Examination of Witnesses (Questions 100
WEDNESDAY 20 DECEMBER 2000
100. Are you monitoring those trends?
(Dr Young) We will not be from now on, because, as
I said, our part of the evaluation has pretty much finished now;
101. So that does not particularly appear in
(Dr Young) No, it does not.
102. Can I ask about overall UK competitiveness,
moving on to the sort of wider economic issues. Have you got any
evidence as to whether or not, I suppose on either way, either
the improvement in the skills levels or the improvement in numbers
of people employed is affecting the competitiveness of the UK
as a whole in a positive way, and can we calculate that, is it
possible to separate it out, in any sense?
(Dr Young) It is not something that we have done for
this Report; and, I think, in some ways, it would be very difficult,
because, as I hinted earlier, the New Deal is quite a small programme
in relation to the overall economy, and I think other factors
will just dominate any effect on that it might have. So the answer
is, we had not really looked at it, and I do not think we would
be able to identify that effect either.
103. Can I follow that up, just briefly, to
say, are you aware of any international work that has been done
on youth unemployment between the UK's New Deal programme and
what is happening, say, in other European countries; have you
done any, or are you aware of any other work that has been done
on looking at the international impact?
(Dr Young) No, I am not aware of any. Obviously, there
have been comparisons of different labour market programmes, but
not to the extent that they affect competitiveness, only to the
extent that they affect employment and aggregate unemployment.
104. Garry, in your opening, you said that you
had now looked at wage pressures, and it would be interesting
to know a bit more about that. I suppose the most interesting
question is whether the New Deal, particularly the subsidised
employment option, has had any impact on wage levels, and is that
getting passed on to young workers, in terms of them getting higher
wages than they might otherwise do, or are there any other effects
that you can highlight for us?
(Dr Young) The way in which we have approached this
is that the sort of fairly conventional macroeconomic analysis
now suggests that long-term unemployed people have less impact
on wage-setting than short-term unemployed people, because they
get somehow detached from the everyday labour market. And so,
if you look at wages, of any given level of unemployment, the
higher the number of long-term unemployed people there are in
the stock then the more wage pressure there is; that is the general
hypothesis. So that if you can do something to reactivate the
long-term unemployed then the argument is that they will, by searching
more, put downward pressure on wages, and that will generate extra
jobs through the market mechanisms. And what we have done really
is just to look at that in an aggregate sense and find out if
that sort of mechanism is still working; and what we have done
really is, we have looked at the historical pattern, and that
sort of confirms what I have just said, that the composition of
unemployment has an effect on wage pressure. And then, since the
New Deal has come in, it has obviously changed the composition
of unemployment, reduced long-term unemployment, relative to short-term
unemployment. Now if it was only having a cosmetic effect, you
would expect to see wages much higher than you would have expected
on the basis of past experience, and so we have looked at that
evidence, and we do not find any evidence of wages being higher
than previous experience would suggest because of the New Deal;
we have found evidence that wages might be a bit higher, but we
attribute that to the minimum wage rather than to the New Deal.
105. And your analysis would not enable you
to find out what had happened to the subsidies that the employer
gets, because you are looking at the macroeconomic effects rather
than the micro?
(Dr Young) Exactly. I think, in the rest of the evaluation,
there is some evidence on that.
106. Evidence that, what?
(Dr Young) That some people have looked at that, at
a detailed level, have looked at wages where subsidies have been
taken up, and so on.
107. Do you know what they have found?
(Dr Young) I think it was mainly qualitative rather
than quantitative evidence. I think there was some suggestion
that, in some areas, I think there was some evidence about fork-lift
truck drivers, the wages of fork-lift truck drivers being driven
down because lots of people were getting jobs in that line of
work; but my memory on that is quite hazy.
108. I am not sure, from that; is there any
further analysis that you can give, from looking at the wage pressures,
besides what you have already said to us, and I am not sure how
far I can go into more detailed questions on the basis of what
you said? Are there other trends that you have identified at all?
(Dr Young) No, I think that is the basic thing, that
what has been observed historically seems to be holding up since
the New Deal has come in, in that reactivating the long-term unemployed
does seem to be having the effect on wage pressure that you would
109. Do you have any evidence of significant
differences by areas on that effect?
(Dr Young) We have looked at it on a regional basis,
but it just seems to be that where the New Deal is larger the
downward effect on wage pressure is larger; so it seems to bear
out the more aggregative evidence.
110. And presumably the ratio of short- to long-term
unemployment will have changed over this period?
(Dr Young) Yes, it has changed, because of the New
111. So what impact is that likely to have on
(Dr Young) By changing the composition of unemployment,
it is likely to put downward pressure on wages, and that is the
mechanism by which we are expecting more jobs to be created. And
that seems to be the experience of the last few years, that there
has been less wage pressure generally than people might have thought,
and jobs have been created; but how much you attribute that to
the New Deal and how much to other things is more difficult.
