The government is very proud of its Work Programme. It is especially proud of the fact that the WPs private sector providers are only paid on the basis of individual outcomes – do the participants get a “long term” job.
But what is the policy aim here? Is it to get individual long-term unemployed people into employment? Few would disagree this is a laudable aim, but what are the costs and benefits. The cost-benefit analysis seems to be currently limited to individuals. Is this a cheaper way of getting people into jobs? But the real issue is systemic – is this a cost-effective way of reducing unemployment, and especially long-term unemployment?
Take a simple example. An individual long-term unemployed person is successfully retrained and placed in a medium-term job. Result. But what if this retraining simply displaces a slightly less well trained existing worker who then becomes …long term unemployed?
It is entirely possible the Work Programme could be a 100% success for (current) long-term unemployed participants and have zero effect on long-term unemployment as a whole.
Even if this “supply-side” programme simply raised the level of competitiveness amongst individual workers so that we had a much higher “churn rate” and fewer long-term unemployed this would make little difference to the overall cost of unemployment to the public purse. It might, of course, drive down average wages a bit, but this would have little effect on the economy as a whole.
What will really matter in the long run is the level of employment opportunities, and the Work Programme will make not one jot of difference to that.
Colin Talbot
Colin you have highlighted a major concern here. How can the work programme get the long term unemployed back into work in a shrinking job market and economy with tens of thousands of qualified candidates for those jobs? This can only be accomplished by throwing money at it which the government is doing to “Bribe” employers into taking on the long term unemployed instead of those qualified candidates who have lost theirs. I fail to see how the scheme will reduce unemployment in the long term I hope I am wrong in thinking that.
Good point Colin. I quite agree that it is crass to aim to get “participants get a “long term” job”. But you don’t think the twits who set up these schemes can think in terms of abstracts like “reducing unemployment in the aggregate” or “reducing NAIRU” do you?
My attempt to analyse this whole issue in entirely abstract terms (which might interest you) is here:
http://mpra.ub.uni-muenchen.de/19094/
I think some ancient Greek philosopher said that the abstract governs the physical. Too right.
1) There is no reason the work programme could not function as a job creation programme – it is black box after all. The publicly available bids all state some form of either social enterprise, business start-up or enterprise grant type component. All outcomes could be generated through new business start-ups – no reason not to, the reward payments more than cover minimum wage costs.
2) Not an economist, but there is no “lump of labour” (fallacy). Moving unemployed people into work can create more jobs in the economy, not necessarily always straight substitution. One could invoke say’s law or simply point to these schemes increasing efficiency in the matching function.
3) A higher churn rate does save the taxpayer money (not just by improving labour market efficiency). All the evidence shows that skills, health and social ability fade sets in the longer unemployment lasts – leading to increased public service demand – health costs, criminal justice costs, increased future return to work costs as barriers to employment become entrenched, their is relatively strong evidence to suggest intergenerational transferability here also – there are significantly greater costs for one long term unemployment period over, two individual short ones..