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The evolution of special employment measures.

Introduction

The high unemployment of the last 15 years has brought with it a proliferation of special employment measures (SEMs). These measures all involve intervention in the labour market with varied aims and means but with a common theme namely the reduction of the claimant count of unemployment. Initially introduced as a short-term response to what was hoped to be a transient problem, the use of SEMs has now become permanent. The gradual movement from transience to permanence has coloured much of the development of these schemes and understanding it gives a clearer insight into the objectives and underlying theoretical perspective of SEMs. For although SEMs may appear as a continuum there have been a number of changes of direction in their development.

The following section will detail the historical development of the schemes within five broad groups. The third section will look at the major current adult scheme, Employment Training, and contrast it with measures used in the US and Sweden. The final section concludes that the move f rom the Community Programme to Employment Training initially represented no clear change in the direction of SEM development but that recent problems in its practical development have reduced the training element in Employment Training and increased compulsion. Special employment measures in the UK since 1975

Special employment measures can be grouped as follows:

(1) Incentives for employers to maintain current

employment

(2) Incentives for employers to raise employment

(3) Direct employment by government or its

agencies

(4) Work sharing or reducing labour supply

(5) Training based schemes

Each of these groups has contained a number of different schemes and a brief description is given here. A more detailed outline of UK schemes since 1975 including numbers participating is available from the author on request.

Maintaining employment

Two schemes have been designed to encourage firms not to lay off workers. These schemes had clear implications for the financial position of firms and for measured productivity as the superfluous labour will raise unit labour costs. Thus the measures compensate the reduced competitiveness with subsidies per worker. This was seen as a temporary measure to ease firms through particularly difficult times and thus such subsidies were only available for limited periods, after which if still superfluous the labour would then have to be shed. A major drawback to such schemes is that they are only available to the less successful firms.

The Temporary Employment Scheme (TES) came into operation in August 1975 and at its height in the summer of 1977 covered around 190,000 people. The scheme initially only applied to 50 or more redundancies in assisted areas and involved a 10 [pounds] a week subsidy for up to six months. It was progressively broadened so that ten workers per firm in any area would be paid 220 a week for up to a year. Being a flat rate subsidy, it primarily covered female low wage jobs. The subsidy was also at its most effective in industries with a high elasticity of demand. Hence the highly internationally competitive industries of textiles, leather, clothing and footwear accounted for 50 per cent of jobs subsidised. It was estimated by Deakin and Pratten (1982) that around 39 per cent of jobs covered were saved.

The EEC objected to TES because of this success in international competitive industries and as a result it was phased out in 1979. It was replaced by the Temporary Short-Time Working Compensation Scheme (TSTWC). The crucial difference between this scheme and its predecessor was that workers did not engage in production work whilst receiving the subsidy although they were technically still employed. This meant that the required rate of compensation was higher so that participants on the scheme got 3/4 pay for the period when they were not working. In Spring 1981, when the scheme was at its peak, it covered nearly 1 million people but was phased out in 1984. It has been the most widely used single scheme to date.

Raising employment

Here incentives are paid to firms who are creating employment. Such schemes have been limited to specific groups of firms and/or workers where special problems are perceived. They do not necessarily require a net increase in employment but rather that employment is increased in certain areas or for certain workers. However, a net increase in overall employment was normally anticipated.

The first scheme of this kind was the Recruitment Subsidy For School Leavers (RSSL) which was introduced in October 1975, at a rate of 5 [pounds] per week per school leaver hired. it was designed to encourage recruitment of school leavers who at age 16 and without work experience, were thought to find entry into employment difficult. It was found to have a large dead weight loss, as many of those in the scheme would have been recruited anyway. Only 29,000 youths were employed in the scheme before its replacement in 1976 by the Youth Employment Subsidy (YES). YES covered all workers under 20 years old who had been unemployed for more than six months. The scheme was therefore targeted at the young long-term unemployed person rather than school leavers and consisted of a flat rate payment of 10 [pounds] per week per person eligible placed into full-time work for up to 26 weeks. The scheme ran until March 1978 when it was replaced by the Youth Opportunities Programme which will be covered later. YES had 38,000 placements in the scheme over this period with a maximum of 14,000 on it at any one time. Once again the scheme had a large dead weight loss with only a net increase of employment of 25 per 100 placements. This was the only time subsidies were specifically aimed at the recruitment of the long-term unemployed.

