Select Committee on Education and Employment Fifth Special Report



1. We recommend that the Government should commission a national survey of employers' recruitment practices.

Existing research has provided a valuable insight into employers' recruitment practices. Work by the Institute for Employment Studies, funded by the Department for Education and Employment and published in 1996, used a sample of 800 employers across the UK. It asked in detail about how, and how often, employers recruited and their experiences of and attitudes towards the unemployed, especially those who have been out of work for long periods. It also surveyed a range of other research work on employers' recruitment practices. Among its findings were:

  • three fifths of employers had standard practices for recruitment to all jobs. Standard procedures were more common in public sector and larger establishments. Relatively few jobs were exclusively available to internal candidates;

  • most employers did not state any minimum educational or vocational qualifications; relevant experience was a far more common minimum requirement;

  • the most common methods used to attract suitable recruits were open advertising, word of mouth, and Jobcentres and these were also stated to be the most effective channels;

  • recruitment from the unemployed was widespread—half had done so in the previous year. The likelihood of recruiting from the unemployed was much higher than average among larger establishments and higher than average among public sector respondents;

  • nearly one third usually or fairly often took on short-term unemployed people, while a fifth rarely or never did so. These proportions changed to one fifth usually or fairly often when hiring long-term unemployed people and one third rarely or never doing so;

  • of those who had recruited unemployed people, half said they would do so for any occupation. Within the rest there was some tendency to cite less skilled occupations;

  • two thirds of those who had recruited unemployed people saw no great difference between them and other recruits in their performance as employees. Nevertheless, half of employers saw a history of unemployment as a relevant selection criterion. A quarter thought duration of unemployment mattered in assessing job applications and among these the mean duration at which they would think twice about recruiting them was just over 9 months. Both the incidence of "thinking twice", and the extent to which it might lead to rejection, increase with the duration of unemployment;

  • employers showed little evidence of believing that the unemployed were in that position because they were inherently less valuable. Commonly reported attitudes were that anyone could be unemployed, recruiting an unemployed person is no more risky than recruiting an employed one, and unemployed people do offer skills that employers need. At the same time there was strong attachment to the view that experience of unemployment itself can render individuals less attractive through its affect on motivation and human capital.

The researchers concluded, "our findings strongly support the tiered or phased. ... [approach to] active labour market programmes. That is to say ... the normal workings of the labour market will generally cope adequately with most short-term unemployment. There seem to be no qualitative reasons why many or indeed most unemployed people should be significantly disadvantaged in both finding and securing work early in a spell of unemployment. Those who do not succeed, however, face multiple disadvantage that is acquired and intensified as the duration of their unemployment extends. Whatever factors prevent them securing work early in a spell of unemployment are significantly amplified and supplemented in employers' eyes."

This argued for an approach in which new entrants to unemployment should be encouraged and assisted in effective jobsearch as quickly as possible, and where the administrative system they encounter should make this their most important early priority. The timing of subsequent more focused assistance was crucial—too soon and deadweight will be high, too late and individuals may get stuck in an extended spell of unemployment. At six months on the register a significant proportion of employers have begun to take this into account. The longer the spell of unemployment the more significant is the action required.

These conclusions are very much in line with the Government's approach, built around the Jobseeker's Allowance regime for all unemployed people, more significant help available for all claimants from 6 months of unemployment, and the New Deals focused on those who face the most significant disadvantage in the labour market such as young people and very long-term unemployed adults.

However, while this and other research has proved very useful in guiding the development of policies towards the unemployed, it is now several years old. In addition, the Government has increasingly recognised that to be successful in helping people back into work, policies must more fully involve and be bettered tailored to the needs of the employers who take part. Finally, active labour market policy is increasingly focused on helping not just the unemployed but other jobless people, particularly those on other benefits such as Income Support and disability benefits. This suggests further work on the recruitment practices of employers and their attitudes to jobless people as a whole may be useful.

