Module1_manual

Introduction to social cost-benefit analysis 1 Introduction to social cost-benefit analysisLearning objectives By the end of this learning module, readers will have:Delivery time • reviewed the definition of SCBA and its main elements; and • considered the rationale for conducting SCBA of the Youth Guarantee. 60 minutesResources ACEVO. 2012. Youth unemployment: The crisis we cannot afford (London, ACEVO), http://www.bristol.ac.uk/media- library/sites/cmpo/documents/youthunemployment.pdf European Foundation for the Improvement of Living and Working Conditions (Eurofound). 2012. NEETs – Young people not in employment, education or training: Characteristics, costs and policy responses in Europe, (Luxembourg, Publications Office of the European Union), https://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_docu ment/ef1254en.pdf European Commission. 2016. The Youth Guarantee and Youth Employment Initiative three years on (Commission Staff Working Document 323), http://eur- lex.europa.eu/resource.html?uri=cellar:73591c12-8afc-11e6-b955- 01aa75ed71a1.0001.02/DOC_2&format=PDF International Labour Office (ILO). 2013. Monitoring and evaluation of youth employment programmes. A learning package (Geneva), http://www.ilo.org/wcmsp5/groups/public/---ed_emp/--- emp_policy/documents/instructionalmaterial/wcms_384468.pdf − Methodology to estimate socio-economic costs and benefits of the Youth Guarantee (Geneva), forthcoming − 2017. Introduction to social cost-benefit analysis (PowerPoint presentation) New Economics Foundation (NEF). 2013. Social CBA and SROI (Economics in policy-making, Briefing note 4) The Prince’s Trust. 2007 and 2010. The cost of exclusion: Counting the cost of youth disadvantage in the UK (London), https://www.rbs.com/content/dam/rbs_com/rbs/PDFs/Sustainability/Downloads/c ost-of-exclusion-pt.pdf Schwerdtfeger M. 2013. Assessing the long-term costs of youth unemployment (Toronto Dominion Bank, Economics special report) https://www.td.com/document/PDF/economics/special/ms0113_YouthUnemp.pd f. 1

This learning module aims to explain the rationale behind Introductionexpanding the assessment of youth employment policiesbeyond the traditional “economic” parameters that are used for Investing in youthimpact evaluation. It discusses the importance of including the employmentcosts and benefits for society that result from action or inaction,with a view to determining (ex-ante) the opportunity costs ofcertain types of policy interventions as opposed to others, aswell as the (ex-post) effects of a given youth employment policychoice in terms of both its economic and social impacts. Getting the right foothold in the labour market is crucial notonly for success at work but also for the personal lives ofindividuals, their families and society at large. Young people’stransition into the world of work is also a transition intoadulthood. During this stage in their lives, young people fulfiltheir aspirations, assume their economic independence and findtheir place in society. All too often, their full potential is notrealized owing to limited access to productive and decent jobs.This causes economic and social uncertainty that can havedamaging effects on young people themselves, and oneconomies and societies. Unemployed, underemployed or inactive young people areless able to contribute effectively to national development andhave fewer opportunities to exercise their rights as citizens.They have less to spend as consumers, less to invest assavers, and often have no “voice” to bring about change in theirlives and communities. The youth employment challenge has long-term andcommunity-wide costs. These go beyond lost output andinclude other costs on individuals and society. Poor labourmarket conditions cause young people to stay longer in theirparents’ homes and delay starting their own families. Thepsychological costs for individuals include reduced self-esteem,discouragement and diminished well-being, which in somecases can escalate into anti-social behaviour, disengagementand political escapism. The benefits of having young productive workers,entrepreneurs, consumers, active citizens and agents of changego beyond the individual to impact society at large. Reducingyouth unemployment, discouragement and inactivity helpscompanies to expand markets, innovate and developcompetitive advantages based on human capital investment. Italso helps governments to increase their tax-base, reduceexpenditure on health and other social services, and achievethe policy objective of fostering economic growth and socialdevelopment. 2