The Small Firms Employment Subsidy (SFES) was restricted not to a specific group of workers but to small firms. Initially this covered firms with less than 50 employees in special development areas (SDA) but it was later extended to all firms of less than 200 employees in assisted areas. The scheme provided a flat rate of 920 per week per full-time equivalent person employed. The scheme ran from July 1977 to the summer of 1980, but the initial number of placements was small until the restriction to SDAs was dropped, after which the scheme peaked at 73,000 places in the autumn of 1979. Estimates of the dead weight loss for this scheme were around 60 per cent, somewhat lower than for the other employment generating subsidies.

The incoming Conservative government applied a different philosophy to SEMs. Firstly, subsidies were seen as preventing the real wage and cost adjustments necessary to generate employment through `market forces'. The rising numbers of young people and the narrowing of wage differentials between young and old in the 1960s had, it was argued, effectively priced the young out of work. Hence when wage subsidies were again used for the recruitment of young workers in the Young Workers Scheme (YWS) the subsidy was designed to lower wages. At its inception YWS allowed employers to claim 15 [pounds] per week per employee under the age of 18 who earned less than 40 [[pounds] a week during the first year of employment. If pay was less than 45 [pounds] a week but over 40 [pounds] the subsidy was 7.50 [pounds]. If pay was over 45 [pounds] a week no subsidy was available. YWS covered 130,000 youths at its peak in late 1982 and was phased out in 1986 when YTS was extended to cover all those under 18 in the new two-year scheme. It was replaced by the New Workers Scheme (NWS) which was only slightly amended but covered 18-20 year-olds on wages of less than 65 [pounds] a week. NWS was never as popular as YWS with a peak of only 34,000 placements in early 1987 and was phased out altogether in 1988. No replacement was introduced. Like the earlier subsidies of RSSL and YES these schemes suffered large dead weight loss. Rajan (1985) estimated only 16 per cent net job creation for YWS.

An entirely different form of employment subsidy is the Enterprise Allowance Scheme (EAS) for those setting up their own businesses which encourages self-employment. EAS started in 1982 on a trial basis and went national in 1983. It provides 40 [pounds] a week for up to a year for a claimant starting up their own business. To be eligible the claimant must have been unemployed for six weeks (previously thirteen weeks), have capital of at least 1,000 [pounds] to put into the scheme and have a suitable business idea. Amongst other things EAS allows some people engaged in the `black economy' to become legitimate by supporting basic needs while 'making a go of' a previously illegitimate business. About half of EAS ventures last six months beyond the cessation of this support. EAS had nearly 100,000 participants at its peak in late 1987 after which it declined somewhat.

The most recent variant of job subsidies is job-start allowance (JA). The peculiarity of this scheme is that the subsidy is not paid to the employer but to the employee. An unemployed claimant of over one year's duration who takes a job paying less than 980 a week can claim a 220 a week subsidy for up to six months. The aim is to compensate the long-term unemployed person entering low paid employment for the loss of many benefits. Thus it is hoped that this group will price themselves back into work. JA has attracted a maximum of 7,000 participants at any time but has averaged around 4,000, a little above the current level.

Direct government employment

The third method by which the government can seek to raise employment is by being directly responsible for employment creation rather than acting through private employers. Full-time employment in standard public sector activities on public sector wages would generally be prohibitive on cost grounds. Therefore SEMs in the public sector have been separated from normal public sector activities and often managed through outside agencies. This has the advantage of reducing the cost as an earnings ceiling or work for dole system can then be operated. it also enables the concentration of places generated on the claimant unemployed (or specific groups of claimants) but it has the drawback of offering work of only low social value and unskilled work, with little raising of participant skills while on the scheme.

The longest running of the direct employment schemes is Community Industry (CI) which dates back to 1972. It provides temporary employment for disadvantaged youths aged 17-19 who undertake work for the benefit of the community.

The normal target for direct employment is the long-term unemployed. it is hoped, that a period of employment on such a scheme will help maintain their own motivation and employability in the private sector. The first scheme with this aim was the Job Creation Programme (JCP), introduced in October 1975 with the intention of `providing short term employment of social value, at the appropriate local wage rate, for people who would otherwise be unemployed and would benefit from such work'. (Employment Gazette) March 1977.

At its peak in Spring 1978 around 60,000 people were on the scheme, about 2/3 of that originally planned. Projects undertaken, mostly run by local authorities and voluntary organisations, were often environmental improvement and working with/for the elderly or handicapped. The scheme was primarily aimed at the under 20s and over 50s for whom alternative work opportunities were restricted.

