor market measures and enforcing sanctions. As the LMMTs purchase the active labor market measures such as the Semestres de motivation (SeMos), the ORPs have the role of controlling the implementation of the measures with sanctions and individual evaluations. SeMos are then responsible for communicating the situation of each of the participants to the ORPs. On the other hand, the SeMos can rely on the ORPs for consultation of apprenticeship places. SeMo is, thus, a service purchased by the LMMT, which decides, for instance, on the number of places to be filled by job seekers and the yearly rate of occupation of these places. These conditions are outlined in the provision agreement that is at the base of the contract. The purpose of the provision agreement is to give a base to a financial contract for both of the parties and its most important functions are to outline the aims of the measure, the number of internships expected from every participant, give guidelines for the sanctioning and evaluation system for individual follow-up and to give a basic structure to the work in the workshops.

Figure 5 Organization chart of the labor market authorities in Switzerland

Following the reform of LACI in 1995, the responsibility of carrying out the public employment services as well as implementation of the labor market measures was left to the cantonal agencies. In 1997, the cantons were obligated to offer a minimum number of places in activation measures by the service mandate. If these quotas were not met, financial penalties amounting to 20% of charges for the daily allowances were inflicted to the cantons. Service mandates were created to give the federal authority a possibility to evaluate the activities of the ORPs and their outcomes. The criteria fixed for such evaluations at first included the average duration of a job search, number of placements per advisor and the average number of interviews set at 120 per advisor and per month. In 1997, indicators such as reduction of the average duration of unemployment compared to the year before and the increase in the number of placements compared to the number of unemployed serve as a point of reference to the earlier criteria (Bonvin et al. 2006).

A crucial element of the 2000 reform on LACI was that the provision agreement between the SECO and the cantons was now based on output evaluation rather than input. This meant that the focus shifted from the services provided by the job centers to the results they were able to produce. These results focused mainly on the efficiency in re-integrating the beneficiaries into the labor market but assessments were also based on the number of long-term unemployed, number of people ending their benefit entitlements as well as returning unemployment beneficiaries. Specifically, the provision agreement entailed the highest emphasis (50%) on the duration of unemployment per job seeker before re-entering labor market. Instead, a more qualitative assessment of the employment duration, evaluated by the indicator of returning unemployment beneficiaries (10%) received less importance in this scaling. In the table 1 below, the indicators are presented more in detail with the specific aims of the measure.

Table 1 LACI indicators for regional job services, source SECO (2006) Département fédéral de l’économie, Pilotage par les résultats ORP/LMMT/ACt