112. I just wonder whether you can distinguish
the normal effect of reducing unemployment anyway or the strength
of the economy; that will obviously have an effect upon the ratio.
How significant is the effect of the New Deal as compared with
the other effect, on wage rates?
(Dr Young) In some ways, I think, we are able to calculate
what the New Deal has done for the long-term/short-term ratio,
and, as I said, from the historical experience, we know what that
is likely to do to wages; and the evidence of the last couple
of years is that there is no evidence that historical experience
has changed, it is still affecting wages in the way we would expect.
113. On a related issue, from your research
and analysis, has the New Deal had any wider impact on productivity
in the overall economy?
(Dr Young) I think it has. We could probably think
of a few effects which might go in different directions. Overall,
I expect that it has reduced productivity, marginally, over the
last couple of years.
114. By bringing into the economy people
(Dr Young) Basically, because it is bringing into
the economy people with lower skills than the average, and also
because employment has gone up more quickly than capital has gone
up, and that also tends to reduce productivity. But, on the other
hand, our estimate is, anyway, there has been a general rise in
economic activity, small, but there has been a rise because of
the New Deal, and generally when you get a rise in economic activity,
in the short term, that tends to raise productivity, because firms
make more use of the workers that they have got rather than taking
more on, in the short term. So that effect will tend to raise
productivity. I think, overall, the net effect is a small, negative
one, but there are probably effects going in both directions.
115. Is there a positive effect of enhanced
employability from skills training?
(Dr Young) This is what is hoped, but we do not have
the evidence that that has happened yet; we have made an assumption
that there will be some effect, but this will build up gradually,
as more people go through the programme.
116. It is too early to say?
(Dr Young) It is too early to say, and it is not something
which is addressed really by our analysis, but other people should
beit should come out of other parts of the evaluation.
117. Can we turn just for a moment to the effect
upon the public finances. I think we were all rather struck, in
your earlier Report, when you said that the New Deal for Young
People "is close to being self-financing." Now does
your latest research or latest evaluation reinforce that view,
first of all? I will let you handle that.
(Dr Young) Yes. I think our finding is that, for every
£5 spent on the New Deal, about £3 comes back via savings
on benefits and higher taxes; so there is, in a sense, a 60 per
cent return on expenditure. So that is not self-financing, but
I consider it to be a good result. We have changed one of the
assumptions we have made, this time, in that last time we took
account of the windfall tax that was introduced to pay for the
programme; and one of the reasons why we thought the programme
might be self-financing was because that money was received up
front, whereas the expenditure was going to be spread over a number
of years, so there were interest flows coming from the up-front
receipt of that money. This time, we decided to ignore the windfall
tax altogether and just concentrate on the programme itself, rather
than that finance area, and so there is a slight difference in
results because of that. But overall we think that the cost of
the programme to the Exchequer is relatively small, and the figure
that we would prefer to give is one of it costing about £150
million per annum, in net terms.
118. Thank you. Can you tell us whether it is
one of the reasons why it is almost self-financing, or in the
terms that you have described that there has been lower than the
expected number of participants, and particularly there have been
fewer people taking part in subsidised employment, are those lower
costs, one of the explanations that the thing is almost self-financing?
(Dr Young) Perhaps I could answer it in this order.
Different parts of the programme have different costs. I think
the Gateway is the cheapest part of the programme, so the more
people you can get out of unemployment through the Gateway then
the cheaper it is going to be. The subsidised employment option
is also relatively cheap, because the employer is making a lot
of the investment, you are subsidising them but then you are not
having to give the person anything extra. The more expensive parts
are the other options, the environmental task force, voluntary
service and the education options; and so, to some extent, the
more people you use in those then the more expensive the programme
will be. But, I think, generally, more people have left through
the Gateway than was initially expected, so that makes it cheaper;
but then, on the other hand, more people are using the other options
than the employer option, and that makes the average cost slightly
more expensive. But, generally, the fact that the programme has
been smaller than expected could make it more expensive for every
person who goes into it, because, in a sense, you have set up
a programme which could deal with a large number of people and,
in actual fact, not many people are using it, so you are losing
out on the economies of scale from that. And, also, the fact that
the programme is smaller means that generally it costs less to
119. Can I just ask, on that, would you venture
a cost-per-job figure, I know it is a horrible thing, but that
has caused quite a lot of political debate, but, based on everything
you have done, and you are saying it is 60 per cent, effectively,
so 60 per cent of the cost is recouped, I think that is right,
have you got a sort of cost-per-job figure you would be prepared
to put in the public domain?
(Dr Young) We have, yes.
Chairman: I was just about to raise that question;
and it is alright, no problem.
Mr Allan: The Chairman's prerogative.