Failing youth jobs scheme championed by Nick Clegg scrapped

From the FT (subscription required):

“The coalition’s flagship programme to tackle youth unemployment is to be wound up early, amid claims that it has been an abject failure.

The £1bn youth contract wage incentive scheme was championed by Nick Clegg, the Liberal Democrat deputy prime minister, at the height of the recession as a way to help tackle youth unemployment. But with the jobs market rapidly improving and take-up of the programme falling substantially below projected levels, it is to be cut short next month.

Under the scheme employers were offered £2,275 if they provided a six-month “job start” for someone aged under 25.

But in the first year of the scheme up to May 2013 only 4,690 recruits completed their placements, against a target of 160,000 for the entire programme.

The scheme was supposed to last for three years from April 2012. But the Department for Work and Pensions has written to companies to warn that no claims will be accepted for any placements that start after August 6 this year – a month earlier than planned.”

This scheme relied on the private sector to employ unemployed young people and then claim back a wage subsidy from the government. The subsidy could be claimed on existing vacancies (not vacancies specially created) which was a flaw from the start, but despite this offer of a bung to the private sector for taking on young unemployed people, take-up has been woeful. While unemployment has fallen steadily over the last 12 months, youth unemployment remains high. There is still a need for more job opportunities for young people, and there is massive scope for being much more proactive in this sphere. Here are some other posts I’ve written on this subject:

The Youth Contract – Giving public money to private firms in return for?

The failure of the Youth Contract should be a lesson for Labour

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

Achieving full employment with a job guarantee

 

Labour’s compulsory job guarantee vs the real thing

Labour re-announced their proposals for a ‘compulsory job guarantee’ today, along with their plans for funding it. I’ll ignore the funding proposals because they are just playing the nonsense  ‘how will you pay for it’ game, but there were some extra details on how the programme will work in practice. It had previously been said that it would only be a one year programme, but now Labour say 5 years. Not all the details are in, but there are enough now to do a compare and contrast with Labour’s plans and what the real thing would look like. By real thing I of course mean the job guarantee as envisaged by MMTers. Apologies for the formatting of this table, but I’m crap at html!

Labour’s Compulsory Job Guarantee MMT Job Guarantee
Eligibility 18-24 year olds claiming JSA for over 1 year; Aged 25+ on JSA for over 2 years Anyone willing and able to work
Compulsory? Yes, possibility of having benefits sanctioned if refuse job No
Choice of which type of work? Unclear. Some element of choice likely Yes. People would be offered work suitable to their skills and interests
Jobs where? Private and non-profit sectors Non-profit only
Pay Current minimum wage Living wage
Hours 25 hours per week Flexible depending on circumstances. Full time and part time options
Duration 6 months Indefinite – until the individual finds a regular job
Training included Yes, but £500 cost cap Yes
What type of work? Unclear. If like Future Jobs Fund, could be a wide range Very broad range

To summarise then, I like the fact that Labour are acknowledging a need to create jobs, but dislike pretty much everything else about their plans. The pay’s too low, the hours too short, the private sector are involved (to what extent is still unclear), 6 months isn’t long enough, there are unnecessarily threatening undertones (sanctions!, compulsory!) and so on. It’s a start though I suppose.

The failure of the Youth Contract should be a lesson for Labour

I just noticed today (because there was no publicity), that the DWP have published some data and research on the Government’s ‘Youth Contract’. This was the Government’s response to youth unemployment, launched to huge fanfare by Nick Clegg in early 2012. The program has been running for nearly two years now, so this latest from DWP gives us a good idea how it’s been working – not well.

The idea was to offer up to 160,000 wage incentives of up to £2,275 for employers taking on an 18-24 year old unemployed person. In addition, the Youth Contract was to provide for an additional 250,000 unpaid work experience places. The program runs until 2015. So what has been achieved to date?

This document gives the outputs for the first 18 months (up to Dec 2013). It says that there have been 65,000 ‘wage incentive job starts’ (remember the target was 160,000) since April 2012, but actual full subsidy payments made (i.e. a young person has worked for an employer for 6 months) only total 4,140 so far. That is horrendously bad. Why the 65,000 starts hasn’t been converted into more final payments isn’t clear.

They did a little better at getting people into unpaid work experience. 100,000 young people have been subjected to that since April 2012.

So those are the raw numbers, but how effective has the program been in terms of creating jobs and getting young people into work? The DWP published two pieces of research at the same time as the data above, one surveying employers involved in the wage incentive scheme, and one surveying participants on the work experience element of the Youth Contact.

The employers survey showed that just 19% of job vacancies were extra vacancies that wouldn’t have existed without the subsidy and another 15% were influenced in their choice of candidate (i.e. they hired a young unemployed person so they could claim the subsidy). This represents a huge ‘deadweight loss’. 81% of the job vacancies would have existed anyway without the Youth Contract, and employers probably would have hired a young unemployed person regardless in 85% of cases.