During the current financial year the Department for Education and Employment has funded a survey of employer attitudes towards and recruitment of people aged over 50. New Deal related research has also provided insights—such as the quantitative survey of employers who have recruited people through New Deal for Young People or New Deal for the Long-term Unemployed. Published in September 2000, this covered over 3,000 establishments and almost 5,000 engagements. Several projects in the DfEE or Employment Service research programmes for 2001-02, which are still under consideration, are relevant to this area and the Committee's recommendation will also be considered in the research programmes for 2002-03.

2. The crucial challenge remains to improve the employment opportunities for long-term unemployed people. We strongly urge the Employment Service to improve links between employers and this group of job seekers in order to meet this crucial challenge.

The Employment Service is continually striving to enhance its relationships with employers in order to best meet the needs of long term unemployed people. Wherever possible, the Employment Service looks to enhance New Deal provision and to help engage the support and participation of employers to improve their links with jobseekers. Working on a national basis, it has already:

  • introduced Sector Based Gateways that offer short courses aimed at both preparing long term unemployed people for the industry in which they want to work and matching clients to employers in industries where there are skill shortages. These include the Construction, Retail and Hospitality sectors as well as cross-industry call centre schemes;

  • established a national 'Consultative Group' of major employers, to advise on all aspects of Employment Service business development;

  • influenced the recruitment strategies of employers, through the Large Organisation Unit National Account Management provision;

  • sought to establish excellent working relationships with employers through the delivery of various employment routeways for long term unemployed jobseekers in industries which include Transport, Automotive, NHS, Security and Retail. It is currently developing a routeway for the Gas industry;

  • established a Financial Services Sector initiative with high profile employers.

On a regional basis, it has;

  • worked closely with a number of NHS Trusts to prepare New Deal candidates for employment both in nursing and administrative posts;

  • used regional Employer Coalitions to ensure employer participation in the promotion, design and delivery of New Deal;

  • run a variety of automotive industry based schemes, moving long term unemployed people into well paid sustainable employment in previously inaccessible areas;

  • worked in partnership with City Wide Construction, a specialised department within Nottingham City Council, providing an employment and training initiative for unemployed people who want to gain work and achieve a nationally recognised qualification within the construction industry.

  • developed a package of training and work experience with the West Midlands Police.

The Employment Service will enhance links with employers further through the new demand-led approach, which will focus on what employers want and how workless clients can supply it.

3. We recommend that the Government and the Employment Service should seek to expand the opportunities for work placements and trials for unemployed people.

We agree that this type of good practice is essential in order to improve the employability of jobless people and we are piloting such approaches through the Innovation Fund and Action Teams for Jobs.

4. We welcome this emphasis on the use of subsidies as a means of risk reduction for employers and as a job-broking tool. We agree that employee subsidies, as they operate under New Deal, are not, nor should they be seen as, a means of increasing employment.

The subsidies are not and have never been a means of increasing employment. They do act as a first step towards employers' acceptance of jobless people through New Deal.

5. We welcome the two experimental projects, one in Yorkshire and the Humber and one in Scotland, which will test whether the provision of more intensive after care has a positive impact on retention or progression.

We welcome the support of the Employment Sub-committee for these initiatives, which are firmly based on our experience that even short periods of employment for long term unemployed people can help them become more job ready in the longer term.

The effectiveness of these projects will be evaluated, the findings shared and then the best practice implemented in the Employment Service delivery, as appropriate.

The Yorkshire and the Humber project external provider faced major problems in attracting local employer participation and as a result the Employment Service withdrew Innovation Fund support. However, in a similar project in the Yorkshire area, 38 people have so far received support whilst in work but have yet to be tracked over 13 weeks to assess the impact of the project.

The Innovation Fund continues to provide the opportunity for new ideas to be tested and tried out in different circumstances.

6. We welcome the reduction of the threshold period from two years to eighteen months which is due to take place in April 2001. It is a step in the right direction. We recommend that the Government should reduce further the period for which unemployed people over the age of 25 are required to claim job seekers' allowance before entering New Deal.

