World’s first binational Social Impact Bond fosters Dutch-German collaboration
14 October 2016
After years of European integration and vanishing borders, it looks like the tide is turning. The United Kingdom chose a future outside the European Union and several European countries are putting up fences on their national borders in an attempt to stop the influx of refugees. In the Netherlands, the drawbacks of a single market are being highlighted more than the advantages.
The world’s first cross-border Social Impact Bond, launched in Enschede (Netherlands) and Rheine (Germany), goes against the tide. The Social Impact Bond looks to leverage the advantages of open borders and match Dutch workers with German employment opportunities. It hopes to prove that collaboration at a European level, using the flexibility of the single European labour market, can lead to lower unemployment rates and higher productivity.
One region, two labour markets
The municipality of Enschede in the Netherlands once had a flourishing textile industry. Today, the textile industry is no longer present in this region and 9.3% of its inhabitants are unemployed, a high percentage by Dutch standards. Enschede is a ten-minute drive from the German border. In the neighbouring German state Nordrhein Westfalen the unemployment rate is close to zero and there is a serious shortage of technically skilled employees. While there are no physical or legal barriers for Dutch citizens to work in Germany, there are major psychological and practical hurdles when crossing the border for work. Moreover the differences in language, culture and the necessary certification makes it difficult to match Dutch job seekers with German employers.
Social Impact Bond
This Social Impact Bond aims to overcome these barriers. ABN AMRO Bank and Start Foundation together invested €1.1 million in the project. The service providers are the Dutch social enterprise, BoasWerkt and the German technical school, the Kreishandwerkerschaft. They are jointly responsible for guiding Dutch jobseekers to a job in Germany. First, the participants will receive a six-week training at the Kreishandwerkerschaft, in order to receive the necessary German certification. After training, participants are matched to a job at a German employer. BoasWerkt is responsible for job coaching, transport and guidance of the participants while working in Germany. This guidance may consist of culture lessons, tax advice or advice on legal matters. They are also responsible for ensuring the smooth cooperation between the German employer and the Dutch employee.
138 people from Enschede will be recruited and guided towards a job. Suitable candidates will be selected from the municipality unemployment database. The candidates are matched with a control group consisting of unemployed citizens with the same characteristics. The progress of participants will be monitored for two years. For every day that a participant is not on benefits, the municipality saves on average €38. The total amount saved will be shared between the investors and the municipality.
Why is the Social Impact Bond needed?
This is not the first Dutch-German project on the job market. The municipality of Enschede has years of experience working together with German municipalities. However, none of the previous projects aimed at long-term results using a rigorous measurement method. The Social Impact Bond can boost Dutch-German labour market collaboration for several reasons.
– First, the model forces all participants to thoroughly measure the outcome. Earlier projects which were traditionally funded with a subsidy did not always have evaluation criteria and usually relied on reports of the organisation to determine whether the intervention was a success. With a Social Impact Bond, both the municipality and BoasWerkt will have a strong focus on results.
– Secondly, the Social Impact Bond leaves more room in the budget to finance a relatively expensive intervention. Normally, a certain amount is available per participant. With this Social Impact Bond, the most important criteria for the investors is not the price of the intervention, but whether the cost of the intervention is lower than the expected savings. This new approach also enables the financing of more expensive interventions, as long as they are effective.
– Thirdly, this particular Social Impact Bond combines the network and experience of stakeholders who would not be involved in a regular project. The lessons learned from Social Impact Bonds in other cities are used to improve the outcome metrics and deliver a more effective intervention.
For the other stakeholders, there are also benefits in collaborating within a Social Impact Bond framework. BoasWerkt can rely on a multi-year contract, which is unique in the sector. Moreover, the municipality is under obligation to refer participants, so BoasWerkt does not have to worry about low participation rates. Given the use of the rigorous measurement system, if successful, BoasWerkt will have a proven method that can be easily scaled up and used in other municipalities.
This Social Impact Bond will hopefully prove that cross-border employment can help reduce unemployment and improve savings for the municipality of origin. The German partners will also benefit from the outcome of the Social Impact Bond. Hopefully the Impact Bond will lead to higher productivity, lower recruitment costs and an influx of social security payments. A next step would be to include outcome payers from both sides of the borders in a Social Impact Bond.
Benefiting from an integrated European labour market
The benefits of European collaboration are often unclear to European citizens. Although all citizens have the right to work in every member state, psychological and cultural barriers prevent citizens from taking all labour market opportunities in their specific region. This Social Impact Bond aims to overcome these barriers. By working closely together, Dutch and German stakeholders will provide jobseekers with all the tools and advice they need to kickstart their career in the German labour market. In this way, European citizens can experience the benefits of a truly integrated European labour market.
Ruben Koekoek, Manager Social Impact Bonds ABN AMRO Bank