The US experience: demand-led
49. The Personal Responsibility And Work Opportunity
Reconciliation Act, enacted in the United States in 1996, brought
sweeping changes to America's welfare system. Eliminating previous
programmes, the new law created the Temporary Assistance for Needy
Families (TANF) block grant and shifted the emphasis of the US
welfare system from providing long-term cash assistance to placing
welfare recipients in jobs. The TANF eligibility criteria and
conditions, set at federal level although the programme is administered
by individual States, stipulate that the benefit is available
only, but not always, to those needy families which include a
child under 18 or a pregnant women and that recipients must engage
in community service after two months and work activity after
One of the results of these strict criteria is that the vast majority
of TANF recipients are women; single mothers in particular have
been the focus of recent welfare reform. For example, in the United
States, single mothers in receipt of welfare payments are required
to return to work when their children are very young. Men generally
are excluded from the US benefits system.
More recent reforms have established welfare-to-work projects
which are open to non-custodial fathers but these are limited.
The vast majority of participants in welfare-to-work projects
are still women.
50. There is a growing number of demand-led intermediaries
operating in the US. At the Wildcat Corporation in New York the
Sub-committee witnessed firsthand the innovative Private Industry
Partnership (PIP), designed by Wildcat in 1994. Traditionally,
intermediaries (both the US and the UK) have seen providing a
service, such as technical and social skills development and job
placement assistance, for welfare recipients and other clients
as their primary purpose. PIP reverses this process. PIP managers
first identify companies that have vacancies for particular jobs.
Then the programme trains selected clients specifically to match
the requirements of the jobs available. Wildcat's clients are
all unemployment welfare recipients (and therefore mostly women)
referred by the City of New York; it has no choice in their selection
but only around a tenth of Wildcat's clients are entered into
the PIP programme. Before the introduction of the scheme, Wildcat
had been achieving results on a par with other well-performing
intermediaries: 65 per cent of clients were placed in employment
with an average starting salary of around $14,000 to $15,000 and
after six months 50 per cent were still in work. PIP participants
achieved a placement rate of 85 per cent and an average starting
salary of $25,000. After four years 92 per cent of those placed
under the PIP scheme were still in employment.
Only a small proportion, around a tenth, of the welfare recipients
referred to Wildcat are entered into the programme; Wildcat imposes
entry requirementsfor instance applicants must have a High
School Diploma or appear capable of obtaining one while on the
programme before they are enrolled. Indeed, the Sub-committee
was struck by the high quality of PIP participants it met during
its visit to one of the participating employers, Morgan Stanley
Dean Witter in New York.
51. Impressive though the results of Wildcat's PIP
programme are, there is however little evidence of its specific
approach being successfully replicated elsewhere in the United
States. There are also concerns that the PIP programme 'creams'
the most skilled and most job-ready welfare recipients, leaving
others to programmes associated with less remarkable job outcomes.
Moreover there are significant differences between the labour
market environments in the UK and US. The selective nature
of the US welfare system provides a stark contrast to the inclusiveness
of the benefits system in the UK. Nor does the US have a nationwide
Employment Service; rather its public provision is State-based
and therefore there are variations in scope and performance from
State to State. Furthermore, as Mr Lewis pointed out, some of
the roles performed by private and voluntary sector organisations
in the US are performed by the public sector Employment Service
in the UK.
The characteristics of the labour itself are different too in
terms of labour mobility. 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.
52. The UK Government believes that there are few
organisations in the UK capable of delivering demand-led strategies
and have asked Wildcat to assist in the development of the demand-led
sector in the UK.
Wildcat has agreed to act as a partner to around five of the successful
bidders under the New Deal Innovation Fund (see paras 55 to 58).
Wildcat has already been working with NEWTEC in East London to
set up a modified version of PIP there. Together they have identified
ten employers with which the first cohort of participants have
already been placed.
It is too early to judge the success of the programme or to establish
whether the transfer of the model from the US to the UK has been
successful, although we should note that the Sub-committee was
as impressed with the quality of those participants in the UK
PIP scheme it met when it visited NEWTEC as it was by those it
met in New York.