We believe that the package of help available to unemployed people aged 25 and over strikes the right balance, and gives the appropriate help at the right time. While the New Deal itself is generally focused on those who have been out of work for 18 months or more, individuals can take advantage of training, work trials and help with motivation and job search much earlier. These forms of intensive help are, of course, in addition to the supporting structure of advisory interventions, which help to ensure that people are kept constantly in touch with the labour market.

We believe that there is strong evidence that this approach of providing active support to all jobseekers has proved particularly effective in preventing the build-up of long-term unemployment. Since the mid-1980s, when a more active regime began to be implemented, the improvement in employment has been disproportionately amongst the long-term unemployed— long-term unemployment has fallen from over a million to just over 200 thousand. It is interesting that the UK approach is, as an OECD conference in Prague last year showed, being taken up, in varying forms, in a number of countries, particularly in Scandinavia but also in France.

The Employment Sub-committee may like to know that the detailed eligibility rules for the New Deal 25 plus will mean that people who have undertaken short spells of employment, but have otherwise been unemployed, will still be eligible for New Deal help. It is also the case that people in certain disadvantaged groups can be considered for early entry to New Deal from day one of unemployment.

7. We congratulate the Employment Service on the Employment Service-plus On-line pilot. We encourage it to investigate further means of attracting more professional and managerial vacancies and more clients seeking jobs in those fields.

The Employment Service recognises the need to obtain a richer mix of vacancies whilst ensuring a high level of service to employers without artificially raising their expectations. The initial indications of the On-line pilot are encouraging and are leading the Employment Service to explore the possibility of extending the experiment.

The Employment Service is preparing to test on-line "banks" of job applicants, one of which will exclusively relate to professional and executive jobseekers. The applicant bank will be open to searches from our employer customers.

Employment Service recruitment consultants will shortly begin to pilot the use of "specialisms" within the sector specific account management framework. This will allow individual consultants to develop sector specific expertise.

The Employment Service is now making available some ten thousand vacancies from other European public employment services, which contain a significant proportion of jobs at higher levels.

8. We support fully the Employment Service's efforts to become a demand-led service, which is able to promote new job opportunities and assist unemployed people to meet those opportunities if both employers and job seekers are treated with equal importance.

The Employment Service will continue to move towards becoming a demand led service within the context of the new Working Age Agency. The development of Employment Zones and Action Teams, alongside the test bed of the Innovation Fund, will support the transition, informing the Employment Service about best practice in helping the unemployed. Balancing and matching the needs of employers with the skills and abilities of the unemployed will be a key task for the new agency.

9. To focus on employers alone as principal customers would risk losing the Employment Service's distinctive role in helping the most disadvantaged job seekers. Moreover, a narrow focus on the needs of employers would be increasingly difficult to sustain as the cohort of people for whom the Working Age Agency provides a work-focussed service becomes more diverse. We recommend that the Employment Service should continue to improve the services it provides to employers both now and as it evolves into the Working Age Agency. It should not be diverted from its gradual evolution to a demand-led organisation. We recommend that Government should ensure that, in the approaching merger, the needs of employers are considered to be as important as the needs of job seekers and other claimants. The attractiveness of a demand-led approach is that the closer the Employment Service is to understanding and targeting employers' needs, the better it will be able to serve those seeking employment.

The Employment Service has a clear commitment to improve the services it offers to employers, which in turn provides access to quality jobs for unemployed jobseekers. An increasing amount of its provision is work based and therefore automatically involves employers. The New Deal Task Force endorses the Committee's recommendation and believes that a dual customer approach, which focuses on the needs of employers and disadvantaged jobseekers, will deliver better results for those seeking employment. In line with the evidence which it gave to the Committee, and with the Committee's recommendations, the Employment Service believes that it should continue to treat employers and jobseekers as equally important customers.

