The Future Jobs Fund: One of the most ineffective job schemes there’s been?

The Future Jobs Fund (FJF) was an employment subsidy brought in by the last Labour Government at the height of the recession to help tackle youth unemployment. It provided sufficient funds to create 100,000 6 month jobs for long term unemployed 18-24 year olds, paying minimum wage for 25 hours per week.

In September 2009, when the first young people started FJF posts, there were 99,000 18-24 years who had been claiming Job Seeker’s Allowance for over 6 months. When applications for the FJF closed in March 2011, this had fallen to 78,000. Today, 18 months later, there are almost 145,000 18-24 year old long term claimants of Job Seeker’s Allowance (source here). One of the Coalition’s first acts was to scrap the FJF. David Cameron had this to say about the decision:

“The Future Jobs Fund has been one of the most ineffective job schemes there’s been… The really damning evidence is that it’s a six-month programme, but one month after the programme [has finished] half the people that were on it are back on the dole. It failed.”

David Cameron, 17 March 2011

At the point he made that statement, no evaluation had been done on the efficacy of the programme, so there was really no basis for the PM’s pronouncement. To their credit though, the DWP did do an evaluation of the FJF and last week it was published (or sneaked out on a Friday with no press release if you are cynical like me). So now the results are in, was the FJF “one of the most ineffective job schemes there’s been”?

Jonathan Portes has written a very good blog post on the evaluation here, and his organisation NIESR peer-reviewed DWP’s work on this. He writes:

The bottom line is that the impact of the Future Jobs Fund (FJF) on the chances of participants being employed and/or off benefit was substantial, significant and positive. 2 years after starting the progamme (so long after the programme itself had ended, so the participants were back in the open labour market), participants were 11 percentage points more likely to be in unsubsidised employment.  

This is a very large impact for an active labour market programme (considerably larger than that found for New Deal for Young People, for example) suggesting that the programme had a large and lasting impact on participants’ attachment to and ability to succeed in the labour market. 

…The FJF  programme is estimated to result in:

• a net benefit to participants of approximately £4,000 per participant; 

• a net benefit to employers of approximately £6,850 per participant; 

• a net cost to the Exchequer of  approximately £3,100 per participant; 

• and a net benefit to society of approximately £7,750 per participant.

…we know now; the Prime Minister was wrong.”

Not for the first time then, David Cameron has said something, based on no evidence, only to be subsequently proved wrong. So much for evidence-based policy. Contrast this with the Mandatory Work Activity. A similar evaluation concluded that this programme generated no impact on employment. How did the Government respond to this finding? It extended the programme! Ideology trumps facts again.

Back to the FJF. I had some peripheral involvement in the programme in my local area. The majority of the job placements were with local community and voluntary organisations. It was win win. The organisations were able to increase their capacity (very Big Society!), and the individuals were given a chance to try something new and get into the workplace (in some cases for the first time). The key benefit of FJF was that participants were actually in a job – they were being paid. They felt that someone had finally given them a chance after months of rejection. The increase in their self-confidence should not be underestimated, and this seems to be reflected in the evaluation results. After the 6 months were up, participants were much more capable of securing further work than would otherwise have been the case. You cannot replicate this feeling of self-worth with unemployed work experience placements at Poundland.

The FJF has been replaced by the Work Programme and the Youth Contract. The fact that long term youth unemployment has doubled since the FJF was scrapped, suggests these new programmes are not working.

The FJF showed that government can create jobs, and when it does the private sector and wider society benefit. The FJF was quite a modest programme. We could, and should be much more ambitious. The intervention I favour is the MMT Job Guarantee, which I have tried to outline here.

Achieving full employment with a job guarantee

The Labour Party launched a new website today called “Your Britain“. On the home page it says:

“This is the online home of Labour ideas and policy development. By joining in you can play a part in developing our next manifesto.”

I’m not a Labour Party member, never have been, but boy do we need a strong opposition at the moment. I don’t feel we have one now, but this new site seems like a good idea, and non-members are allowed to contribute, so I thought I would “join the debate” as they say and post a policy idea. My idea (not my idea, but the idea I put forward), was for a full job guarantee as advocated by proponents of MMT. Here is what I submitted. Not hopeful it will do any good, but with a bit of luck, someone might read it and want to find out more:

“At the moment, we are in the middle of an unemployment crisis. The financial crisis led to a sharp increase in unemployment, and while unemployment has fallen since it’s peak, at current rates of change, it will take at least 10 years before unemployment reaches pre-crisis levels. I don’t think it is acceptable that we should have to wait that long.