The Special Temporary Employment Programme (STEP) introduced in 1978 to replace JCP, made the link with long duration unemployment more specific. It provided 25,000 places a year for those aged 19-24 and unemployed for over six months and for those over 25 and unemployed for over a year in areas of especially high unemployment. It was replaced in April 1981 by the Community Enterprise Programme (CEP) but the only significant change was its establishment on a more permanent footing and the return to nationwide coverage. The numbers in CEP were not expanded beyond those in STEP until just before it was expanded into the Community Programme (CP) in October 1982. CP did not differ from CEP in any significant way except that it was substantially expanded. CP had more than 100,000 people on it by the end of 1983 and actually peaked at the end of 1986 with nearly 1/4 of a million participants. As with their predecessors CP participants were employed on socially valuable projects, and were paid a going rate for the job. An upper wage limit was placed (67 [pounds] a week in 1986/7) so that people worked the number of hours necessary to earn that wage. Hence most of the jobs were classified as part-time. CP was replaced by Employment Training in 1988.

Cutting labour supply

Reducing labour supply can be achieved by two principal means: firstly by inducing people in employment to wholly or partly cease to supply labour and then substituting the unemployed in their place; and secondly by inducing the unemployed to temporarily or permanently cease supplying labour. Some compensation to parties bearing the costs of reducing labour supply is necessary to facilitate this transference between employment states. Which party receives the compensation varies between schemes.

Labour supply reduction schemes started with the Job Release Scheme (JRS). JRS started in January 1977 and is still in operation, thus being one of the more enduring special measures. Under the scheme people within one year of pensionable age are allowed a tax free allowance for retiring early. Initially unemployed people could apply but after 1977 it was restricted to those in employment only. The impact on the claimant count is maximised by building in a `replacement condition' that the vacated post is filled with someone off the unemployment register. Additions to the basic scheme have been the introduction of variants for disabled men over 60, and all men aged 62-3. There has also been a part-time variant such that full retirement is not necessary provided that an additional unemployed person is still employed. JRS was at its height in 1984 with over 90,000 participants but has declined steadily and currently has only around 4,000 participants. On current trends it will soon disappear altogether.

There have been two other rather similar schemes aimed at labour supply reduction. The first was the Job Splitting Scheme (JSS) where employers would be paid a lump sum for each full-time job that was split into two part-time jobs, provided one of the jobs is filled by someone from the claimant count or another special scheme. Take-up of the scheme never got much above 1000 participants. Job-share was very similar to JSS and replaced it in 1987. It has not proved any more successful, and currently has under 200 participants.

Training

Pure training schemes are in effect temporary labour supply reductions as the groups of people concerned are removed both from employment and unemployment. This distinction is not always quite clear as they may still be on employers' premises and possibly still producing output. Since 1983 a new category was added to the employed labour force, covering this grey area under the title Government Training Places, but similar schemes prior to this date were not reclassified. These schemes are designed to raise the person's attractiveness to employers when re-entering the labour market through skill acquisition and work experience.

Governmental supplementation of industries' training programmes has been going on since the inception of Industrial Training Boards (ITB). The first true training based SEM, however, was the Work Experience Programme (WEP) which started in September 1976. WEP was designed to give 16-18 year olds first hand experience of the skills and disciplines necessary in working life. Participants were paid 18 [pounds] a week for up to 52 weeks (normal only 26 weeks) and were given a varied introduction to potential occupations available with that employer. WEP had up to 20,000 participants before it was incorporated into the more ambitious Youth Opportunity Programme (YOP). YOP consisted of four (later five), separate sub-schemes, one of which was WEP. The others were a mixture of on- and off-the-job training, work experience and education in job search skills. YOP was successively expanded up to a maximum of 270,000 participants, but little evidence has been produced to show whether or not the training aspect of the programme raised the future employment prospects of its participants. YOP was replaced by the Youth Training Scheme in 1983. YTS placed a much greater emphasis on training on employers' premises and the training component of the scheme was boosted. YTS expanded to cover nearly all 16 year olds not in education. This included those with formal contracts of employment, for whom it became a 100 per cent subsidy to employers. Participants stayed on YTS longer than YOP, initially for one year and after 1986 for two years. This raised the number of participants to over 400,000. The cost to the government is minimised by paying very low wages only just above benefit levels, but benefit entitlement has been curtailed for 1-18 year olds giving them a strong motive to participate. The quality of training continues to be criticised but the quality has been progressively raised since the scheme's inception and incorporates some formal skill acquisition. YTS is undoubtedly the most sophisticated youth scheme to have been employed in the UK.