10. We acknowledge the important role that temporary work can play in moving people closer to sustained employment. We recommend that the Government should consider carefully the potential impact of abolishing temp-to-perm fees for PEAs on encouraging PEAs to provide this service. We also recognise that the benefit reforms suggested by the Policy Action Team on Jobs would encourage more benefit recipients to contemplate this route into employment, potentially increasing the role of PEAs in placing the unemployed.

The Government, on 1 February, issued revised proposals for measures to limit the circumstances when private employment agencies can charge temp­to­perm fees. These measures ensure employers are not discouraged from offering temporary workers permanent work opportunities. The Government has at no stage advocated the outright abolition of these fees. The Recruitment and Employment Confederation, the industry's leading trade association, said it considers the revised proposals are a reasonable compromise that enables agencies to protect their interest whilst recognising that the Government has protected those of temporary workers. We expect our proposals to improve labour market flexibility by removing barriers to entry into the permanent employment market.

The Government is considering the benefit reforms recommended by the Policy Action Team on Jobs. Whilst the recommendation on benefit disregards was rejected because of cost implications and administrative complexities, much is being done to develop measures to encourage more people to take up temporary work. For example, from Autumn this year we are introducing a rapid reclaim mechanism so that people on Jobseeker's Allowance and Income Support who move into a job that only lasts a short period can claim benefits again much more easily. We are also allowing claimants who have become entitled to any benefit payments that only become due after 6, 9 or 12 months to re-gain entitlement of these after a period of work without having to serve a fresh qualifying period if they reclaim within 1 or 2 years.

11. The selective nature of the US welfare system provides a stark contrast to the inclusiveness of the benefits system in the UK.

The universal nature of the UK benefits system is one of its greatest strengths and plays a central role in the success of the UK's system that is distinct from the more selective nature of the US welfare system. Unemployment is currently low in the UK and the US and there are fears that the current tightness of labour markets in both countries will generate inflationary pressures and so undermine the sustainability of growth. One necessary response is to expand the supply of labour.

In the UK, this is being tackled by improving the way unemployed claimants are helped into work, through New Deal for example, and by widening this help to include those on other benefits. Almost 4 million people are on other benefits, mainly disability-related benefits: this represents an enormous potential supply of labour that is currently wasted. The universal nature of benefits in the UK provides a link to these people that can be used to help and encourage them to consider work. It is important to remember, however, that many of these people have been out of work for some years and so require different help to return to work than those claiming unemployment benefit. This is reflected in the range and voluntary nature of the help offered to these people.

By contrast, the lack of a comprehensive welfare system in the US may mean that, over time (as benefit entitlement runs outs, for example), people drift away from the world of work because there is no system to keep them in touch with the labour market. It is interesting, for example, that the activity rates in the US and UK are very similar (78 and 77 per cent respectively in 1999), despite the much stronger financial incentives in the US to get a job.

If this is true, then the ability of the US to expand labour supply by bringing these people back into the labour market may be very limited. There may be no levers to pull to bring them closer to the world of work because they are not in the welfare system. In the UK, on the other hand, the universal welfare system means that many more people who are economically inactive are on benefits and hence have some attachment with society that can be used to promote labour market participation. This would suggest that there is greater opportunity, through the welfare system, to expand labour supply in the UK than there is in the US.

12. Although it cannot be assumed that labour market programmes and models for intermediaries developed in the US will be directly applicable to circumstances in the United Kingdom, we recommend that the Government should examine whether there are lessons that could be applied to those areas, where there are high levels of vacancies alongside substantial pockets of unemployment such as in inner London.

We have already identified some lessons from the US intermediary models that could have some impact in the UK, where appropriate, and we are continuing to look at the role of labour market intermediaries through the test bed projects of the Innovations Fund and through the brokering role of Action Teams for Jobs, many of which are active in areas of high unemployment in close proximity to areas with high levels of vacancies.

