Friday, March 23, 2012

The Bottom Line: private sector subsidised employment

Readers based in the UK might want to check out the Mary Portas documentary series on Channel 4 at present (also on 4OD catch-up).   If you have been put off by the presence of Portas, or the Channel 4 marketing guff for the series, it is still worth watching.

In summary, Portas is a very well-known retail consultant in the UK, who has re-opened an old garment factory in the North of England.  This area's industry was largely based on textiles and has been devastated by competition from imports.  The documentary typically suffers a bit from the "dramatic editing" that seems to blight most UK factual TV output these days, but it does give a real voice to the people in these communities and the effect long-term joblessness has had on them and their families.  In amongst the "oh no, we've run out of lace!", there is one of the most damming, hard-hitting and brutal depiction of the psychological effects of unemployment I have seen on UK TV since the '80s.

Over 300 queued for just 8 minimum-wage, temporary machinist jobs.  Many had never had a job in their lives.  One 20-year-old spoke of how money had always been "given" to him - it was a genuinely moving experience to buy food with money he had earned for the first time in his life.  Others spoke of the boredom of unemployment and wanting to do something. The town is run-down and dilapidated; there are people standing around idle.

The project appears to be an example of a private-sector employer with public subsidy funding.  I think the trainees' wages were being paid for via one of the UK govt's apprenticeship programmes, with Channel 4 and probably some other private sources stumping up the rest.  So, probably not a true "job guarantee" in a sense, more of an apprenticeship with government funding.

I would underline the demand for these jobs: over 300 seeking textile work for less than £6 per hour.  I think we have a very, very long way to go before hitting NAIRU or any other "optimal" rate of unemployment.  

Many of the trainees were so damaged by joblessness, the concept of turning up at a fixed time and place to carry out set tasks was totally alien to them.  The private sector would struggle to hire these people, even on a subsidy (in last night's show, one machinist had to be fired).  This is where social sector employment comes in.  The unemployed have been damaged by a pervasive culture of joblessness and will need "fixing" before they can hold down a private sector job.  

In the UK, the NHS offers medical assistance even though it may not be "optimal" or "productive" in some economic models.  Helping the long-term unemployed build the skills to find private sector work is an "NHS for jobs".

This is not the same as Workfare or work experience.  A job is a reciprocal arrangement - I give you some of my time and labour, you give me some money.  Schemes like the Work Programme miss out this crucial link.  It's like learning to drive without turning the engine on.

The Mary Portas scheme, the government reports into the Future Jobs Fund and countless studies show that being paid for a day's work is central to the commitment and success of the schemes.  It's not the only requirement for contentment in a job, and it isn't always essential otherwise there wouldn't be volunteers.  But here we are re-training a group of people to understand the most basic processes of employment - that it is the means of self-support in exchange for labour.  To fully appreciate the meaning of this process, a job is the only option.  There is no substitute.

Programme Home Page:

Interview with Mary Portas:

Friday, March 16, 2012

Labour announces a “Real Jobs Guarantee”

In a speech given today (Friday, 16 March 2012) in Warwick, UK opposition party leader Ed Milliband launched the party's latest salvo against the Coalition. Should Labour win power at the next general election, Ed promised, the party would create the “Real Jobs Guarantee” to tackle youth unemployment.

Essentially, this is a relaunch of the Future Jobs Fund, which was actually a good idea in itself, but with a substantial training element and added sanctions.

According to Labour party press releases, the scheme would be:
  • targeted at the under 25s
  • open to those unemployed for one year or more.
  • refusal to take up a placement could result in the loss of benefits.
  • most opportunities will be created in the private sector, with smaller firms targeted.
  • the government would pay the minimum wage for 25 hours of work for 6 months, a total of £4,000 per job.
  • businesses would commit to pay for and provide 10 hours per week training (making a total 35 hour working week).
  • in keeping with “balanced budget” rhetoric, the whole scheme will be paid for by a tax on bank bonuses.

So, this isn't really a “Job Guarantee” at all, at least not in an MMT sense. It's a guaranteed paid training contract where you could lose your benefits if you don't sign up.

