Select Committee on Education and Employment Minutes of Evidence


Examination of Witnesses (Questions 80 - 99)

WEDNESDAY 20 DECEMBER 2000

DR GARRY YOUNG AND MS REBECCA RILEY

Mr Allan

  80. Just to follow that up, the adverse effects area, you have indicated that the subsidised employment will be sort of a very clear issue, where a subsidised young person may get a job that an older person would not necessarily get, but, also, if we have increased the employability of young people, might that not also have a displacement effect, in that a trained young person, presumably, is more competitive against a less well-trained, or an untrained, older person? Is there any evidence that that happens?
  (Dr Young) Overall, I think what we have found is that other age groups have probably benefited from the New Deal because of the fact that what is happening is that, because you are getting people out of long-term unemployment, and these people are searching more for work, this is actually putting some downward pressure on wages in the overall economy; and that downward pressure on wages creates jobs through two channels, effectively. One is that it means that interest rates can be held lower than they would otherwise have been for a period, so that the whole economy is able to grow a bit more quickly, and that creates jobs. The other route is this, that if wages are a bit lower then that makes firms that much more likely to take on people. Now, overall, our analysis is that the overall effect of the programme has been to raise employment among other groups, only by a relatively trivial amount, but we do not find any evidence of an adverse effect, in aggregate.

  81. Can I come back on that, just briefly, again. You said, however, if the economic background turns less benign, which I think is referring back to the fact that you have just said, about lower wage costs and low inflation rates, this could change; that is just a sort of untested suggestion at the moment, is it, or could you give us any guidance as to whether, if interest rates go back up to 10, 12 per cent and the economic situation has got worse, that it will change, or are we just sort of in a guess-work stage here?
  (Dr Young) I think that is more guess-work. I think the point we were making there is that the programme as a whole has been a much smaller programme than it was originally envisaged, because the overall state of the economy has been much better, and it was, in a sense, saying that, well, if the overall economy turns bad, for one reason or another, then that is when the programme is really going to be tested. That was the point we were trying to make there.

Mr Twigg

  82. Can I just probe a little bit more on the significance of statistics about long-term youth unemployment, because obviously the nature of the New Deal is that it does not have a fifth option of remaining unemployed, so there is a kind of inevitable effect of the programme itself on figures for long-term youth unemployment. How significant a success indicator do you think the decline in long-term youth unemployment is, compared with other possible indicators of performance?
  (Ms Riley) It is true that it is almost automatic that the long-term unemployment declines, but I think the fact that we find a significant rise in employment means that it is successful. There is also a small rise in short-term unemployment, but I think the main indicator is the employment figure.

  83. What do you think is the significance of that small rise in short-term unemployment; does that teach us any lessons for reforming the programme itself?
  (Dr Young) Personally, I think it is sort of almost bound to happen, you are bound to get people coming off options, and so on, who just have not had time to find another job, and they will go back into short-term unemployment. The question then is, really, when they go back into short-term unemployment, are they better equipped to deal with that than they were the first time they did it, and, unfortunately, our findings do not throw any light on that.

  84. Do you see it as a random thing, or is it systematic, is there a type of person or a part of the country?
  (Dr Young) We do not really know exactly what it is due to; as I said, we are looking at outcomes, really, and we observe that there have been increased inflows into unemployment commensurate with the way the programme has worked. Our interpretation is that this is because people are coming off options, but there could be other reasons for it, and perhaps some of them not connected with the New Deal; so we have not really got an answer for exactly what is going on, we are just able to say that there has been this increase. If I could come back on the question of long-term unemployment. I think, in a sense, one of the most obvious changes in the youth labour market has been the change in long-term unemployment; that is the thing which we feel most confident about, but you would also perhaps say, well, this is the thing which ought to happen if the programme is working properly. But I think it does show that the programme is being delivered. You can imagine a situation where the Employment Service does not deliver the programme properly and nothing much happens. Well I think we can be fairly confident that that has not happened, that there has been a shift in long-term unemployment and there has been a shift in employment.

Chairman

  85. Can I just ask a supplementary on that one, before bringing Judy in. Was it not inevitable that there would be a reduction in long-term unemployment when there was no fifth option?
  (Dr Young) As I was just saying, I think it is inevitable, given that the programme is being delivered properly; but you can imagine a situation where the programme is not being delivered and people end up staying on the Gateway for months and months, with no effect. So at least you can be fairly sure that something is happening in the labour market from the fact that long-term unemployment has fallen as sharply as it has.

Judy Mallaber

  86. On the rise in short-term unemployment, what figures are we talking about since the introduction of New Deal and how does that compare with the fall in long-term unemployment over that period? Are you able to give us an idea of that?
  (Dr Young) Yes. Our estimate is that, as of now, short-term unemployment is about 6,000 or 7,000 higher than it would otherwise have been, compared with a fall in long-term unemployment of about 45,000, so it is of the order of 10 per cent.