Government financed training schemes for over 18 year olds were unknown in the UK until the development of the Joint Training Scheme (JTS) in late 1986. JTS maintained participants' benefit entitlement, in the form of an allowance, while they engaged in training. In addition some travel expenses are paid. Although it was hoped to provide 110,000 places by late 1987 a maximum of 50,000 participants was achieved partly as a result of recruitment problems, employer resistance to the scheme and a high drop out rate. The scheme was concentrated on the younger unemployed (18-25) with a duration of over six months and older workers with very extended durations (that is, over two years) but others could also participate. From September 1988 JTS was merged with CP to create Employment Training.

The development of SEMs to date

Under the 1974-9 Labour government, the dominant policy was one of creating demand for labour, often in particular sectors or regions of the economy and for specific groups of workers. This was achieved primarily through subsidies such as TES, SFES and YES. Labour supply reduction was also used in JRS but work creation was a later development and was seen only as a temporary alleviation from a growing problem of long-term unemployment, not a serious attempt to return people to the labour market with skills and experience. The idea of using SEMs to provide training did not really arrive until WEP in 1976 but had to wait until 1983 and YTS to become the dominant motivation within a scheme. For adults this development did not occur until 1987 and JTS but even here the quality of the training was questioned.

The other major development has been the shift toward a set of policies to drive down the reservation wage of groups of workers who it was felt had priced themselves out of work. This can be seen first with YWS and then NWS and Jobstart allowance, and even JTS and ET. This then completed the shift in emphasis from raising the demand for labour at the going wage to matching the wage with skill levels so that labour will be demanded. Coupled with Restart and benefit regulations that require active job search, it produces a consistent policy response if the problem of unemployment persistence is too high reservation wages and too little job search by the unemployed, coupled with growing problems with skill acquisition by the young, skill maintenance when unemployed, and a skill mismatch.

Apart from small numbers in Community Industry, Job Release and on Jobstart Allowance only three schemes remain of any importance in 1990 (see table 1). The Youth Training Scheme covers all 16-18 year olds who are economically active and with strong compulsion to participate through the removal of benefit entitlement for all who do not do so, except in exceptional circumstances such as homelessness. The strong pressure to participate has enabled the government to effectively reduce the cost of this group of workers to employers. This lowering of costs to the firm has allowed the government to progressively raise the standard of training given. The evolution of youth schemes from employment subsidies such as RSSL and YES to this YTS formula epitomises the general direction of development of special measures although it goes much further than any adult scheme.

The second remaining scheme of any importance is the Enterprise Allowance Scheme which encourages self-employment. There is no specific compulsion and in effect, by guaranteeing a minimum income it reduces the reservation wage of opting for self-employment. The final and dominant adult scheme is Employment Training, and the evolution, aims and current direction of its development are laid out in the following section.

Employment Training

Employment Training (ET) has been presented as a major rationalisation of the Government's special measures programme. in fact nearly all of the 34 existing schemes it is supposed to replace were local and specialised, with little or no national data available. The two main constituent parts were the Community Programme (CP) and the Job Training Scheme (JTS). These two schemes were wound up in September 1988, and phased into ET, at which time the two schemes consisted of 202,000 and 53,000 places respectively, the CP having peaked at 230,000 places earlier in the year. The Government emphasises that ET refocuses resources in three ways:

a) to give the highest priority to longer-term unemployed people to equip them to rejoin the effective labour force;

b) to shift away from temporary employment and towards encouraging training and motivation to secure employment;

c) to persuade employers to increase involvement in training the long-term unemployed and break down any prejudices against this group, thus helping its future employment prospects.

The scheme is concentrated on those aged 18 to 24 who have been unemployed for six to twelve months and all those under 50 who have been unemployed for more than two years, though it is also open to all those unemployed for more than six months. Although it can provide up to 12 months training, it will normally be of only six months' duration, with follow-on schemes in particular circumstances. Thus the 300,000 places will handle 600,000 people a year, with a measure of double counting.

Trainees are paid on a benefit-plus basis, with the addition normally being 10 [pounds] a week (there are for instance also allowances for excessive travel costs). No-one should be directly worse off, although clawbacks on other benefits and also extra costs involved in travelling, eating away from home and so on may leave most at best only marginally better off.

The method of training was intended to take three forms:

a) project-based initiatives, akin to old CP schemes, for about 170,000 of the places;

b) on-the-job training in the style of the new JTS where people are placed with an employer; and

c) off-the-job training in colleges of higher education or by private education or training organisations.

People can progress from one training category to another and hence participate for longer than the basic six months. The nature of the training will also vary from craft and technician level to basic skills, such as literacy and numeracy, as well as encouragement in motivation and rehabilitation into the work environment.