At the moment, when people are made unemployed, they have the welfare state to fall back on. While prevailing wisdom seems to be that our welfare state is overly generous, and discourages work, those actually dependent upon it know otherwise. I think we can do a lot better. Instead of paying people not to work, I propose the introduction of a full job guarantee.

In essence this would mean creating the offer of employment, paid at the living wage, to anyone willing and able to work. The Government would pay the wage, but the task of creating appropriate job opportunities would fall on local government and the thrid sector. The Future Jobs Fund demonstrated that there is no shortage of worthwhile work in the community to be done, and this ethos could be built on and expanded with a job guarantee.

As the jobs would pay a living wage, this would become the de facto minimum wage without the need for legislation. Private sector employers would need to offer attractive wages and/or terms and conditions in order to hire from the pool of job guarantee workers, but in return, they would be recruiting job ready, motivated workers with the basic skills so many employers claim people are lacking at present.

People would be able to remain in their job guarantee jobs indefinitely, but the focus would be on providing the individuals with the skills and training required to transition to jobs in the private or regular public sectors. While the jobs would pay a living wage, there would be no prospect of promotion or a pay rise while the individual remained in the job guarantee job, thus encouraging workers to seek work outside the job guarantee.

The size of the pool of job guarantee workers would depend upon the state of the economy. That is to say it would operate in a counter-cyclical manner. When the economy is weak, the job guarantee would expand. When it recovers the job guarantee pool would contract.

This policy would be affordable. For a net cost of around 1% of GDP per annum (and significantly less once the economy strengthens), we could have genuine full employment in this country for the first time in over 40 years.

A job guarantee would act as a beefed up automatic stabiliser, so that when the next recession hits, it will be much less painful, and the recovery much more swift.

This would be a true growth policy as eliminating involuntary unemployment would eliminate millions of wasted man hours per year and enable us to produce near maximum potential output.”

Here’s the link: http://www.yourbritain.org.uk/agenda-2015/policy-commissions/stability-and-prosperity-policy-commission/true-full-employment-through-job-guarantee-scheme

PCC Elections – A How-to Guide in how not to run an Election

Along with thousands of others up and down the country, I was one of the people verifying and counting the votes as they came in on Thursday night and Friday. I’ve done this a few times before, at both local elections and one general election. The PCC election was unlike any I’ve seen before. Here are a few quick observations from seeing the votes come in.

I was working in the West Yorkshire PCC area. I saw the ballot boxes being opened and helped count the votes. The most votes I saw in one box was 152 and the lowest, 4. 4 votes! In most polling stations there were three staff, working from 7am from 10pm. I’m glad I wasn’t one of them. I heard that one polling station in Leeds District had no voters during the whole day.

Turnout amongst postal voters though was relatively high – about 35-40%. Usually, turnout is in the 65-75% range for postal votes. This means turnout at the polling stations must have been only 5-10%.  Overall turnout was 13.76%. This is just incredible.

My final observation related to the number of votes was the staggering number of rejected ballot papers. Generally, at a parliamentary election for example, the number of rejected papers is very low  – certainly lower than 0.5% of the total votes cast, but in the West Yorkshire PCC election, there were 8,200 rejected ballot papers, almost 4% of the total cast and just under half the number of votes got by the Lib Dem candidate. As soon as we started to unfold the votes from the ballot box, it was clear something weird was happening. There were a huge number of ballot papers with messages written on them, with the two main themes being – not enough information to make an informed choice; and do not agree with having an election for PCC at all. I have never seen this before and it will be interesting to see if this is repeated in future elections.

So why was turnout so low?

Anecdotally, people were angry about the lack of information they had received about the elections. Candidates at elections are usually allowed one free mailshot to voters. This time the Government decided not to fund that. People didn’t seem to know what Police & Crime Commissioners would do, and they certainly didn’t know who the candidates were or what their platforms were. Holding elections in November, and in isolation from more traditional elections was crazy and guaranteed a low turnout. It’s hard not to conclude that this was deliberate.