So we have a program that (on the wage subsidy element) has only paid full subsidy for 4,000 jobs (against a target of 160,000) and of those 4,000 jobs, only about 800 were brand new jobs that wouldn’t have existed but for the Youth Contract. Not very impressive Mr Clegg.

But why has the program been so unsuccessful? In contrast, the last Labour Government’s ‘Future Jobs Fund’ managed to create over 100,000 temporary jobs in about 18 months. These were overwhelmingly in the public and third sectors and the subsidy was over double the Youth Contract subsidy (about £6,000 from memory). So why hasn’t the Youth Contract achieved the same results? Is is because the subsidy wasn’t high enough to cover all the costs of employing a young person? Is it because the subsidy isn’t paid until the person has been working with an employer for 6 months? Is it just that employers won’t take someone on unless they really need someone, even at a reduced cost? I think the fact the Government have tried to do this on the cheap goes some way to explaining it, but why it’s failed so spectacularly, I’m not quite sure though.

These results should give the Labour Party pause for thought though. Their idea is for a compulsory job guarantee which would place long term unemployed people in paid employment in the private sector. The private sector hasn’t responded that positively to the Youth Contract, so why would it to Labour’s scheme? And most of the jobs created under the Youth Contract can not be called ‘new’ so is it really a good idea to subsidise private sector employers to do what they were already going to do anyway? At best you would get a small pack-shuffling effect, when what’s needed is an increase in the total number of jobs. Time for a rethink?

The Youth Contract – Giving public money to private firms in return for?

The Youth Contract is the Coalition’s response to youth unemployment. A key element of the Youth Contract is the offer of a wage subsidy of up to £2,275 to businesses who take on an eligible unemployed 18-24 year old for 6 months. The plan was to provide 160,000 of these subsidies over a three year period. The programme began in April last year, but details about how it’s doing have been thin on the ground. Finally, and without fanfare, the DWP published an “Early Evaluation of the Youth Contract wage incentive scheme” (a summary of the findings can be read here). Some of its findings are quite interesting and tell a slightly different story to the one the Government spun at the programme’s launch.

The researchers surveyed 279 employers who had recruited somebody eligible for a wage subsidy and had been sent a claim form. They also interviewed Work Programme providers and Jobcentre Plus staff. Here are some of the findings:

  • Only 56% of employers had actually heard of the wage subsidy scheme before they began recruiting;
  • 63% of employers had recruited the person on a permanent basis, while 31% were temporary or fixed term contracts;
  • The main reason for taking on someone eligible for subsidy (given by 30% of employers) was to gain some extra money. 22% said it was to give an unemployed person a chance;
  • Jobcentre Plus staff did not believe the wage incentives were creating new jobs, nor encouraging employers to retain staff;
  • Only 9% of employers had created new jobs as a result of the wage incentive scheme;
  • Only 7% of employers would not have hired a young unemployed person but for the wage incentive;
  • There was some evidence that some employers were taking on a person for 6 months, then letting them go before hiring another person and claiming another wage subsidy, even though this is against the rules.
  • Only 20% of employers said they have difficulties with recruiting young people.

What can we conclude from all this then?

New jobs are not being created as a result of this scheme. Employers with vacancies are just using the scheme as an extra revenue stream. At best we are talking about a young person being taken on where otherwise the employer might have hired someone over 25. At worst, the employer would have hired a young person anyway, so the wage incentive just represents a transfer of money from public to private sectors with no additional benefit whatsoever accruing to the Government (or the young person). 

So on the one hand you have a jobs scheme that creates no jobs, being talked up because it costs less than Labour’s previous scheme, and on the other, you have Labour’s Future Jobs Fund which actually created over 100,000 additional jobs (albeit for only a 6 month duration). Cheaper is not always better. The Youth Contract demonstrates one area of welfare spending that is not being cut – corporate welfare. Lets not forget as well that for every young person from the Work Programme completing 6 months work with an employer, the Work Programme provider gets a nice juicy outcome payment, so there’s a double helping of corporate welfare. As Private Eye is fond of saying “Trebles all round!”

There is an alternative to this kind of nonsense. Its called a Job Guarantee.

 

The Work Programme Part 3 – Payment by Results and Unpaid Work Experience

“Payment by results”. It sounds good. Firms only get paid if they do well, so there is a powerful incentive for them to act in the best interests of the individual. Something is going very wrong though. About £4 in every £5 paid out to Work Programme providers is not being paid because a ‘result’ has been achieved. It is being paid for an ‘attachment’ to the Work Programme i.e. when an unemployed person starts the programme. Only £1 in £5 constitutes ‘payment by results’, and even then as we have seen, the value of these results is somewhat dubious.

The Government has actually taken these poor results and tried to spin it into a story about value for money for the taxpayer. Responding to the dire figures published in November, Work and Pensions Secretary Iain Duncan Smith said:

“I think we are on track. Payment by results is about saying the taxpayers need not foot the risk.”

