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How should long-term unemployment be tackled?

Author: Paul Gregg

How should long-term unemployment be tackled?

Earlier in the week, George Osbourne announced new government plans for the very long term unemployed. The government flagship welfare to work programme, the Work Programme, lasts for two years and so there has been a question about what happens to those not finding work through it. Currently only 20% of those starting the Work Programme find sustained employment, although many more cycle in and out of employment.

Very long-term unemployment (2+ years) is strongly cyclical, almost disappearing from 1998 to 2009, but has returned with the protracted period of poor economic performance. This cyclicality is a strong indicator that it is not driven by a large group of workshy claimants. Rather the state of the economy leaves a few who unable to get work quickly face ever increasing employer resistance to higher them.  Faced with ample choice of newly unemployed these people look like unnecessary risks with outdated skills.

Very long-term unemployment is thus not a new phenomenon and a large range of policies have been tried before and hence we have a very good idea of what does and does not work. The proposals had three elements. The first which got the headlines was that claimants would be made to ‘Work for the Dole’. The effects of requiring people to go into work placements depends a lot on the quality of the work experience offered. Such schemes have three main effects: first, some people leave benefits ahead of the required employment. This is called the deterrent effect and is stronger the more unpleasant and low paid (eg work for the dole) the placement is. Then, whilst on the placement, job search and job entry tend to dip as the person’s time is absorbed by working rather than applying for jobs. Finally, the gaining of work experience raises job search success on completion of the placement. This is stronger for high-quality job placement in terms of the experience gained and being with a regular employer who can give a good reference if the person has worked well.

The net effect of many such programmes, including work for the dole, has often been little or even negative. Australia and New Zealand have all tried and abandoned Work for the Dole policies because they were so ineffectual in getting people into work. The best effects from work experience programmes come where job search is actively required and supported when on a work placement, where the placement is with a regular employer rather than a “make work” scheme and where the placement provider is incentivised to care about the employment outcomes of the unemployed person after the work placement ends. The Future Jobs Fund under the previous labour government, which placed young people into high quality placements and paid a wage, was clearly a success in terms of improving job entry although the government cut it.

This element of the government’s plans has little chance of making a positive difference. However, the other elements maybe more positive. Some, the mix across elements is not clear yet, of the very long-term unemployed will be required to do daily signing. This probably means that the claimant will have to attend a Job Centre Plus office every day and look for and apply for jobs on the suite of computers. This is very similar to the Work Programme but more intense and perhaps with less support for CV writing and presentation etc. This may enhance the frequency of job applications but perhaps not the quality and may prove no more successful than the Work Programme. The third element is to attend a new as yet unspecified programme. As there are few details as yet it is hard to comment on this part.

The overall impression is that the announcement is of a rehashed version of previous rather unsuccessful programmes founded on a belief that the long-term unemployed are workshy rather unfortunates needing intensive help to overcome employer resistance and return to work.

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