Any programme which tackles the psychological and social burden of unemployment is always welcome, and providing the unemployed with the opportunity to take a real job is an obvious way to do this. In recognising that the young unemployed are not just terminally lazy but would welcome the chance to work is an important step, as is understanding that a real job requires a real wage.

However, the scheme design shows a strong influence of Coalition thinking:

Firstly, there appears to be a suggestion that the scheme is self-funding, as noted in the party statement indicating that it will be paid for by a bank tax. A tax on banker's bonuses would be popular and is probably not a bad idea in itself. But the fact that this jobs scheme is so directly linked in the party's own thinking with a “balancing” tax rise elsewhere suggests that Labour is still very tied to neo-classical economic analysis of government spending. As long as they are wedded to fighting on the same economic grounds as the Coalition, their policies will be hostage. Sayeeda Warsi of the Conservative party responded with a predictable counter-punch: “they've already spent the money they say they'd use to pay for it ten times over”.

Secondly, this scheme is going to be targeted at the private sector. There is a “presumption” towards smaller firms, but as a private sector scheme, there is still the issue of potential displacement. I think private sector bias this time around is based on the same logic that Minister for Employment, Chris Grayling MP used in his explanation of the Work Programme. Private sector firms are more likely to offer ongoing employment opportunities, so this is a “try before you buy” programme. However, there is no apparent requirement for the employment to continue for any length of time after the programme has ended. Firms will not take on new employees unless there is demand for additional supply. Can the private sector even create the 100,000 opportunities required?

Thirdly, the training element seems like a great idea, and effectively turns the jobs into paid apprenticeships. The training element will help to prevent the jobs from being “dead-end”, which has been a major criticism of may of the Work Programme “trainee shelf-stacker” roles. Is this what smaller businesses need right now, and can they afford the ten hours training overhead?

Capping the scheme at 6 months will only help if there is a job available at the end of the contract. This is the same trap the Future Jobs Fund and the Work Programme have fallen into. If they are unable to find employment after the scheme ends, will young unemployed be able to sign on to another training contract straight away? Will they have to sit on the dole for another year before they requalify? Is this a once-only scheme? As a general policy aspiration, I wouldn't expect these details necessarily to have been thought out yet, but if the Labour party actually expect this to work, it needs to fit into a longer-term, overall strategy to create jobs, which they need to be selling to the general public in plenty of time for the next election.

Finally, the punitive “take a placement or lose benefits” element is a sop to those elements in the conservative press who maintain the young unemployed are feckless and lazy. At a stroke, the positive approach of the Future Jobs Fund is turned into a Workfare programme. Do businesses really want an army of sullen conscripts? Do they have the resources to waste 10 hours per week training someone who patently doesn't want to be there? Surely the increase in weekly pay and the opportunity for a real job should be incentive enough?

The Labour Party have correctly identified that youth unemployment is a great threat to the UK's economic and social well-being. They have correctly proposed a scheme that would create real, paying jobs. But, they have taken the short-term route to justifying the scheme's expense that will leave it open to attack from their political opponents.

The announcement shows the party's priorities are in the right place, but even if they are elected, they are unlikely to achieve their goals without a deeper consideration and of the causes and cures for unemployment.


Wednesday, March 14, 2012

Jobs are up, but the private sector still fails to make up the difference

Today (Wednesday, 14 March 2012) the UK's Office of National Statistics released the latest figures for the jobs market. Some commentators have noted the net increase in private sector employment over the last quarter. From September to December 2011, public sector employment decreased by 37,000 and private sector employment increased by 45,000. Does this increase back up the claims made by business leaders in October 2010 that they could "the private sector should be more than capable of generating additional jobs to replace those lost in the public sector"?

On the face of it, yes, the private sector has created more jobs and filled the gap. But this is just for the three months running up to the Christmas period, a time traditionally associated with higher levels of short-term private sector employment. We would need to see this pattern repeated over the next two quarters at least to see if this represents a real trend.

The figures given in Table 4: Public and Private Sector Employment shows that from September 2010 (i.e. the figures immediately before the Telegraph letter), public sector employment stood at 6,262,000 and the total employed in the private sector stood at 22,858,000. At December 2011, this had changed to 5,942,000 employed in the public sector, a reduction of around 320,000. Private sector employment had increased over the same period to 22,947,000, a net increase of 89,000. Clearly, since October 2010, the uptake in private sector employment has failed to keep up with the loss of public sector jobs.

