The New Deal

25feb98a: Kim Swales: The New Deal - Smoking without inhaling.

The UK has a schizophrenic attitiude to labour subsidies.

Whilst politicians deride labour subsidies as not providing proper jobs, they are, in practice, addicted to them. Over the last two decades numerous schemes have been introduced that subsidise labour: YOPS, YTS, Employment Training, Employment Action, Action For Work, amongst others.

Unfortunately these schemes have been temporary, selective and narrowly targeted to specific disadvantaged groups. This has made them difficult to administer and unlikely to succeed.

They may have been cheap in terms of exchequer cost but they have been expensive in terms of real effectiveness. However, the politician's intuition is correct about the positive impact that labour subsidies could make, but labour subsidies should be introduced in a much more systematic manner. At present, like Clinton, we smoke but don't inhale.

Is the New Deal any different?

08mar98a: Val MacLeod: Neighbourhood New Deal groups.

People who are unemployed and living in areas of high unemployment find ways of living which surprise outsiders. New Deal efforts to change these patterns must be equally innovative.

As a community worker familair with the 1970 Community Developnmnet Areas and having worked with groups of single parents, I see that in managing their everyday life people develop social skills. These skills, (for example helping each other when starting a new job) are important assets in any new situation.

New Deal groups based on neighbourhoods would be expensive. But such locally based solutions are necessary to address the problems of working parents caring for children.

With 70% of child care costs found and work opportunities available, parents beginning work need support in leaving their children with other carers. Parental guilt and childrens distress, transport, school meals and benefit problems could well be eased by the chance to talk in a neighbourhood group.

Before and After School Clubs now add to the child care infrastructure of relatives, schools, nurseries and childminders and this could be extended if New Deal opportunities were to have a flexible time structure.

If work and school hours had starting and finishing times from 8.30am to 3 pm and l0.30am to 5pm then neighbours could share out childcare which could be arranged in a neighbourhood centre. Similarly worksharing posts could be designed which allowed two people to share the same job sharing the care of their children. These could be advertised at the neighbourhood New Deal centre.

28jul99a: The Royal Economic Society: Press release for 26th July 1999.

How Effective Are Active Labour Market Policies Like The New Deal?

Do active labour market policies like the New Deal programme in the UK and the Workforce Investment Act in the United States actually increase the wages or employment of the people they seek to help? According to new research by Professors James Heckman and Jeffrey Smith, published in the latest issue of the Economic Journal, programmes of this kind make almost no difference to the level of unemployment or the wage rates of those gaining employment. What is more, many official evaluations overstate the effectiveness of such policies because they assume unrealistically that nothing would have happened without the programmes.

How should we evaluate the effectiveness of programmes like the UK's New Deal and the US Workforce Investment Act, which provide job search assistance, job matching services and skills training to people looking for work? Heckman and Smith argue that the trick is to figure out what would have happened to unemployed people if they had not participated. At first glance, it seems natural to think that nothing would have happened - they would have remained unemployed. But using unique data from an experimental evaluation of the Job Training Partnership Act (JTPA) programme in the United States, the researchers reveal that this natural assumption is incorrect.

In the experiment, people who applied to and were eligible for the JTPA programme were assigned at random to two groups. One group was allowed to receive the programme's services and the other was excluded from them. The excluded group indicates what would have happened to unemployed people had they not participated:

  • In contrast to the intuition that without the programme, participants would remain out of work, the JTPA data reveal that the unemployed and the disadvantaged find work almost as well - and for male youth, better - without the programme as with it.
  • For most groups, the difference in employment rates is just a few percentage points.
  • Differences in average earnings are similarly small.
These findings shed new light on the high placement rates often cited by programme officials - placement rates that implicitly (and incorrectly) assume that participants would not find work without the programme.

Heckman and Smith also show that many traditional approaches to evaluation fall down because they make incorrect assumption about what would happen to people's earnings if they did not participate. Many evaluations of government programmes compare the earnings of participants just before and just after participation and attribute the difference to the programme.

The experimental data reveal that participants experience a 'dip' in earnings prior to the programme, but that their earnings would rebound and grow beyond pre-programme levels even without any programme services. Official evaluations falsely attribute such earnings growth to the programme and thereby produce overly-positive estimates of the effect of the programme.

'The Pre-Programme Earnings Dip and the Determinants of Participation in a Social Programme: Implications for Simple Programme Evaluation Strategies' by James Heckman and Jeffrey Smith is published in the July 1999 issue of the Economic Journal.
Heckman is Professor of Economics at the University of Chicago; Pack is Professor of Economics at the University of Western Ontario.

02aug99a: Kim Swales: New Deal web site shoots government in foot.

The heavyweight paper by Heckman and Smith mentioned in the previous posting is not the only one to show that training schemes like the New Deal do not affect jobless levels. Another one by Keith Marsden writing for the Centre for Policy Studies points out that France and Germany spend much more than twice as much as the UK on job schemes but have much higher unemployment.

But even before these were published, it was clear that someone in government knew the score. A careful look at the Department of Education and Employment's web site gives the game away (United Kingdom Employment Action Plan) . This claims 70,000 young people have moved from the New Deal into sustained jobs. With the "64,000 on other education, training and work experience options" the New Deal has succeeded in removing about half its entrants from unemployment.

Figures also published in the action plan suggest that before the New Deal about half of people unemployed for six months (who would now be New Deal entrants) left unemployment in the following six months.

So according to the government's web site, the New Deal does not seem to have made any difference.

03aug99a: Webmaster: European coordination or european coincidence.

It has been pointed out to faxfn that most other european governments to have similar policies. The 1999 Action Plans for Employment have remarkable similarities. Did Allan Larsson, Director General of the employment directorate organise the hymn sheet? (The view of a swedish economics student passing through St James Park.) Or was it Commissioner Flynn? Or is this evidence of New Labour's new influence in Europe?

Faxfn has been asked to investigate. Please help.

07aug99a: Joe Pattinson: Still more hills to climb.

I was out of work and was threatened with being sent to the Malton Bacon Factory. Since I did want to do Art & Design I signed on for a course. It got me what I wanted and it made DSS happy because I was technically off the unemployment register as being trained. It also made Job Agency running the scheme for the DSS happy because they got their commission. They will let you go on any course you want and pay for it, whether it's any good or not, as long as it's under twenty hours a week. But you must be available for work.

I have done five years of foundation art and two years of counselling. I did enjoy the courses and learnt from them. However, I still have to do more courses in order to get a job. I am going to do a diploma in Gestalt Counselling, another four years part-time. I plan to use exhibitions and art to fund it.

Since I was signing on fifteen years ago there has been a change. Then, you went and signed on - few questions asked. It is different now. If you don't have a plan, the Job Centre will make one for you. Doing nothing is not an option.

Although I still have more "hills to climb", in retrospect, it has kept me focused on my objectives. For many on the scheme this is not true but I do come from a middle class background.

Politically and economically the system we live under is daft: people like me are working hard and training to find our place in the job market and others are in jobs servicing the system working excessively to the detriment of their health and family. But, in my cynical moods, I do look forward to the increased opportunities for counselling.