Two ways social stigma can reduce the effectiveness of employment programs and what can be done about it

Active labor market programs (ALMPs) are a key tool to support jobseekers on the labor market. These programs range from skills training to job search assistance to entrepreneurship support. In many countries, participation in some ALMPs is mandatory to receive public benefits. By the end of this post, you will understand why this may have implications beyond those that are immediately apparent.

To better understand what works, we are currently updating our 2019 systematic review of youth-targeted ALMPs with the International Labor Organization (ILO). The initial results confirm a striking pattern from our 2019 review: Wage subsidy and public works programs yield smaller impacts than other types of ALMPs on average. This finding is not specific to youth.

One potential reason that certain types of ALMPs may lack impact is often overlooked: social stigmas about participants.  These stigmas can undermine program effectiveness in two ways: Directly, by changing the behavior of employers (stigma effects) and indirectly, by changing participant behavior (stigma aversion). This post delves into stigma effects, their impact on ALMPs, and potential strategies for mitigation.

Understanding what causes stigma effects

Stigma effects arise from unfavorable perceptions of ALMP participants by employers, colleagues, or society. For instance, prospective employers might believe that jobseekers under a wage subsidy program must be less motivated or productive than candidates who did not participate in such programs. This negative signal contradicts positive signals often studied in the education or skills training literature. Stigmatization can also be considered a form of discrimination against beneficiaries of social welfare. Thus, even when an ALMP enhances a candidate’s employability, stigma effects can undercut the program’s impact.

Recent studies on direct stigma effects have yielded mixed results. While some studies found positive effects on employer perceptions and callback rates of candidates that can be identified as ALMP participants, others yield neutral or negative effects. Overall, stigma effects appear more severe for subsidized employment and job-matching schemes than for skills training. Recent research reveals two factors that may be behind these findings.

1. Stigma effects often stem from employers' negative associations with publicly mandated employment programs rather than ALMP participation itself.  In a study from Italy, youth with publicly subsidized internships on their CVs receive fewer callbacks than those with regular internships. Similarly, recruiters perceived candidates through public job-referral schemes as less motivated. Such stigmatization appears stronger if ALMP participation was mandatory. These employers seem to interpret ALMP participation as a sign of negative assessment by a caseworker in the public employment services.
2. Stigma effects depend on jobseeker traits or employers’ initial assumptions about them. One study finds that recruiters valued ALMP participation for weaker candidates but downgraded their assessment of stronger candidates. Again, this suggests that employers associate strong candidates who nevertheless are ALMP participants with negative traits. In the same way, research shows that ALMPs can reinforce negative stereotypes employers may have about some groups. Even worse, participation in subsidized work can backfire if prospective employers perceive eventual dismissal as a negative signal – regardless of knowing whether it was related to jobseekers performance.

How stigma aversion can affect participant take-up and composition

Stigma associated with ALMPs can discourage some jobseekers from participating in programs. Potential ALMP participants might anticipate stigma effects or be concerned about their social image (“stigma aversion”). This can deter jobseekers from enrolling or completing the program if they are not able to conceal their participation to potential employers. For instance, fear of stigma led to a 12 percentage point drop in participation in a training program in Egypt. Moreover, that study showed how stigma can lower program effectiveness simply by altering the composition of participants towards lower skilled individuals. Stigma aversion can become a self-fulfilling prophecy if certain groups do not participate in ALMPs, which in turn reduces their actual employability.

Strategies to mitigate direct and indirect stigma effects

While rigorous empirical research on addressing stigma effects and aversion is limited, these recent studies reveal two possible strategies.

• Boost skills, enhance signals: Ensure that ALMPs enhance participant employability and communicate their benefits clearly. The evidence indicates that employers often doubt the effectiveness of public ALMPs in overcoming a candidates' weaknesses. To counter this, ALMPs should come with certificates containing the program’s benefits such as skills or work experience that were acquired. In the study from Italy, showing the IT skills that youth acquired on CVs effectively countered stigma effects. Likewise, a certificate enhanced the positive impact of displaying subsidized work experience on CVs for school dropouts in France.
• Spread positivity, curb stereotypes: In a similar spirit, measures can be designed to address employers’ perceptions of a negative selection by caseworkers in public employment services (PES). For instance, by clarifying whether participation was voluntary rather than a conditionality to receive benefits. Policymakers may also consider lowering the visibility of ALMPs that could trigger negative stereotypes by employers. Promoting the program with testimonials from employers or former participants could also address jobseekers’ aversion to participating in these programs. However, evidence shows that such messages need to be carefully crafted to not backfire.

Addressing stigmas to design more effective ALMPs

Stigma effects and stigma aversion can pose significant challenges to the success of active labor market programs. Understanding their origins and consequences is crucial for designing cost-effective programs. There is limited evidence so far, and most studies have been conducted in high-income countries where ALMPs are organized around public employment services. However, these studies suggest that stigma effects primarily stem from negative signals tied to mandated public programs with insufficient trust from employers about their benefits. Information plays a key role: a first step to alleviate concerns is to better inform employers and jobseekers about program benefits.

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