Costs of inaction Failure to tackle youth unemployment, underemployment andand benefits of inactivity has massive potential long-term economic and socialinvesting in youth costs. These costs of inaction (the costs of doing nothing) can beemployment weighed against the benefits of action through interventions that promote decent work for young people, such as actions undertaken through implementation of the Youth Guarantee (YG) in European Union (EU) countries. Box 1.1 below gives an example of the costs of inaction. Box 1.1: Estimating the costs of youth unemployment and inactivityHigh youth unemployment and inactivity have adverse consequences for individuals, theeconomy and society. The costs of youth unemployment and inactivity include higherbenefit payments, foregone earnings and taxes (personal income tax and social securitycontributions), and further costs associated with the long-term scarring effects ofunemployment and inactivity on future earnings, unemployment risk, health status, andprobability of becoming socially excluded or being exposed to anti-social behaviour.Over the past years, several studies have attempted to estimate the economic and socialcosts of youth unemployment and inactivity. In the United Kingdom, for example, in 2007the costs of youth unemployment – calculated as the sum of direct costs of benefits paidand productivity loss – were estimated to be around £90 million per week. When thisanalysis was repeated in 2010, the costs amounted to £155 million per week (£22 millionin jobseekers’ allowance and £133 million in productivity loss), an increase of over 70 percent compared with 2007.Source: The Prince’s Trust: The cost of exclusion: Counting the cost of youth disadvantage in the UK, (London,2007 and 2010) Although the goals of youth employment policies and programmes are usually centred on improving economic and social outcomes, most evaluations assess the impact in terms of labour market insertion and earnings, overlooking the social outcomes. Very little is reported on the social cost-benefit of these programmes that comes, for example, from social inclusion and reduced anti-social behaviour. Current methodologies need to be expanded to include social costs and benefits when assessing the potential effects of youth employment policies and in the ex-post evaluation of their impact. This is even more important for the measures implemented through the YG, which target young unemployed and young inactive alike. 3

Rationale for A social cost-benefit analysis (SCBA) is a systematicconducting comparison of the costs and benefits of an investment. MoreSCBA specifically, it is an appraisal and evaluation technique that enables social costs and related social benefits (social impact) to be compared and the net value of an investment (policy) decision to be determined. If the benefits outweigh the costs, the intervention yields a social benefit, while the contrary would result in a social cost. In this respect, SCBAs help to assess the present and future benefits or costs of a policy decision. The SCBA is an expansion of economic cost-benefit analysis (CBA). While the latter is mainly carried out for private investment projects and focuses on economic profitability for individuals, the SCBA takes a broader view and measures the effects of public policies and investments on society as a whole (see Box 1.2). For example, in appraising a project for the construction of a new highway, a CBA would look at the total costs of the project compared with its total economic benefits (such as toll fares, higher sales for companies using the highway). An SCBA would also account for other costs, such as deforestation, or increased pollution and its effects on health. Box 1.2: Types of evaluation: Why cost-benefit analysis?Various methods can be used to appraise youth employment policy options or evaluate theiroutcomes. The most traditional centre on the evaluation of the net impact or cost-effectiveness ofinterventions. More recently, different types of cost-benefit analysis have been developed tocomplement conventional methods. These include SCBA and social return on investment (SROI). • Impact evaluations analyse the effect of an intervention on the outcome for the target beneficiaries. These evaluations have either an experimental or quasi-experimental design. • Cost-effectiveness considers the cost of achieving a unit change in the outcome. It can be used to compare the relative efficiency of different programmes in achieving a particular outcome. It does not require a valuation of the outcome. • Cost-benefit analysis (CBA) assesses whether an intervention (policy, programme or project) should be undertaken. It compares economic costs and benefits of the intervention that are assigned a monetary value. The advantage of CBA over cost-effectiveness is that it can take account of multiple outcomes and compare the return to spending in different sectors. The criterion for undertaking an intervention is that its benefits should outweigh its costs. • Social cost-benefit analysis (SCBA) is an expansion of economic CBA that takes account of the full spectrum of the costs and benefits for society as a whole as a result of interventions. The various types of costs and benefits must first be monetized. The condition for an intervention to be undertaken is that the sum of its economic, social and environmental benefits should outweigh the sum of its economic, social and environmental costs. • Social return on investment (SROI) measures social, environmental and economic impacts of one or more interventions and assigns them a monetary value. It was developed from social accounting and cost-benefit analysis and requires the actors concerned to identify the main elements to be valued and in assign them a monetary value. 4