ET is only one part of a package applied to the unemployed when they have been out of work for six months. The first step will be the Restart interview at which questions on qualifications, skills and employment search are asked. Additionally claimant advisers identify those who have been misclassified as claimant unemployed and who should really be entitled to alternative benefits such as sickness, disability or long-term unemployment benefit for the nearly-retired. Studies have shown that around 10 per cent of those called for an interview fail to show and subsequently deregister.

The interviewee will normally be offered one of the following:

a) A place in a Job Club, where the unemployed person is given help with matters such as the presentation of applications and interview techniques and with postal, travel and telephone costs involved with job search. It is hoped that this motivates them to look for work.

b) A place on an Enterprise Allowance Scheme EAS). This scheme offers financial assistance to those setting up their own businesses provided the idea is considered sound (rarely a problem) and the person has been unemployed for six months and can raise 1,000 [pounds] worth of capital.

c) A reported vacancy. This is relatively rare and most are not successful in securing the job they are advised to apply for.

d) A place on ET.

Of those attending Restart interviews, 90 per cent are offered one or other of the four categories mentioned above. About 73 per cent agree to follow up the offer, but many subsequently do not. Those not agreeing to take up an offer or failing to do so after agreeing, will face follow-up interviews and monitoring to determine their availability for work. in around 20 per cent of cases the Department of Employment estimates there is serious doubt about their availability for work. Those completing a period on ET will then be reassessed and offered further training, a place on a Job Club, on EAS, or put forward for a job. Restart interviews will take place every six months, so the longterm unemployed will face a cycle of interviews, schemes offered, either accepted or refused, and follow-up programmes. This amounts to a consistent process of removing the long-term unemployed from the claimant count.

Critical analysis of ET

The Government argues that ET will seek to overcome two problems; firstly that the long-term unemployed are trapped by their own inadequacies and attitudes, and secondly by hostile attitudes of employers. The scheme will work by raising motivation or ending their refusal to work, by improving their skills and by breaking down the hostility of employers who often see them as poor quality or `failures' in the labour market.

Motivation and refusal to work

Survey evidence shows that demotivation in search activity only occurs amongst the very long-term durations. Indeed, the Labour Force Survey shows that although there were 710,000 claimants not actively engaged in search in 1985, relatively few are in this situation due to demotivation-only 120,000 had not looked for work in the past four weeks and gave lack of job availability as the reason-and there is no guarantee that all of these are amongst the long-term unemployed. The major reasons for inactivity were sickness/disability, looking after the home and children, or retirement. Many of these could probably be claiming other benefits or be disqualified on the grounds of non-availability for work.

To the extent that many long-term unemployed are still engaged in job search and motivated, ET adds no extra incentive and of course reduces time available to spend in search but ET provides a useful test of willingness to accept work at any wage and thus can be used to identify workshy claimants.

The lack of skills

The main test of the potential success of ET in overcoming the long-term unemployed's shortage of desirable skills is the quality of training given. 170,000 of the 300,000 originally intended places were to be project-based work which is fundamentally an extension of the old CP scheme. This work does not lead to any formal qualification or skill, although it may instill familiarity with the work ethic. 185,000 places (there is some overlap here) offer higher cost training whereby training agents get up to a maximum of 57.50 [pounds] a week per trainee to pay for training. The average for these higher cost places is 37.50 [pounds], and the cost of the basic place only 17.50 [pounds] a week. The small size of this funding is the cause of much scepticism about the quality of training being provided. A second cause for concern is the relatively short duration of any one programme. For example, formal vocational training certificates are on the basis of refresher or top-up courses rather than training the unskilled from scratch. There must also be serious doubts that training given matches employment prospects available at the end of the programme. A mismatch of training to skills required means little raising of future employment prospects of participants.

Employers' attitudes

It is hoped that employers engaged in training the long-term unemployed will see the value of these employees and hence overcome any misconceptions about them. Alternatively, other employers may perceive the newly `trained' ET leaver as superior to another long-term unemployed, or even a similar person without ET training. Reliance on dissemination of information to employers rather than any direct initiative to overcome this problem may be a major weakness of the current proposals. Furthermore the growing compulsion to participate may reduce the status of participants in employers' eyes as participation no longer indicates self-motivation.

