Real work, please, not dead-end jobs

ECONOMICS A Labour government should avoid schemes that only keep the long-term unemployed busy, argues Yvette Cooper

JOHN MAJOR described it as a Christmas present for the nation: unemployment fell by 95,800 last month, bringing the official tally below 2 million. Presumably he wants us to hand Santa Clarke some of the credit.

But despite the growing economy and rising number of jobs, some people still have very little hope of an employment gift under the Christmas tree. For the long-term unemployed in particular stand only a slim chance of getting a job. A worryingly large group of people seems to have become - in employers' eyes at least - unemployable.

This is exactly the moment to do something about it, now that there are actually jobs out there for the unemployed to take.

So far the Government has done very little. Several pilot projects to help the long-term unemployed were launched in Kenneth Clarke's 1994 Budget, but only the workfare version, "Project-Work", is scheduled for serious expansion.

Should Labour sweep to power in the spring, it plans to lavish some of the proceeds of a windfall tax on the utilities on finding jobs for the young and long-term unemployed. But so far there has been very little independent analysis about the kinds of policies needed to achieve this aim.

Which is why this week's publication of a report on employment policies, commissioned by the Department for Education and Employment, is extremely welcome. National Economic Research Associates (Nera), the consultancy, was asked to evaluate proposals put forward by the Labour MP Frank Field and the Conservative Sir Ralph Howell to create a "Right to Work".

Sir Ralph advocates a two-pronged approach: subsidies to employers that take on the long-term unemployed; and public-sector jobs for everyone out of work for more than six months. The employer subsidies would only be a transitory arrangement until the public sector projects were set up. Everyone would have to take a Right to Work job, paying pounds 120 a week, or lose benefit. All the money currently spent on unemployment benefits, schemes for the unemployed and administration would be ploughed into Right to Work.

In the circumstances, the Labour Party should find the Nera report rather interesting. But it should steer well clear of endorsing the Howell/Field approach and treat the Nera conclusions with caution. For although these proposals are well intentioned and contain a few promising elements, the overall effect of this package would be appalling. It completely fails to address the real obstacles the long-term unemployed face, and loses sight of what the government's objectives should be. Nera should have pointed all this out; instead, the consultancy has pulled its punches.

Consider the problem we are trying to solve. The long-term unemployed find it harder to get work for two reasons. First, a high proportion of them have no qualifications at all and lack the skills employers need. Second, years on the dole take their toll. The unemployed often become depressed and demotivated.

And they are heavily stigmatised in the eyes of employers.

The ultimate aim of any government employment policy should be to make the long-term unemployed more employable - and to help them into real jobs. And that is where the Howell/ Field plan falls down. Rather than providing them with a path into proper work, Right to Work risks trapping the unemployed in meaningless and depressing public sector make-work schemes - all at immense cost to the taxpayer.

Gone would be any real chance of helping the low-skilled unemployed get new and much- needed qualifications; all training budgets would be diverted into paying for public sector employment. Moreover, govern-ment-run projects do little to overcome stigmatisation and low motivation - because most people believe they are pointless.

The role of the employment service would be to administer public works schemes. What a crazy waste of its time. Far better to make it put much more effort into matching each individual person on the dole with a suitable job or appropriate training.

Most important of all, the really big question - how people move from these projects into jobs - is barely mentioned in the report at all. Yet the most effective programmes - intermediate labour markets such as the Wise Group's scheme - concentrate their efforts on exactly that; smoothing the path of the unemployed through training, work experience, and into a steady job.

The other plank in the Howell/ Field proposal - to subsidise private employers that take on the long-term unemployed - is far more promising. Nera considers what would happen if the Government's existing pilot scheme, Workstart (which provides a pounds 60 per week subsidy to employers that take on the long-term unemployed), was to be expanded. This is not dissimilar to Labour's suggestion of a pounds 75 per week subsidy for everyone out of work for more than two years.

As Nera points out, some concerns need to be addressed. For a start, we need to be sure that we are not merely subsidising people who would have got jobs anyway. Nera reckons around 50 per cent of the people who were helped would be "dead-weight" - they would have got jobs anyway. However, a truly active employment service which found placements for more of the long-term unemployed could reduce the proportion of dead-weight.

Nera also considers whether the work subsidies would displace other workers - either because employers took on the long-term unemployed rather than the short- term employed, or because subsidised companies did better than non-subsidised ones, so other jobs were then lost elsewhere.

But the consultancy concludes that there are ways round these "substitution" and "displacement" problems. For a start, companies could be monitored to make sure they didn't directly substitute a new subsidised worker for an existing employee.

Second, it makes the argument that employers would have an incentive to create some new jobs in the first round, because of the subsidy. Nera calculates that around 30 per cent of the 400,000 places they assume would be subsidised each year would be genuinely additional.

But even if most of the jobs available for the long-term unemployed would otherwise have been taken by people out of work for less than six months, there would be second-round benefits. Those short-term unemployed people would still be more employable, and more effective at finding other jobs for themselves. In macro-economic terms, the short-term unemployed would be more effective at counteracting inflationary pressures. Because employers know that there are plenty of attractive people out there ready to be taken on, wages for those in work are less likely to go up. So unemployment can fall without affecting inflation - because the composition of unemployment has changed. "To reduce unemployment by 250,000 in three or four years through a Workstart subsidy would not cause the economy to overheat," says Nera.

This is promising territory for Labour. As the party weighs up policy options in anticipation of government, it should stick to the kinds of employer subsidies and training-focused projects it has touted so far, and steer well clear of make-work schemes that simply keep people busy.