SCBA estimates of YG interventions allow national authorities to: YG SBCA Objectives• identify (ex-ante) the interventions estimated to yield the highest cost-benefit ratio and develop evidence-based national YG plans;• determine the appropriate level of resources for planning interventions and achieving national youth employment policy objectives and targets;• introduce changes or adjustments to existing national plans and monitor achievements;• evaluate (ex-post) the cost and benefits relating to the outcomes included in national YG Plans; and• communicate the social and economic costs and benefits relating to the implementation of the YG to other parts of the government and related institutions, the media and the public at large. With regard to youth employment policy formulation andevaluation, the purpose of the SCBA is to guide rational allocation ofresources on the basis of policy options that yield the highest netvalue, i.e. the difference between the benefits and the costs. In thisarea there are two main types of SCBA: • Forecast SCBA predicts how much value will be created if the action meets the intended outcomes. It is useful for identifying which policy option will yield the highest value (highest monetized value of an investment). It also helps to identify what should be measured during implementation. • Evaluative SCBA is conducted retrospectively and is based on outcomes already produced. 5

Short- and long- YG interventions are expected to increase young people'sterm costs and employment, earnings and skills. This, in turn, will generatebenefits of YG additional benefits for the young individuals involved in the YG and for European societies at large (less exposure to poverty and social exclusion). The interventions also entail various costs, however, which are borne by individuals participating in the YG and by the whole of society. These primary effects (on the young individuals and institutions implementing the interventions) and secondary effects (on third parties not involved in the interventions and society) occur: • during the policy action (impact effects) • in the short term after the action (short-term effects) • in the long term after the action (long-term effects).Main steps of The main steps of SCBA applied to the YG include:SCBA appliedto the YG 1. classification of economic and social costs and benefits of YG interventions (employment, continued education and training, apprenticeship and traineeship offers); 2. costs and benefits that accrue to the individual and to society as a whole; 3. expected effects of YG interventions over time (in- programme, post-programme, long-term); 4. measurement methods (data sources and limitation; estimation models, sensitivity analysis); 5. estimation of the net social value of the YG; and 6. synthesis of the results for policy-making and other purposes, including monitoring, awareness raising and communication. 6

The main actors involved in or affected by YG Main actorsimplementation are the young beneficiaries who willexperience direct economic benefit through job-related earningsand additional qualifications, and the government that willincrease economic output and the tax base, as well as reducesocial expenditure (see Table 1.1 below). Table 1.1: Actors involved in the YG Actor Expected outcomeYoung beneficiaries Gain employment, earnings and additional qualifications.Government Reduces costs of social welfare, increases tax base, reduces poverty and social exclusion, increases economic output via the multiplier.Firms Gain from worker marginal product, and increased demand for goods and services.Other individuals and households Enjoy lower taxes, higher social cohesion and economic output via the multiplier. Impact evaluation estimates (employment and earnings) of A note on impactYG interventions should be used as the starting point for planning evaluation dataan SCBA. If these are not available, reference can be made toevaluation results for interventions similar to those under the YG(most EU countries included on-going measures in their nationalYG plans). If no results are available, an impact evaluation mustbe conducted to compare the number of young beneficiaries thatare employed with a control group. Another alternative could beto refer to the mean effect of evaluations that are available fromimpact evaluation literature (see Module 2 of this package). 7