Pay and conditions

People engaged on the schemes receive a training allowance on a benefit-plus system (normally 10 [pounds] a week). There may be additional help for excessive travel costs, lodging and tools and clothing associated with the work. The training manager receives a 15 [pounds] administration fee plus the weekly grant described earlier. Output of any value created goes to the employer. One of the major criticisms from the trade unions and others is that this represents merely a cheap source of labour to employers and low wage employment to the unemployed. No doubt the emphasis on training is designed to minimise the displacement of other workers but some is inevitable. A Low Pay Unit report argues that ET forms part of a wider strategy in conjunction with the YTS and reform of wage councils to push down wage expectations, particularly amongst the young. The old CP scheme paid the rate for the job, subject to a maximum wage which in practice meant wages were low and parttime work was the norm. The move to full-time training represents a major fall in hourly rates of pay and for the single the benefit-plus system represents a cut in take-home pay, while for married workers with children it represents a marginal improvement.

Trainees will not have contracts of employment and therefore will not be subject to employee laws. They will not be covered by union bargained agreements for workers in the same establishments. They will therefore be largely alienated from other workers making passing on knowledge of potential hazards in the work place more difficult. This raises concerns about health and safety following the poor record of YTS trainees. They will also appear in employment statistics as being on government training programmes rather than as employees in employment.

Compulsion

ET is currently not compulsory in that refusal to take part in a scheme or dropping out of one are not in themselves grounds for withdrawal of benefit but this option is still open for the future within existing legislation. However, anyone refusing the scheme will still have to pass the availability for work test which will be assessed by an Adjudication Officer. A failure to accept a scheme placement or a failure to take up one will then provide grounds for investigation. So substantial pressure can be brought to bear. Full formal compulsion would seem necessary then only if there is a surplus of available places relative to the number of unemployed willing to accept them.

The experience of the United States

Workfare is defined as a programme in which employable welfare benefit recipients receive payment only if they work off their grants in unpaid jobs. (For further information see Burghes 1987 or Gueron 1990) There is then clear compulsion to work in order to receive benefit payments for those who are deemed employable. The hourly wage is typically the state minimum wage. Thus the number of hours worked is that needed to generate the benefit level and no more, so that the programme recipient cannot raise his income above benefit levels. Work done is typically menial, low-quality work for the local government authority (picking up litter or cleaning buildings) though in some states the recipients are used as auxiliary labour in a range of public service provisions. The benefits received are through the Aid to Families with Dependent Children (AFDC) benefit system, which is mainly for single mothers, though there are a number of unemployed fathers. Places on such Workfare programmes are often limited, which leads to exemption for women with younger children. In addition to Workfare, there are other programmes such as the Work Incentives Programme (WIN) which has an element of training and additional payments up to $30 a week without loss of benefit, although this was later constrained to the first four months of the programme. By 1985, 22 states operated mandatory work for benefit schemes but only seven had them on a state-wide basis.

The Government Accounts Office identified the four major barriers to be overcome in expanding the scheme to levels desired by the Reagan Administration:

a) lack of support services, (such as child care and transportation);

b) education and training of recipients;

c) finding sufficient placements for Workfare assignment;

d) inadequate staffing and training for staff handling the scheme.

Reaction from participants has been surprisingly positive. As one researcher commented, 'these Workfare programmes did not create a work ethic, they found it'. Positive reaction centred on the desire for work and for self-respect. Complaints centred on the poor comparison with a 'proper' job with no benefits such as holidays or sickness insurance.

In the US the Workfare schemes have generated a similar debate to the one emerging here around the aims and methods of SEMs. The 1988 Family Support Act (FSA) represents a compromise between the 'conservative' emphasis on reducing dependence and the more `liberal' emphasis on reducing poverty. The key elements of FSA are that both parents should be made responsible for child support. For fathers this means more rigid enforcement of child maintenance. For women with younger children job opportunities and basic skills training (JOBs), the main creation of the FSA, represents an expansion of the previous schemes with provision mandated when the youngest child is aged three. (Provision when the youngest child is aged one is an option open to the state.) Other features to emerge from FSA are child care guarantees, an emphasis on aiding volunteers first, and above all an emphasis on education for those without qualifications or with literacy problems.

Gueron (1987, 1990) provides details of seven social programme experiments within the state welfare employment initiatives. The interesting feature of these experiments is the use of control groups to test alternative hypotheses. The schemes surveyed by Gueron showed measurable improvements in employment and earnings up to three years after participation. The schemes also resulted in welfare payment savings. Exceptions to these general findings were that in West Virginia, a rural area with a high unemployment rate, where increases in employment were not observed. In Cook County which had the cheapest scheme (with little assistance to participants in job search or education) employment and earnings did not rise although some welfare savings were observed. Gueron concludes 'even the relatively modest initiatives implemented in the early 1980s led to a notable substitution of earnings for welfare and proved cost-effective ... But the results also suggest caution in what can be expected from this type of reform: alone, these programs do not offer immediate cure of poverty or dependence. Their impacts are modest, many people remain dependent; and those who move off welfare often remain poor'.