Preferential Voting System

The new voting system also seemed to confuse and irritate people. After the referendum for changing the voting system to AV last year, during which voters were subject to strong messages from the Tory Party against AV, and for first past the post, the first election they introduce is not using first past the post, but something that looks remarkably similar to AV. I just don’t understand it. Why are different voting systems OK for other elections, but not for Westminster?

The preferential vote system is easy to understand in that people get that you vote for your favourite and also your second favourite. However, there seemed to be very little information given about what that second preference would ultimately mean. Many people didn’t know that if one candidate didn’t gain 50% of the vote in the first round, then the second preference votes of the eliminated candidates would be reallocated. From the votes I saw, I would say around 15% hadn’t stated a second preference and another 5-10% voted for the same candidate first and second. This were rejected in the second round. In a race with more than 4 candidates, it is very unlikely that one candidate will get more than 50% in the first round, so a second count was nearly always needed. Spare a thought for the poor vote counters! In West Yorkshire, it was clear the Labour candidate had won after the first round – he had 43% of the vote against less than 30% for the second place, but we were required to count second preferences nonetheless. After this second count, the Labour candidate still didn’t have over 50%, but was duly elected. This process took around 300 staff 8 hours to complete, even though there were only 220,000 votes to count. I dread to think how long it would have taken if turnout had been 50% or more. For me, it has to be either first past the post or (even better) proportional representation. These other systems just seem to be a bit of a fudge.

So Who’s to Blame

If we want to have a strong democracy, we need to maximise the number of people engaged in the democratic process, Governments should do everything possible to maximise turnout, and that means holding elections at the right time of year, combining them with other elections and providing the public with sufficient information for them to be able to make informed decisions. The Electoral Commission and Electoral Reform Society are both well placed to provide expert advice on how best to do this, and for whatever reason, they seem to have been ignored by the Government. I understand the Electoral Commission are now going to hold an inquiry into the whole shambles of these elections. The Government, instead of blaming the media, should be hanging their heads in shame over this, and then act quickly to ensure it never happens again.

I final point I want to make is that the union strike ballots over the last two years have generally had low turnouts (in the 20-25% range). This has prompted Government ministers to question their legitimacy and start to suggest strike laws should be made even more tough, so it was interesting to see ministers over the last couple of days saying that the mere fact that people were able to vote for a PCC made the process legitimate and an improvement over the previous system. I’ll be interested to see what these same ministers say the next time union members vote to take industrial action, and whether our media will pick them up on this.

What are the Treasury and the Bank of England up to?

There was an interesting announcement yesterday by the Chancellor saying that excess cash held by the Bank of England’s Asset Purchase Facility will be transferred to the Exchequer.

It’s widely known that the BoE has been purchasing UK government bonds on the secondary markets via QE. To date it has bought £375bn worth. What is less known is that the Government has been paying the Bank of England interest on these bonds – around £35bn so far. Blogger Neil Wilson has written about this previously here, which Think Left drew attention to here.

These interest payments will now be returned to the Treasury on a quarterly basis, so in effect, the bonds held by the Bank of England will now be interest-free. Previously, we have been issuing more debt than we needed to in order to pay interest to the Bank of England, which was actually money the Treasury was entitled to. If it sounds crazy, it is.

George Osborne argues this change just brings the UK into line with the practice in Japan and the US. This is true in that the US Treasury regularly ‘sweeps’ the accounts of the Federal Reserve to return any profits it makes to the Treasury, but it represents something of a volte face and the timing is interesting. A while ago, I put a question to the Treasury about this via my MP and was told that profits from QE would not be returned to the Treasury until QE was ‘wound-up’. They were not able to say when they expected this to be. I had suspected Osborne was saving this up for some pre-election tax cuts, but desperation seems to have set in.

So what does this mean in practical terms? The timing is interesting, coming as it does just a couple of weeks before the Autumn statement, when the OBR was expected to announce that Osborne would miss his debt and deficit targets. As Duncan Weldon argues, this change could mean that Osborne could now remain on course. The payments from the BoE will mean the deficit will be lower than it otherwise would, and it looks like Osborne will not use this money to increase spending, but instead to reduce the amount he borrows externally. This appears to be a purely political move though, as good economics would say this money would be better spent on capital projects, direct job creation, or tax cuts for low earners.