53. Ms Munro, Chief Executive of the Gorbals Initiative,
and Mr Baldrey, the Chief Executive of Talent Resourcing Ltd,
both questioned the basis for the Government's decision to invite
Wildcat to lead the development of demand-led strategies in the
UK when they appeared before the Sub-committee, arguing that there
were already a number of demand-led intermediaries of equal calibre
in the UK which could have performed the task. A number, including
the Gorbals Initiative
and Talent Resourcing, were highlighted in the New Deal Task Force's
Report on Improving the Employment Prospects of Low Income
Job Seekers: Case Studies. Mr Baldrey said that he believed
there many, equally as good, but which had not come to the Government's
attention and had therefore been overlooked.
He suggested that this may have occurred as a result of a fragmented
and distanced relationship between the Government and intermediary
54. 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
55. The New Deal Innovation Fund has been established
as vehicle for accelerating the development of demand-led strategies
with New Deal.
The Government has set aside £9.5 million to support the
development of demand-led intermediaries in the UK. £5 million
of the fund has been ring-fenced for use in the 11 inner-cities
area where there are Employers' Coalitions. The objective of Part
I of the Innovation Fund is to support inner-city intermediary
organisations in developing demandled, employer-focussed
strategies which will increase the placement, retention and progression
of unemployed people in work. The remaining £4.5 million
is to be split between Part II of fund which has the same objectives
as Part II but covers the rest of the country and is open to a
broader group of intermediaries and Part III, which will be used
to support continuous improvement projects under New Deal.
56. The Minister described the Innovation Fund as
the 'venture capital' for New Deal and explained that the package
had been constructed to "raise the sights of New Deal"
by experimenting with promising but untested methods of placing
unemployed people into higher level jobs and identifying what
is required to keep them in post for longer. Hence parts of the
fund will be allocated only to those proposing schemes which will
provide a minimum wage upon placement of £15,000 and a placement
period of at least twenty six weeks, twice the length of time
usually used to denote sustained employment. This strategy is
supported by the report of the New Deal Task Force on Improving
the Employment Prospects of Low Income Job Seekers, which
argued that job quality is critically important to the ability
of demand-led intermediaries to succeed, because organisations
that could point to high-quality employers as customers were more
likely to be able to attract additional employers.
The Employment Service added that the Fund could also be used
to test whether demand-led strategies adopted from other countries
were applicable to the UK.
Given our concerns over the transferability of models developed
in the US, we welcome this aspect in particular (see para 51).
57. We heard some criticism of the Innovation Fund
both in terms of its design and implementation.
In particular, the decision to set the wage floor at £15,
000 was challenged. Mr Baldrey, Chief Executive of Talent Resourcing,
thought that the idea of a nationally-uniform wage floor was "preposterous";
and that while £15,000 might be achievable in London, it
was certainly not in some other parts of the country.
It should be noted that only a small part of payments under the
Innovation Fund is dependent on the achievement of a £15,000
starting salary. Payments made under parts I and II of the Fund
to service providers are output-related. A unit price per client
will be agreed and of this, 40 per cent will become payable when
a job starts, 10 per cent if the starting salary is £15,000
or higher and the remaining 50 per cent when the client has been
in post for six months. Nevertheless, we can see little justification
for imposing a higher hurdle on fledgling intermediates outside
the London area than on those in the capital. Both the Employment
Service and Minister were reticent over why the figure of £15,000
had been fixed upon but undertook to monitor its impact.
The Minister told the Sub-committee "In the light of experience,
if it becomes unrealistic then of course we will vary it".
58. 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
94 See Second Report
from the Social Security Committee, Session 1997-98, Social
Security Reforms: Lessons from the United States of America,
HC 552. Back
visit to USA; Q. 51. Back
Deal Innovation Fund Prospectus. Back
visit to NEWTEC; Q. 70. Back
Ev. pp. 54-55. Back
for the New Deal Innovation Fund in England, Scotland and Wales,
p. 2. Back
Deal Task Force, Improving the Employment Prospects of Low
Income Job Seekers, Main Report, p. 27. Back
263, 311. Back