The Swedish experience

The Swedish system offers a major contrast (see Campaign for Work 1988). Although there is compulsion, and indeed benefits have a limited duration, the state acts as an employer of last resort. The Swedish employment service takes a much more interventionist strategy in the labour market. The unemployed are counselled from the outset with a view to maximising the matches between the unemployed and vacancies. This is done by intensive liaison with local employers as vacancies appear or redundancies are made. it is common practice that newly redundant workers will go into retraining without ever entering unemployment. If opportunities are scarce then job creation is used to supplement labour demand while cash benefits are seen as a last resort. Indeed, benefits are usually a substantial portion of the previous wage (around 80 per cent when the claimant was previously in full-time work).

Job creation is through public sector organisations and for 18-19 year olds the local municipality is obliged to offer employment to anyone unemployed. Additionally there are recruitment subsidies of 50 per cent of the wage costs for a period of six months if employers take on young or long-term (more than six months) unemployed. Another major arm of the Swedish system is the encouragement of labour mobility through relocation grants which are paid to unemployed workers who move from areas of high unemployment to more prosperous regions.

The emphasis is on the State's role in providing work for the unemployed with a quid pro quo that the unemployed are obliged to work. Firms also play a part in that vacancies must be notified to the employment service by law and private employment agencies are illegal. The wages while in training or on job creation programmes are the full rate for the job and benefit levels are high. This system cannot be equated with either the current UK one or Workfare in the United States. It is however more akin to the employment generation measures used in the UK in the late 1970s.

Overview

Proposals for and experience of, active labour market measures to reduce unemployment vary wildly. It is thus useful in this final section to contrast two stylised proposals on the major issues. in the UK, Minford (1985) has advocated a work for dole scheme and Jackman et al (1987) a Job Guarantee Scheme (JGS). These are useful benchmarks in assessing the current direction of policy development in the UK. Work for dole advocates see it as necessary to drive down the real wage for which the long-term unemployed are prepared to work to a level at which employers will wish to employ them. The employment-guarantee system on the other hand seeks to raise the employability of the long-term unemployed to a level that they can compete at existing wage levels as well as raising the demand for labour. Which system is appropriate depends on the view taken about the long-term unemployed. Whether they are failing to compete effectively because they have adapted to life on the dole 'state dependency') or that employers screen out such workers, who are willing to work, because they are seen as low quality or have poor work attitudes. Either way getting them into the work environment is almost certainly helpful but the first proposition places the emphasis on compulsion while the latter emphasises training, education or making the longterm unemployed more attractive through subsidies and such. So how does ET compare with these two alternative stylised schemes on the crucial issues?

Quality of jobs

Work for dole. A large number of low quality jobs are required to absorb the excess labour-in the voluntary or neo-public sector as interventionist policies in the private sector will be a market distortion. The work created need bear little relation to work availability after participation.

Job guarantee scheme (JGS). The social value of schemes should be maximised given cost constraints. This will be in areas such as housing or infrastructure and through incentives to employers to put them in productive work. Voluntary projects etc. would have an additional role but would not take the full strain. This system means that some of the work created should be in areas with future employment prospects.

Employment Training (ET). This is clearly improved under ET over CP as the preponderance of project-based voluntary sector schemes declines and increased employment in the workplace occurs.

Training

Work for dole. A work for dole scheme places the emphasis on the work ethic. Training is incidental and would raise the exchequer cost. While training would raise the potential earnings of the employee, this is not seen as part of the problem in reducing long-term unemployment. However, training may have its own merits which may be incorporated into such a scheme.

JGS. Training is a vital part of raising the employability of the unemployed and matching them with perceived areas of current and future labour shortage. it will have exchequer costs and increase the period of participation in such a scheme for effective results but it is an integral part of achieving beneficial labour supply and productivity/output outturns.

ET. Training has been greatly increased as expenditure and facilities improved in line with the government's shift in objectives towards putting participants in employers' premises.

Pay

Work for dole. Work is for benefit only with perhaps an allowance for work-related costs. It does not therefore allow any improvement in living standards for those participating. This is essential to enable the freeing of wages in the rest of the economy and hence result in increased employment and also to keep the cost down.

JGS. Pay based on the rate for the job or more generous topping up of benefit payments justifies any compulsion to participate. Alternatively in the absence of compulsion high payment levels will act as a strong incentive to participate and enable living standards to rise while in training.

ET. This varies from case to case but more fundamental is the shift in method of calculation to a benefit plus system rather than a rate for the job done.

