Examination of Witnesses (Questions 80
WEDNESDAY 20 DECEMBER 2000
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
(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,
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.
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.
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
(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.
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 meit just shows
my ignorance, maybewhat 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.
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
(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
(Ms Riley) Yes.
93. But you emphasise that you have no explanation
for it but you can give us the facts?
(Ms Riley) Yes.
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
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.
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
(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.
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
(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
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