  87. I know you have just said that you cannot necessarily analyse that very easily, but is there any evidence at all that young people who experience a short-term spell of unemployment are finding it harder to get jobs, because there is more competition from those who were previously long-term unemployed but should now be more employable because of the help that they are having through New Deal? Is there any evidence at all that that is making it harder for those on short-term unemployment?
  (Dr Young) On the contrary; we found outflow rates from short-term unemployment have also gone up relative to other age groups. In comparing how the New Deal is operated, we see that more people are going out of short-term unemployment since the New Deal than before.

  88. Going out of short-term unemployment, to?
  (Dr Young) Going out from short-term unemployment into other destinations. And part of the explanation for that is that some people who are actually on the New Deal programme are classified as short-term unemployed, because, as we discussed earlier, they have had a relatively short break in their unemployment history, and so they are classified for the unemployment statistics as being short-term unemployed, even though they are eligible for the New Deal. That is part of the reason, I think, why we are seeing more people leaving short-term unemployment than you might have expected.

  89. Can you clarify for me—it just shows my ignorance, maybe—what that definition is, of when you are classified as short-term or long-term unemployed, for these purposes that you mention?
  (Ms Riley) When somebody joins the Gateway, they will tend to be unemployed for at least six months. If they then leave and return to unemployment within 13 weeks, they will return to the New Deal, they will return to short-term unemployment, so they will start a new unemployment spell, and that is why we get these New Deal participants in short-term unemployment; so less than six months.

Chairman

  90. I think you may have attested upon this already, the impact of the New Deal on inflows to unemployment, but has there been any significant difference by areas, for example, those areas which have traditionally suffered from longer-term unemployment?
  (Ms Riley) We find that there is significant variation across the units of delivery; however, we have not been able to identify any obvious factors that explain that, both in the impact of New Deal on outflow rates from unemployment and inflow rates, there is variation.

  91. Have you published the variations?
  (Ms Riley) No, we have not published the variations.

  92. Would it be possible to give us information on that?
  (Ms Riley) Yes.

  93. But you emphasise that you have no explanation for it but you can give us the facts?
  (Ms Riley) Yes[1].

Mr Allan

  94. The obvious hypothesis might be that, in an area like South Yorkshire or Merseyside, which clearly is an economically depressed, Objective One area, lower then 75 per cent of GDP, in an area like that, the hypothesis would be that people are more likely to go through New Deal and return to unemployment because the real jobs are not there in the economy, it is not structurally sound. Are you saying you have no evidence either way on that; is there any way we could try to test that?
  (Ms Riley) There is some preliminary evidence that that is the case; it is preliminary evidence, which is why I am hesitant to mention it. But this preliminary evidence does suggest that in areas where there are not enough vacancies the New Deal is not having as big an impact on exits from unemployment as in areas where there are high vacancies.

  95. Is that going to be published by anyone in the near future?
  (Ms Riley) If those conclusions can be made more robust, then yes; but not if we cannot be certain about it.
  (Dr Young) They are not robust conclusions, at this stage, I do not think.
  (Ms Riley) Yes, that is the issue.
  (Dr Young) They need to be looked at again and just checked over.

Chairman

  96. But can we just ask, if they did prove to be robust, would there be a special publication of that, or would it have to wait for another year to be included in your next evaluation?
  (Dr Young) Our work on the New Deal is pretty much finished now. There will be another macro-report, but it will not contain any significant new work from us, and it will be a question of whether the National Institute can find the time to look at it.

Mr Allan

  97. Just to follow that up, for anyone trying to analyse that, though, presumably, what they are going to be looking at is the return rates to New Deal, which we are now looking at, or we will be getting over coming months, by unit of delivery, and if you start to look in that area, is that right, am I right in thinking that that is the way you are going to pick these trends up?
  (Ms Riley) You could also look at the exit rates to employment; so do people leave unemployment because they have to and go into options, or do they leave unemployment to go to unsubsidised jobs, so you would also look at that.

Judy Mallaber

  98. Your report in December 1999 showed a divergence in the figures which we were looking to understand, the divergence between the claimant count for 18-24 year olds and the ILO figures for total unemployment in that client group. Does that suggest that those leaving unemployment through the New Deal are not going into sustained employment, so the fall in the claimant count was magic rather than real, in terms of them going into sustained jobs?
  (Dr Young) It could suggest that; in the sense that for the ILO measure, people classify themselves as being unemployed or not, whether or not they are eligible for benefits. But that is something that we have not looked at particularly in the last year, and when we did do some analysis of it there did not seem to be all that much difference between the ILO effect and the claimant effect.

  99. So it is not significant enough for you to be able to analyse any reasons?
  (Dr Young) No; it did not appear to be.


1   Riley, R and G. Young (2000). "Does `welfare-to-work' policy increase employment?: Evidence from the UK New Deal for Young People", NIESR mimeo. Back


 
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