Lessons from outcomes-based approaches to employment and skilling in low- and middle-income countries

Last week we hosted the first in our new series of webinars on employment and skilling. The discussion, chaired by Dr. Mara Airoldi (Government Outcomes Lab) and featuring panellists Maria Laura Tinelli (Acrux Partners), Abha Thorat-Shah (British Asian Trust) and Peter Nicholas (Social Finance) drew on experiences of designing and running outcomes-based contracts for employment and skilling in South Asia, Latin America and the Middle East.

Panellists explored the rationale for outcomes-based approaches to employment and skilling, reflected on the ways that such contracts have responded to the contextual challenges posed by the Covid-19 pandemic and discussed whether and how such approaches could support post-Covid recovery.

Panellists and participants concluded that outcomes-based approaches to employment and skills can:

• Strengthen the connection between public spending and employment outcomes at a time of fiscal constraint;
• Incentivise partnerships between potential employers and service providers/​trainers to achieve employment outcomes; and
• Enable adaptive service delivery in the face of uncertainty to support post-Covid recovery.

Watch the full webinar in the player below. Beneath the video we have a written summary of panellist insights and technical considerations for stakeholders interested in developing outcomes-based approaches to employment.

Abha Thorat-Shah, Director at the British Asian Trust reflected on her experiences designing and running an education impact bond in India, and the Trust’s more recent work with the Indian Government to develop an outcomes-based approach to employment in the midst of the Covid-19 pandemic.

Abha spoke of how the government’s focus shifted as Covid hit, beyond exploring outcomes-based contracts as a tool to drive better outcomes around employment and retention, to consider how such structures could be used as a tool for adaptive learning, potentially leap-frogging the limitations of conventional skills training approaches to employment as the country hit a 27% unemployment rate in May 2020.

She reflected on the importance of flexible contractual approaches that enable service providers to think outside of the box when supporting employment. Approaches that incentivise new ways to take training to populations living outside urban centres, acknowledge the importance of entrepreneurship and work in the informal economy, and drive cost-effective last-mile delivery of services that address systemic gender and other structural inequities on the sub-continent.

At this time of increased social need and constrained public budgets, Abha noted the importance of scale, speed and cost-effectiveness as drivers of government interest in developing and launching outcomes-based approaches to employment and skilling. She saw particular relevance for outcomes that aren’t being delivered effectively within existing grant programmes including sustained employment, gender outcomes and training that responds quickly to changing employer needs. She also highlighted the importance of soft skills training in ensuring sustained employment outcomes.

Maria Laura Tinelli, Director at Acrux Partners, spoke of her experience designing, implementing and delivering outcomes-based contracts for employment in extremely volatile contexts, like Argentina, which had weathered macro-economic crisis and political change even before Covid hit.

She spoke of how the flexibility of outcomes-based contracts offered significant advantages over fee for service approaches in uncertain contexts, enabling service providers to pivot and respond to a changing economic context and changing beneficiary needs. This has enabled the Argentina youth employment social impact bond to deliver a 32% success rate in terms of employment outcomes in the face of significant contextual challenges and uncertainty.

Maria Laura reflected on how grounding outcomes-based contracts in data had changed the nature of the conversation between government and service providers, supporting public sector officials to understand that the value of creating contractual incentives for operational adaptability. She also spoke of the incentives the contracts had created between service providers to share data and learnings, enabling them to innovate and adapt more quickly than they otherwise could have done. Soft skills training and mentoring — that support employability, resilience and adaptability — has proved particularly effective and is highly valued by service users.

Since the Covid crisis, Maria Laura has seen government interest in outcomes-based contracts pick-up across Latin America as cash-strapped governments recognise their potential to drive value for public spending and to support the continued delivery of education and employment outcomes in contexts of uncertainty. She is confident that new employment-focused outcomes contracts can be launched quickly and at scale building on the data and experience from existing contracts.

Peter Nicholas,Director at Social Finance, spoke to his experience designing and delivering employment outcomes in the Middle East, through the outcome-based West Bank and Gaza youth employment development impact bond. He stressed the flexibility gained by focusing such contracts on sustained employment outcomes, as opposed to more traditional KPIs around training inputs or exam results. This creates incentives within outcomes-based employment contracts to ensure that training is relevant to employers’ needs in the market of today, not the market that existed when the programme was designed.

Acknowledging that the first outcomes-based contract in a new sector can take longer to develop, Peter emphasised that once contracts are in place negotiating extensions or adaptations are much quicker and easier than they would be for traditional contracts. He also noted that, while initial set-up costs may be higher, such contracts should drive significantly greater effectiveness and value for money than traditional structures.

Technical considerations:structuring outcomes-based contracts for employment

• Work with government and the private sector to understand employment goals (policy) and employment needs (market).
• Carefully define eligible service users to ensure that you are paying for outcomes that wouldn’t otherwise be achieved.
• Focus contractual payments on sustained employment outcomes with additional payments for excluded groups (e.g. women, ethnic minorities or the disabled) — look to milestones in local employment law that reduce the risk of gaming.
• Consider context-appropriate definitions of quality employment — include entrepreneurship alongside longer-term or permanent formal jobs.
• Design flexible contracts that enable adaptive service delivery to support employment outcomes including online or face-to-face delivery, training or placement-based support, hard and soft skills training, etc.
• Define robust multi-stakeholder governance structures that enable eligible populations, outcomes targets and pricing to be updated and refined as market needs flex and change.
• To facilitate , consider pre-financing an initial period of service delivery, with subsequent provider contracts awarded on the basis of a demonstrated ability to cost-effectively deliver employment outcomes.

For more information, or for support to design outcomes-based contracts to deliver employment outcomes, contact: peter.nicholas@socialfinance.org.uk