Will Labour's Welfare to Work really work?

"Of course the Labour Government will create lots of jobs," a wag remarked the other day. "Judging by the number of taskforces, committees and commissions being established by Mr Blair and Co to advise on different aspects of policy the market for the Great and the Good must be overheating already." Cynicism indeed. Yet the observation conceals a more serious question. Will New Labour's policy activism really make a difference to the plight of Britain's jobless?

There is no doubting the Government's commitment to tackling unemployment as evidenced by the sheer scale of its proposed New Deal which will absorb pounds 3bn of extra public spending financed from the windfall levy. The guarantee of a job or training opportunity to under 25s who have been unemployed and on benefit for more than six months plus all others unemployed for more than two years will when operational extend to some 400,000 people. The mood in Whitehall as ministers and officials prepare their Welfare to Work Budget offers a refreshing change from the stale reticence of recent years. But commitment is not enough. The phrase that hangs over so many of the fledgling administration's policy proposals at present is "the devil is in the detail". Opposition by soundbite was effective; Government requires something more solid. In particular, ministers must quickly demonstrate why and how their plans will prove more effective at getting young people and the long-term unemployed into jobs, and thus reduce the benefit bill, than those of their Conservative predecessors.

On the face of things the Government's menu of measures - temporary tax rebates to employers who hire and train the young and long-term jobless, short-term environmental and community jobs etc - looks like the standard fare of active labour market policies the world over - highly worthwhile but not always and everywhere successful in cutting the dole queues. So how successful is the Government likely to be in turning its rhetoric on jobs into reality? The Government seems set to score well on two counts.

First, macroeconomic conditions are favourable to the Welfare to Work strategy, with continuing recovery in the labour market reducing the number of benefit claimants. All too often major jobs programmes are introduced as an emergency measure in times of recession and then fall flat because demand for labour is weak. The recent experience of several continental EU countries, not least France where supply side measures have struggled in the face of inappropriate macroeconomic policy, is telling in this respect. Second, the Government is right to opt for guaranteed provision for all jobless people in the targeted groups. This kind of approach seems to result in more unemployed people coming off benefit of their own volition rather than waiting for the job guarantee to come into effect (perhaps, as in the Government's proposals for the under 25s, because the guarantee effectively replaces the right to benefit).

Matters become less certain when one turns to the specific elements of the Welfare to Work plan. The tax rebate proposal will take centre stage because it is thought to be more cost effective. Unlike measures that create environmental or community jobs the Exchequer merely has to fund a payment to employers - pounds 60 per week for six months for the young jobless, pounds 75 for the two-year plus unemployed - rather than the full cost of supporting a person in work. Moreover, training-related job placements with employers at normal rates of pay offer jobless people better work experience and improve their chances of moving off welfare long-term.

In practice the rebate might support jobs that would exist without it (the so-called "deadweight" effect) or displace other jobs, thereby reducing the impact of the rebate and increasing the net cost. Of these deadweight is likely to prove the most problematic - international experience suggests deadweight typically accounts for around half of jobs supported in this way. Displacement is of less economic significance. Assuming that displaced workers are inherently employable their entry to the unemployment pool should cause the labour market to adjust to re-absorb them into jobs.

The design and precise operation of the rebate will be crucial to reducing these unsavoury side effects. However, attaching strings to the rebate will almost certainly reduce take-up, an outcome that will be exacerbated if employers also find that the long-term jobless are not well prepared to hold down jobs. Similarly, as Dan Finn points out in a recent study of Australian jobs programmes published by the Unemployment Unit, in relation to the very long-term jobless tax rebates should be the last stage in a sequence of support designed to prepare individuals to cope with a return to work.*

Taking these factors into account the Government could find it has to rely more than it anticipates on temporary environmental or community work schemes in order to meet its Welfare to Work guarantee. In this respect the Government's most significant jobs proposal could turn out to be Neighbourhood Match, a vehicle for testing so-called Intermediate Labour Market (ILM) models of employment and training delivery.

ILM initiatives, normally run by highly entrepreneurial not-for-profit organisations, link temporary jobs and training to community regeneration or the provision of services to deprived local communities. ILMs are intermediate first in the sense that they build a bridge between long-term unemployment and work and second in that they fill gaps in service provision not well met by private or public sector enterprises. ILMs normally create job opportunities, paid at the rate for the job, by combining benefit income with other resources such as local authority grants. The various projects run by the Glasgow-based Wise Group are perhaps the best-known examples of ILM initiatives, the evaluated success rates of which look good in comparison with other publicly funded job and training schemes (see table and note that the Wise Group's job entry rate has risen above 50 per cent since these figures were compiled). The Wise Group results are superior to those of Training for Work in Glasgow although similar to Training for Work in England and Wales. But the latter recruits a much lower proportion of people who have been unemployed for more than a year.

So far so good. But Treasury officials cast a wary eye at the Wise Group - at around pounds 14,000 per job per year the group's operation looks very expensive by the standards of conventional government-funded programmes.

This crude perspective, however, is short-sighted. When one accounts for the savings that accrue from the Wise Group's superior performance in helping its participants enter jobs, the group appears to offer a good value, if not necessarily free, lunch to the taxpayer. And when one accounts for the valuable social outputs and reduced social costs that flow from the Wise Group's activities the rate of return to the ILM looks more attractive still.

The Government has much to learn as it moves along the Welfare to Work learning curve. The key to success lies in recognising the limits of jobs programmes as well as their potential. Implemented with care and sufficient resources the Government's programmes could work wonders for the jobless. But don't expect them to work miracles.

Dan Finn, `Working Nation: Welfare Reform and the Australian Job Compact for the Long-Term Unemployed', Unemployment Unit.

John Philpott is director of the Employment Policy Institute, an independent think-tank.

Wise Group and Training for Work trainees

% unemployed % employed

for more than 1 year or self-employed

prior to training post training

Wise Group

(Glasgow) 81 46

Training for Work 49 25

(Glasgow)

Training for Work 43 42

(England & Wales)

Source: Alan McGregor and others (1997) "Bridging the Jobs Gap: An Evaluation of the Wise Group and the Intermediate Labour market." Joseph Rowntree Foundation.