Applying Behavioural Science to Employment Promotion Prospera

Fairness Identity Mindset Grit Emotions Self-control Social norms Enhancing Employment Promotion Interventions Through Behavioural Science An Introductory Guide 2 As a federally owned enterprise, GIZ supports the German Government in achieving its objectives in the field of international cooperation for sustainable development. Published by: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Registered offices Bonn and Eschborn, Germany Kompetenzcenter Bildung, Berufliche Bildung, Arbeitsmarkt Dag-Hammarskjöld-Weg 1-5 65760 Eschborn, Germany T +49 61 96 79-0 F +49 61 96 79-11 15 E [email protected] I www.giz.de Author: Kevin Hempel, Prospera Consulting Responsible: Tanja Lohmann, Darjusch Tafreschi, Hector Niehues-Jeuffroy Design: Agnes Weegen, Köln This publication contains links to external websites. Responsibility for the content of the listed external sites always lies with their respective publishers. When the links to these sites were first included, GIZ checked the third-party content to establish whether it could give rise to civil or criminal liability. However, the constant review of the links to external sites cannot reasonably be expected without concrete indication of a violation of rights. If GIZ itself becomes aware or is notified by a third party that an external site it has provided a link to gives rise to civil or criminal liability, it will remove the link to this site immediately. GIZ explicitly dissociates itself from such content. Eschborn, 2020 Enhancing Employment Promotion Interventions Through Behavioural Science 3 Enhancing Employment Promotion Interventions Through Behavioural Science An Introductory Guide 4 Executive Summary What is behavioural science? The importance of behavioural science is increasingly recognised by policymakers and development agencies, Behavioural Science refers to the systematic analysis of including Germany’s Ministry of Economic Cooperation human behaviour and decision-making, drawing on aca- and Development (BMZ) and the Deutsche Gesellschaft demic fields such as economics, psychology, sociology, and für Internationale Zusammenarbeit (GIZ). While the be- neuroscience. Behavioural science focuses on understand- havioural science discipline dates back to the 1950s, it has ing why people choose and behave the way they do. It em- become increasingly popular in the last two decades, as phasises that people’s decision-making and behaviour is highlighted by two Nobel prizes, the rise of behavioural not just driven by internal drivers (e.g., personality, pref- science units in governments across the globe, and in- erences) and external drivers (e.g., information, economic creased use by many international development agencies. incentives, rules), but also by a complex decision-making In 2018, BMZ issued a strategy paper on behavioural sci- process affected by mental resources, automatic thinking, ence in German development cooperation calling on Ger- social influence, and mental models (see Figure A). The many’s development institutions to increase their involve- realities of this (often subconscious) decision-making ment with the topic. While the application of behavioural process can explain why, contrary to the traditional as- science is still limited within GIZ, a growing number of sumption of fully “rational” individuals, people may often projects in different sectors have been applying behaviour- act in ways that are not in their best interest. This better al insights in their work and an internal community of understanding of people’s behaviour can, in turn, lead to practice has been established. a better diagnosis of (policy) problems, which in turn can inform better-designed solutions. Figure A Simplified overview of the determinants of decision-making Internal drivers External drivers Decision-making process General Information cognitive ability Economic incentives Personality Rules Mental resources Automatic thinking Social thinking Mental models Preferences and regulations (e.g. attention, We rely on mental We are conditioned Deeply held (based on needs, self-control) are shortcuts which by social networks beliefs about values, etc.) limited and may can lead to biases and norms ourselves impede deliberative and others thinking Executive Summary 5 How does behavioural science apply to employment self-confidence or overconfidence, impatience, or a lack promotion efforts? of willpower. An adequate understanding of how target groups think and behave is therefore essential to ensure How people think and behave strongly influences their the effectiveness of policies and programmes. In practice, employment trajectories. Choosing and completing rel- there are countless factors that can interfere with the de- evant education, finding and keeping a job, or starting cisions of students, jobseekers, workers, and businesses. and growing a business all require countless decisions and Figure B summarizes key factors that have been shown actions, both big and small, as well as overcoming obsta- to negatively affect people’s decisions and behaviours in cles in the process. Hence, people’s beliefs about education the context of education, employment, and firm devel- and work, how they make decisions about if and where opment. The relative importance of the different bottle- to work, and their ability to follow-through on their necks strongly depends on the local context. Note that intentions are crucially important in determining their different subgroups of (prospective) beneficiaries (e.g., employment outcomes throughout their lives. The labour by age, sex, migrant status, etc.) are likely affected by market conditions in low- and middle-income countries, behavioural barriers to a different extent, and that behav- such as the dominance of microenterprises and small ioural barriers typically do not exist in isolation, but in firms, widespread self-employment, and high levels of combination with conventional employment constraints. precarious and informal employment may further increase the relevance of “behavioural” factors in the lives and decisions of students, jobseekers, workers, and firms. The diagnosis of employment problems must consider potential behavioural barriers. Many undesirable employment outcomes may be linked to a range of behavioural barriers. For instance, limited job search can be rooted in biased beliefs about the benefits of intensive search, low Figure B Common behavioural bottlenecks in the context of employment Mental resources Automatic thinking Social thinking Mental models Limited attention Present bias Social preferences Identity & time Over-confidence Negative peer effects Flawed beliefs about Limited self-control education and work Hassle factors Messenger effect Limited memory (incl. low trust) Low aspirations Loss aversion Low self-confidence Detrimental social Low self-efficacy Status-quo bias & self-esteem norms Fixed mindset Discrimination 6 To address these barriers, policymakers and practitioners How can behavioural science be applied to employment can draw on a large toolbox of behavioural insights to projects implemented by GIZ? enhance policies and interventions in the field of employment promotion (see Figure C). While many of these There is a relatively standard process for applying behav- tools have already been explicitly studied in the context ioural science to policy interventions. Behaviourally based of education and employment interventions (e.g., growth interventions involve an iterative process of problem defini- mindset, social proof, action plans), others have so far tion, diagnosis of underlying barriers, intervention design, been applied primarily in different policy areas but hold testing (including through rigorous impact evaluation) and promise in the context of employment as well. In practice, adaptation (see Figure D). Hence, a behavioural approach the selection of one or more of these behavioural tools starts with the behaviour to be influenced and then moves must be based on a diagnosis of the (behavioural) bottle- from there to the programme. This behavioural science necks found in the local context. The empirical evidence process - through its strong focus on diagnosis, robust base suggests that behaviourally informed interventions evaluation, and iterative learning - implies several changes can significantly enhance the effectiveness of employment to “traditional” programming at GIZ or other develop- interventions. However, since many interventions so far ment agencies, which is often characterised by limited have been targeted just at a small part of a broader poli- time for diagnosis, relatively stable programme designs, cy or programme, the majority of the evidence relates to and only the rare use of counterfactual impact evaluation. influencing intermediate outcomes (e.g., enhancing enrol- ment and completion rates), with relatively less available Adopting a behavioural science approach can be con- evidence so far related to final outcomes such as job crea- fronted with a range of obstacles at the project level, the tion, employment quality, and business performance. That institutional level, and the research level (see Figure E). being said, examples where behavioural science was not just used to improve selected processes but also to influence the design of the entire intervention (e.g., simplified training focusing on rules of thumbs vs. traditional business training), show the potential of behavioural science to improve final employment outcomes. Figure C Toolbox of behavioural interventions

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