Socioeconomic effects of employment requirements
The socioeconomic calculation model is a system that determines the socioeconomic value of an individual leaving unemployment for employment in the form of a job, apprenticeship or internship.
The model calculates the socioeconomic value on different levels whilst the employment requirement is in effect: for the individual, municipality, authorities, employer and the society as a whole.
The model is based on the assumptions that individuals benefiting from the employment requirement would have otherwise continued unemployed during the period the employment requirement was in place. However, the model does not calculate any dynamic or long-term effects, such as the greater probability of individuals finding employment in the future as a result of receiving work experience via the employment requirements.
An example of socioeconomic effects
This is a calculation of an example involving a new arrival who moves from unemployment to subsidised employment. In this case, the purchaser is a municipality, and the individual receives employment for twelve months.
From unemployment to subsidised employment
This example is based on a municipal procurement where an individual is employed for twelve months. The individual is a new arrival, is older than 25 years of age and has been unemployed for between 12 and 23 months. For this individual, the employer is able to receive an employment subsidy via Nystartsjobb. However, the employer needs to set aside time to supervise the individual.
The calculation below has been done during 2019.
Details of the example
| Type | Value |
| Contracting organisation | Municipal |
| Employment requirements | Paid employment |
| Number of months | 12 |
| Number of positions | 1 |
| Scope of employment | Full time (100 %) |
| Gross salary per month | 20,500 SEK |
| Employment subsidy | Nystartsjobb |
| Production factor | 80% |
| Production value (intern) | N/A |
| Age | 26-65 |
| Length of time in unemployment | 12–23 months |
| New arrival | Yes |
| Unemployment benefit | No |
| Housing benefit | Yes |
| Gross salary (instructor) | 30,000 SEK |
| Time needed for supervision | 10 % |
| Administration cost (employer) | 10,000 SEK |
| Procurement cost | 40,000 SEK |
| Bonus | No |
The figure above illustrates the results of an individual moving from unemployment to employment for one year. (Assuming that the individual had continued to be unemployed during the period of employment.) In this scenario, all parties (the individual, municipality, region, state and employer) benefit from the intervention.
The individual benefits because their income from work is higher than the allowance they received before employment.
The municipality benefits because it stops paying benefits and begins receiving municipal tax. This income for the municipality covers the expenses incurred due to employment requirements in the contract.
The region benefits because the individual starts paying county council tax.
The state has both positive and negative items, but the positive ones exceed the negative in this case. Indirect tax, social security contributions, reduced introduction benefit and housing benefit payments are all government revenues as a result of the employment requirement. The costs for the state consist of paying subsidies to the employer and in-work tax credits to the individual.
The employer benefits because of the employment requirement, but also has a number of different items. The most significant expense is the wage cost for the individual. The other items are payment of social security contributions, reduced production as a result of training and supervision, and administrative expenses due to the employment requirement. The employer's income consists of the additional output provided by the individual and the subsidy received by the employer.
Issues to consider
In general, research is lacking with regards to the socioeconomic effects of employment requirements in public procurement. Here we mention a number of areas that are of particular interest in applying such requirements from a financial perspective.
According to the way employment requirements have been applied in Sweden thus far, some contracting authorities have focused on offering fixed-term employment, whilst others provide internship placements. There are advantages to offering fixed-term employment – it is close to a permanent job. From a legal and financial standpoint, though, it can be problematic. According to section 25 of the Employment Protection Act, employees who are laid off due to lack of work must be given priority for re-employment in the business in which they were previously employed. Economically, there is a risk of displacement.
In this case, displacement effects refer to the fact, that actions taken for certain individuals to receive employment, also reduces opportunities for others to find work. Those affected by displacement can include other unemployed persons, individuals who would like to change jobs and students.
It is unlikely that it would be possible to completely avoiding displacement effects. Prior to procurement, contracting authorities should consider whether the displacement effects that may arise are justified. Following procurement, an analysis should determine the extent to which displacement effects actually occur and compare them to the outcome that is achieved.
There is currently no standard model for what sort of evaluation method should be used to measure the effects of setting employment requirements in procurement. Simply put, the positive effects should be compared to the negative ones.
Collected statistics should show how things progress for individuals affected by the employment requirements over time. The time scale in this case is long. Setting requirements of this sort also entails expenses for the contracting authority. These expenses occur largely in the short term, usually in connection with the procurement process itself.
Purpose and how to use the model
The purpose of the model is to provide public bodies with information about the financial effects of setting employment requirements in procurement. The calculation model makes it possible to distribute of these effects across various parties as well as collectively for society.
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The model can be used as a tool for decision makers to use when deciding whether to set employment requirements in procurement. It can also work as a tool for dialogue between purchasers, suppliers and other relevant authorities. Finally, the model can also work as a follow-up tool; that is, for calculating the effects of individuals receiving employment through employment requirements after the end of their employment.
The model is a system that determines the socioeconomic value of an individual leaving unemployment for employment (paid position, apprenticeship or internship).
The model calculates the socioeconomic value for the period that the employment requirement is in effect across various target groups, distributed according to the: individual, municipality, authorities and society as a whole. The model is based on the assumption that individuals benefiting from the employment requirement would have otherwise continued unemployed during the period the employment requirement was in place.
The model does not calculate any dynamic or long-term effects, such as the greater probability of individuals finding employment in the future as a result of receiving work experience due to the employment requirements. (For this reason, future values are not discounted automatically either.) For a review of the possible effects of setting employment requirements, see, for example, the Swedish Competition Authority (2017). The term unemployed refers to people who are registered with the Swedish Public Employment Service and includes both those who are officially unemployed as well as participants in establishment plans and labour market programmes.
When an individual moves from unemployment to employment, there are usually social effects, such as improved health and a greater sense of coherence. Intangible effects of this kind are not included in the model because they are difficult to estimate, but they should nevertheless be considered when deciding whether to set employment requirements.
The model was developed by Ramboll on behalf of the Employment through Procurement ESF project and is based on models developed previously; Delander and Månsson (2007), and Delander and Ekberg (2010). The objective was to develop a model with a high degree of adaptability so that it could be used for different kinds of employment requirements (paid employment, apprenticeship, internship) and for different target groups (age, length of time in unemployment, and whether the individual is a new arrival).
Sources
- The Swedish Competition Authority - Methods for evaluating employment requirements in public procurement - an overview