In other words, he’s saying that even if the Work Programme providers performance is abysmal, it’s OK because the taxpayer only pays for results. Leaving aside the fact that that is just not true, as we’ve already seen, the idea that all that matters is value for money for the taxpayer is frankly bonkers.

We have an unemployment crisis in this country and every day we are forgoing millions of pounds in lost income because we have millions of people unable to find work. We are not making use of all these people’s skills and experience while they languish on benefits through no fault of their own. The idea that it’s OK that we are not finding work for these people because the taxpayer is not on the hook is crazy.

The Future Jobs Fund was scrapped by the Government because it cost too much. A cost of over £7,000 per job is widely cited, but a recently completed evaluation of the programme came up with somewhat different numbers. The programme was found to have a net cost to the Exchequer of £3,100, but provided a net benefit to society of £7,800 per participant.

The idea that the only thing government’s should be concerned about is value for money, that cheaper means better is just illogical. It’s what society gains from spending by the government that really matters. The Work Programme may be cheaper than previous schemes (debatable I think), but the return on the government’s investment in the Work Programme looks like being very low (and maybe even negative) at this point. That makes no sense at all. Far better to spend more on a programme that will generate a greater return for society.

Payment by results is supposed to incentivise excellence, but achieving excellence is hard, even more so in an economy where there is a shortage of jobs. So instead of promoting excellence among Work Programme providers, payment by results seems to be promoting cheating or corner cutting (read part 2 for more on this). The result of this is that, far from creating an effective, unemployment reducing programme, it has created one which is barely (if at all) better than nothing.

Knock-on effects

Going hand-in-hand with the Work Programme appears to be the beginnings of a worrying trend in the labour market –  a growing casualisation of the workforce and – even more worrying – the rise of the unpaid work placement.

Casualisation

Casualisation, manifesting itself in the form of temporary, zero-hour or self-employment has exploded to such an extent that 3 million people now say they are underemployed, up by 1 million since the economic downturn began in 2008. So while Coalition ministers crow about falling unemployment, and 1 million new private sector jobs, it’s right to question just what sort of jobs they are, and what sort of precedent does this set for the future?

That’s not to say there is no place for zero hour contracts and temporary work. The key though is that there is a strong backstop in place to catch those who fall out of the system. Temporary work or zero-hour contracts are not so bad if there is a strong welfare state to fall back on (or a guaranteed state-funded job as I would like to see), but at the same time as the labour market remains weak, the Government are also weakening the welfare state at the same time by cutting working age benefits in real terms. Done in the name of deficit reduction, it’s the ultimate false economy. Cutting the incomes of those who spend most of their incomes mean less sales for businesses and less income overall. As Paul Krugman says:

“Your spending is my income, and my spending is your income. So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.”

Unpaid Work Experience (Or Workfare)

Wrapped up with the Work Programme has been the rise of mandatory unpaid work experience. Work experience has gained a lot of negative coverage in the media in recent years. A lot of this has focused on schemes outside of the Work Programme, but it is less known that it is very common for Work Programme participants to be mandated to do unpaid work experience.

The Work Programme uses the ethos of the ‘black box’ approach. This means providers have the freedom to do whatever they feel necessary to help a Work Programme participant get back to work. Often, it seems, this takes the form of unpaid work experience. This is mandatory. If participants refuse to take part, they can have their benefits sanctioned.

This practise of sending benefit claimants is growing in scope. It was recently announced that ESA claimants (those deemed unfit for work, but placed in the work-related activity group) can be mandated to do unpaid work experience for a time period without limit.

This phenomenon of unpaid work experience has now become so prevalent that private firms, with the collaboration of Jobcentre Plus and the DWP are now advertising ‘job vacancies’ that are actually unpaid placements. Here’s 2 examples:

There is a real danger I feel that this can become so normalised, that it becomes standard practise for certain employers to only hire on a ‘try before you buy basis’. This is just wrong in my view, but it just seems to have almost passed unnoticed in the press. It just shows how bad things have got when things most people would usually balk at just become the new normal. All decent people should oppose this in the strongest terms.

This post has strayed somewhat from its original theme, but just to try to draw the 3 parts of this series together. Here are the key points:

  • The Work Programme is an expensive failure. If we didn’t have a Work Programme, we would have expected more long term unemployed to have found work.
  • Work Programme providers are providing very little of value for the millions they are being paid. Instead, they are using a number of techniques to extract additional cash from the public purse.
  • Payment by results just doesn’t work
  • The Work Programme is giving rise to all sorts worrying trends, notably unpaid work experience.
  • It seems to be becoming normal for employers to expect jobseekers to work for them for free for a period before offering them a paid role. This can only displace paid employees. It needs to stop.
  • Real terms benefit cut and benefit sanctions are pure false economies. They will ensure unemployment rises, not falls and will bequeath a smaller economy than would otherwise be the case. It will end up costing us all more.

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.