13. We welcome Wildcat's willingness to share its expertise and the establishment of the NEWTEC PIP programme. We are also adamant that the Government should be aware of developments on the part of domestic intermediaries so that their experiences and innovative ideas can also be recognised and exploited. There has been a failure to recognise fully the good work that is already taking place in the UK. We recommend that the Employment Service, through its network of local offices, should ensure that it identifies and maintains a dialogue with all labour market intermediaries and that procedures are in place for the information gathered to be shared across the Service and with Government as appropriate.

The Innovation Fund will be supporting a number of high quality projects that aim to improve the numbers of disadvantaged clients entering and being retained in good quality jobs. In particular it will support projects that operate as demand-led intermediaries. The bidding and assessment round is still in progress. To date Ministers have approved five projects, eight are under consideration and the National Panel will assess 7 in March. A further 7 organisations, who have been invited to tender, have still to submit proposals.

Proposals have come from a range of public, private and not-for-profit organisations and from all parts of the country. The projects will be subject to on-going monitoring and evaluation and there will be a strong emphasis on identifying the ways in which providers develop and operate as successful, demand-led intermediaries.

Organisations have also had the opportunity to bid for financial support aimed specifically at capacity building activity.

New contract management arrangements in the Employment Service are now coming into effect. As part of the assessment and contract award process providers have to give evidence, of their links with employers, how they will gain an understanding of the labour market and what their proposals are to meet those needs. Quality management systems, including the new ES Quality Framework of self-assessment and the inspection framework of the Adult Learning Inspectorate, will identify good practice and exemplar organisations.

Information will be disseminated through a range of mechanisms:

  • the Innovation Fund Steering Group comprising the Employment Service, the Department for Education and Employment and Task Force Officials will receive and review reports and evaluation data from Innovation Fund projects and will be best placed to ensure that on-going learning is fed into policy and operational development;

  • the Employment Service, through its National Providers Network, will share good practice with key organisations across the provider base and support them in disseminating ideas through their own networks;

  • the Employment Service holds regular workshops for its direct contract holders enabling providers to share good practice;

  • the Employment Service is working jointly with the Centre for Social Inclusion and the Unemployment Unit and Youth Aid to organise a summer convention on innovation. One of the themes for this event is 'providers as intermediaries'. The Employment Service is asking successful and innovative providers to deliver workshops and share their experience. It is anticipated that some 600-700 delegates will attend this event.

14. We commend the Government for its commitment to achieving quality employment outcomes for programme participants, but the salary floor set out in the Innovation Fund prospectus is too blunt a tool. We recommend that the salary levels attracting outcome-related payments should be based on salary levels in regional labour markets.

We believe it is important to send out signals to providers and agencies working with jobless people that they should be thinking beyond entry level jobs and low starting salaries for their clients. Experience with programmes in the United States has shown that where clients and their advisers are ambitious, job quality, starting salary and progression routes can all be considerably enhanced. The £15,000 job entry figure was an initial attempt to quantify the salary level we believe would send out the right signals to advisers and others on the levels they should be aiming for. It is inevitably crude as there will be large regional and sectoral variations but we believe jobless people have great, unrealised potential and it is important that our funding systems aim to help providers unlock it.

15. We recommend a strengthening in the role of employers in the development and management of labour market intermediation at the local level. This could involve the expansion of the role of New Deal partnerships or an increased role for Employers' Coalitions.

It can be difficult to get employers involved in the development and management of labour market intermediation. The Employment Service has made great efforts to have employer representatives both in New Deal partnerships and working closely with Employer Coalitions. Indeed the Employment Service and Learning & Skills Councils are working hard to get employers involved in partnerships at delivery and strategic level.

Employer Coalitions can make a vital contribution to ensuring that the delivery of the New Deal programme is responsive to the needs of local employers and that intermediary organisations develop an in-depth understanding of employer requirements. They have helped to bring together employers across a range of industries to look at innovative ways of recruiting and supporting long term unemployed jobseekers. The promotion and development of intermediary organisations has been one of the key features of recent bids to the Innovation Fund.

The Employment Service has markedly improved its position as an influencer and agent in the local labour market as a result of partnership working. We continue to look at more creative and effective ways of achieving this.

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