There is a complicating factor here however, in that the Treasury ‘indemnifies’ the Asset Purchase Facility, meaning that if the BoE makes any losses when unwinding QE (if it sells bonds back to the markets for less than it paid for them), then the Treasury would have to cover the losses. So while this may be a short term (political) benefit to Osborne, in the longer term, it may actually end up costing the Treasury more. In reality though, I think it unlikely that QE will be unwound any time soon (in the next five years at least).

If all this sounds confusing, don’t worry, it is. Making the Bank of England a separate entity from the government means that it looks like the debt is a lot higher than it actually is. Officially, the national debt is over £1 trillion, but if the Bank of England consolidated its balance sheet with HM Treasury under the rules in IFRS-10 (h/t Neil Wilson again), the debt goes down to around £700m.

A lot of commentators reacted to the news quite hysterically by announcing that the Government had finally lost the plot and resorted to ‘printing money’ again. Jeremy Warner in the Telegraph was one of the first here (although he later rowed back somewhat). This is not what is happening though, and we are just bringing ourselves into line with the US and Japan, although as I said, the timing is interesting.

I’ve argued before that a lot of the hysteria about government debt is irrational. As the government issues sterling, it can never run out of money, neither does it need to tax or borrow in order to finance it’s spending. This latest announcement is just another reminder that much of ‘the debt’ is not really debt at all and certainly isn’t a burden on future generations.

Must Reads for Opponents of Austerity

Economics can seem a bit impenetrable to the lay person. Partly, it seems to me, this is deliberate on the part of economists to complicate the field – baffle with bullshit you might say. Accessible texts are difficult to come across; ones worth reading even more so. Economics and economic policy are too important to leave to the economists and politicians though, particularly since the dominant paradigm in economics has failed us so badly.

Whilst Eurozone countries are faced with a choice of austerity or default/Euro exit, there is no sound economic rationale for austerity in the major nations outside the Eurozone. High debt and deficits do not create an inherent risk of default, nor do they need mean higher taxes in the future, or place a burden on our grandchildren. These basic truths are emphasised by a branch of economics known as Modern Monetary Theory (MMT). There are a lot of passionate opponents of austerity on the left of the political spectrum, but I feel they don’t yet have the weapons necessary to argue effectively the case for an alternative. I think an understanding of MMT can provide a sound basis for making that case.

Here I just want to draw attention to two great primers on MMT. Both written by Warren Mosler, they are easily understood by the average reader although the ideas presented will seem counter intuitive at first. The first is called “Soft Currency Economics”. It can be read on Mosler’s website here. Here is an extract:

“The purpose of this work is to clearly demonstrate, through pure force of logic, that much of the public debate on many of today’s economic issues is invalid, often going so far as to confuse costs with benefits. This is not an effort to change the financial system. It is an effort to provide insight into the fiat monetary system, a very effective system that is currently in place. The validity of the current thinking about the federal budget deficit and the federal debt will be challenged in a way that supersedes both the hawks and the doves. Once we realize that the deficit can present no financial risk, it will be evident that spending programs should be evaluated on their real economic benefits, and weighed against their real economic costs. Similarly, a meaningful analysis of tax changes evaluates their impact on the economy, not the impact on the deficit.”

The second primer is called “The Seven Deadly Innocent Frauds of Economic Policy”. This can also be read for free via Mosler’s website here. Here are the ideas Mosler calls “innocent frauds”:

“1. The government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.

2. With government deficits, we are leaving our debt burden to our children.

3. Government budget deficits take away savings

4. Social Security is broken.

5. The trade deficit is an unsustainable imbalance that takes away jobs and output.

6. We need savings to provide the funds for investment.

7. It’s a bad thing that higher deficits today mean higher taxes tomorrow.”

Mosler is an American, and writes for a US audience, but the arguments he presents are equally applicable to the UK (or Canada, Australia, Japan etc). Please read and let me know what you think.

Links

Soft Currency Economics

7 Deadly Innocent Frauds

Mosler’s Mandatory Readings