Tories' workfare may turn out to be a work farce

ECONOMIC VIEW

The gardens of the elderly will be cleared and the waste sites of the inner cities cleaned - if the Conservatives win the election. Apparently the party plans to include workfare in its election manifesto, expanding a pilot scheme called Project Work which demands that the long-term unemployed do community work in return for their benefits.

In principle, the fact that the Government is interested in subsidising work rather than unemployment should be good news. A consensus is growing in Britain and abroad that the unemployed should not be abandoned to their giros, and need instead active support from government to become more employable and find jobs. As the OECD pointed out in its Jobs Strategy earlier this year, "in the area of... training and employment programmes, the United Kingdom has been rather reticent to commit major resources.... Cutting long-term unemployment to more acceptable levels will probably require interventions - at least on a temporary basis - which are more resource intensive that job-search assistance and job-finding incentives."

It would be wonderful if the Conservatives were conceding that active intervention to help the long-term unemployed was now overdue.

However, there is a world of difference between job programmes, which effectively help people into real jobs, and meaningless make-work schemes, which waste public money and frustrate the unemployed. Given the lack of interest the Government has so far shown in expanding policies for private sector wage subsidies, or high-quality training and work experience programmes, the Conservatives' workfare looks ominously like make-work.

There is a problem with long-term unemployment that should, in principle, be susceptible to state intervention. The longer people stay on the dole, the harder it becomes to find work. In the first month after leaving your last job, your chance of finding another in the next 28 days is around 23 per cent. After six months that chance has fallen to 13 per cent, after two years to 7 per cent.

Part of the explanation is that employers quickly snap up the brightest and best qualified, leaving behind their less attractive peers. Some 30 per cent of the unemployed have no qualifications. Of the very long- term unemployed, those out of work for more than two years, more than 40 per cent have no qualifications.

But there is an additional obstacle for the long-term jobless. Unemployment damages people in the eyes of employers. The wages available to the unemployed are considerably lower than to those with identical qualifications who haveswitched between jobs.

It seems unsurprising then that long periods out of work should be more stigmatising than short periods. In addition, the jobless can become demoralised, depressed, and out of touch with working routines. Left to itself, the market is failing to match these people with jobs.

The critical question, however, is what kind of help the state can most usefully and cost-effectively provide to make the unemployed more employable and get them into jobs. The OECD recommends employment subsidies to public or private sector employers who take on the long-term unemployed.

Gordon Brown, the shadow chancellor, has proposed a variant of this kind of programme for the long-term unemployed and the young unemployed. Private sector employers would be given a subsidy (pounds 75 a week in the case of those out of work for more than two years) if they gave a job to someone in the target group.

The advantage of this kind of private sector subsidy is that it catapults the unemployed directly into the real labour market - perhaps into a job that will last, but certainly into the auspices of a recognised employer. Direct temporary work creation on programmes such as Project Work undoubtedly has its place for those who can't even get subsidised jobs. However, if the Government is considering a widespread expansion of a community work scheme such as Project Work, rather than a system of training and private sector work subsidies, it is making a big mistake.

Admittedly, there have been important criticisms made of private sector work subsidies. Opponents argue that the subsidies help employers without creating net new jobs or improving the prospects of the unemployed. Through "substitution," so the story goes, the long-term unemployed take jobs that would otherwise have gone to the short-term unemployed. An evaluation of wage subsidies in other countries done by the economic consultants Nera for the Department of Education and Employment suggests they had limited effect on net employment.

However, this research is not conclusive. The surveys calculate the net effect on employment mainly by asking the employers who took up the subsidy whether they would have created the job without the extra cash. What we don't know is whether other employers took on those displaced short- term unemployed instead.

Richard Layard, director of the LSE's Centre for Economic Performance, is optimistic about the effect of job subsidies on overall employment levels, arguing that the displaced short-term unemployed would easily find work elsewhere.

Admittedly, where demand for labour is limited, there is bound to be substitution between the unemployed. But the OECD points out that the subsidy in favour of the disadvantaged is still justified on equity grounds. Without it, the long-term unemployed will stay on the dole for much longer than their peers who only lost their last job a month ago.

Moreover, these work subsidies, if properly targeted and monitored, do seem to help. In a recent NBER paper, Larry Katz, a Harvard economist, reviewed a series of US wage subsidy programmes and concluded that, while the impact was modest, the young disadvantaged in particular did see their employment prospects improve because of the subsidy. A similar study of wage subsidies for the long-term unemployed in Holland suggested that their re-employment prospects rose by 10 per cent because of the programme.

The important trick is to ensure that the programmes are well monitored, that employers are prevented from simply recruiting and then ditching one subsidised employee after another, and that employers and employees regard the post as a proper job. Ensuring that the job is paid at least the minimum wage is a good way to prevent them becoming low-status adult equivalents to the old Youth Training Scheme. A minimum also saves the state money on in-work benefits, and makes the entire approach more cost- effective.

But given that a minimum wage is not on the Conservatives' agenda, nor are they showing much interest in expanding work subsidies, it seems unlikely that this is the kind of workfare the party has in mind.

So if work subsidies are off the Conservatives' workfare agenda, what's left? High-quality government or voluntary sector training and work experience programmes could be extremely beneficial for the long-term unemployed. The successful Wise Group has managed to lever large numbers of the long- term unemployed into work through intensive training and work. However, these kinds of operations are expensive, and the Government hasproved unwilling even to establish pilot schemes which are resource intensive. The chances of it delivering expensive programmes to push the long-term unemployed into work seem rather slim.

In the absence of direct job placement or good quality training and work experience, the alternatives look ominous. Canals, gardens and wasteland may help some of the unemployed, but many will be deeply frustrated. Making benefits conditional on placements such as Project Work, without providing any more constructive, cost-effective alternatives, will not be good for the unemployed or the taxpayer. If the only purpose of this kind of workfare is to force the unemployed into menial, meaningless schemes just to prove to the rest of us that they are not lazy, then it will be unethical as well.