Compulsion

Work for dole. Compulsion is essential to test willingness to work and to provide an incentive to accept low paid employment rather than state benefits. Advocates of such a scheme would argue that if the unemployed were willing to work for pay at benefit rates they should have no difficulty in finding work. JGS. If there are no motivation problems and good training is available then compulsion should be unnecessary. However, if compulsion is to be used it should be justified by offering high quality jobs and training at rates of pay substantially above benefit levels. if there is a shortage of places those most willing should be allowed on if it demonstrates motivation to employers and hence raises future employability.

ET. No formal compulsion has been introduced but increased informal pressure is being brought to bear through Restart interviews and tighter availability for work tests.

Labour market flexibility

Work for dole. This is the main aim of this proposal. The compulsion to accept work for benefit, it is argued, will induce a large number of longer-term unemployed to make themselves available for paid employment driving down wages in the sectors of the labour market in which they can compete-primarily low skill work. This will increase labour market flexibility with respect to real wages and induce a more efficient market clearing process. It however has no particular emphasis on such matters as skill or geographical mismatches. This failure to recognise the heterogeneity of labour could potentially create a low productivity/wage employment trap for the long-term unemployed.

JGS. The emphasis of this option is to raise the ability of the long-term unemployed to compete in the mainstream economy through education and training. It also improves labour market flexibility and has a greater potential to affect the whole wage setting process rather than simply in low skilled and low paid sectors. But the effects are likely to be much less dramatic than for a work for dole scheme.

ET. ET places most participants with employers on what amounts to near 100 per cent subsidies, so while the emphasis on training restricts their use as a cheap labour substitute for the existing workforce this has to be a major worry for trades unions, especially as it is coupled with a shift away from an agreement to pay rates for the job.

Conclusion

ET represents no clear shift towards a work for dole system or a JGS as compared with the old CP scheme. For, while the benefit plus system offers little opportunity to raise living standards above benefit levels and compulsion is increasing, the quality of work and training has been improved, even though it is still poorly funded and for short duration periods. Thus we stand at a crossroads between a work for dole scheme and an alternative on the lines of a JGS.

Since the inception of ET there have been a number of further developments. Most importantly, while a long-term commitment to reducing the number of project based places (old-style CP places) remains, the government has raised the anticipated proportion of such places in the short run. Hence in mid-1989 project based places accounted for 54 per cent of placements as opposed to only 24 per cent in work based places, the remaining 22 per cent being those who were unplaced at that time. The move to a requirement for claimants to be 'actively seeking work' has added to the pressure on claimants to opt for an ET placement although refusal to take a place is still not in itself ground for benefit denial. Completion of an ET placement does not allow a fresh `permitted period' for a claimant to concentrate job search into a specific area, even if the ET placement has led to the acquisition of new specific skills.

Despite the pressures on claimants the recruitment and retention of participants has remained difficult. The government has responded to this by raising the number of participants from outside the normal target groups and further compulsion is being considered by the Department of Employment.

Special employment measures in the UK have had a history of evolution. ET has the potential for evolving into either a work for dole scheme or a system of retraining the unemployed with skills demanded by industry. The development of ET and the benefit system in the last two years tend to point in the direction of the former but this may only be a temporary result of teething troubles. in all likelihood ET will develop as a mixture of carrot and stick with increasing compulsion of the long-term unemployed to participate and improvements in the training system. With expansion and continued falls in long-term unemployed ET could well offer a job guarantee to at least some groups of the long-term unemployed while providing an effective deterrent to the workshy and a means of reducing the reservation wages of the long-term unemployed.

REFERENCES

Burghes, L. (1987), Made in the USA, Unemployment Unit.

Campaign for work (1988), `Swedish Labour Market Policy', Campaign for Work Booklet, February.

Deakin, B.M. and Pratten, C. F. (1982), Effects of the Temporary Employment Subsidy, Cambridge University Press.

Gueron, J.M. (1987), `Reforming welfare with work', The Ford Foundation.

Gueron, J.M. (1990),`Work and welfare: lessons on employment programs', Journal of Economic Perspectives, vol. 4, no. 1, Winter.

R. Jackman (et al) (1987), `A Job Guarantee Scheme for Long-term Unemployed People', Employment Institute.

Low pay unit (1988), 'Employment Training: Workfare by any other name', Low Pay Review, no. 34, Summer.

Minford, P. (1985), Employment: Cause and Cure, Blackwell, 2nd edition.

Rajan, A. (1985), `Job subsidies: do they work?', Institute of Manpower Studies.
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Author:Gregg, Paul
Publication:National Institute Economic Review
Date:May 1, 1990
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