The total labour force has also increased by around 400,000 over this period. The participation rate of the overall workforce has fallen by around 0.2%.

In table EMP0, over the 12 months to the January 2012, the ONS notes a rise in the temporary workforce of around 110,000. This may also account for the rise in private sector employment seen above. The latest figures state that nearly 40% of those now working in temporary jobs are doing so because they cannot find permanent work. Over the same period, part-time working has increased by some 178,000 employees, with around 18% of these wanting but unable to find a full-time job. Nearly 350,000 more employees are working shorter hours than they would prefer than a year ago. This represents real under-employment, and has serious implications for the economic wellbeing of households. It also represents a real, irreplaceable loss of output for the economy.

It is also worth considering that swapping a public sector job for a private sector one may not be a like-for-like exchange. The public sector has a much higher proportion of female workers than most parts of the private sector. This is probably partly due to the nature of work carried out by the public sector in the UK, but public sector organisations can often offer much more flexible working arrangements and better benefits, particularly compared to the lower levels of the private sector. Many decide on careers in Health, Social Care and Education as a positive choice; the classic vocational motivation. Even where public sector employees earn less, these benefits to the employee may not be reflected in the hourly pay rate.

As noted above, there has been a substantial increase in both temporary and part-time working, not all of it voluntary. Exchanging a full-time teaching assistant post at £6.50 an hour for a part-time store assistant job at £6.08 an hour can hardly be considered a move into the “lucrative” private sector. Trade Unions representing public sector workers stick to the line that public sector workers are “underpaid”, to the point where even those in the higher-rate tax band have been know to proclaim themselves “low paid”. The latest ONS figures show that average Public Sector pay (excluding the banks) is higher than Private Sector pay, and has remained constant in recent months while Private Sector pay has fallen. Economics professors may still earn less than their City counterparts, but that is unlikely to elicit much sympathy from those on the Work Programme. Using this logic, the austerity measures are “liberating” armies of workers from the yoke of public sector drudgery for the bountiful pastures of shelf-stacking at Poundland.

The private sector has yet to increase the numbers of employed to make up for the full loss of public sector jobs announced so far, plus the overall increase in the workforce. This has resulted in an increase in the percentage of the workforce economically inactive. Even if the private sector can create sufficient opportunities, these jobs may not be of the same overall pay and conditions available in the public sector and represent a real fall in welfare. If the trade unions choose their battleground from the starting point that public sector workers are always worse off, they will be entering a quagmire.

Unemployment is being used to discipline both public and private sector employees. Workers are being forced to take whatever employment is available, even if that means accepting a degree of “flexible working” that they do not want. Employers would not be able to demand this level of unwilling flexibility if there were sufficient jobs available in the economy. This represents a loss of potential output and real hardship. So, the real question remains: why are there not enough jobs?

Notes - Full ONS tables and datasets are available from:

Friday, March 9, 2012

Why hasn't big business kept its half of the bargain?

Remember this?
35 business leaders back Osborne's cuts (Robert Peston's blog, BBC website, 17 October 2010)
In mid-October 2010, 35 high-profile business leaders in the UK wrote an open letter to the Telegraph newspaper calling for the government not to delay the deficit reduction programme in order to “deliver a healthier and more stable economy”.
In spite of concerns at the time of rising unemployment, the business leaders stated that "the private sector should be more than capable of generating additional jobs to replace those lost in the public sector".
So influential was this view, that the economy was exiting recession and the private sector was poised to pick up the excess labour, that it found its way into the House of Commons Select Committee for Work and Pensions as they considered the Coalition government's decision to end the Future Jobs Fund:
Professor Gregg: “The Connexions service isn’t working well in terms of getting people from deprived backgrounds into work at the first stage. As the economy picks up, some of that will be solved.”i
At this date, the Employment Rate in the UK stood at 70.6%.
One year later, in October 2011, the Employment Rate was 70.3%, a fall of some 14,000ii in the number of employed. Moreover, as the total workforce increased from 40,045,000 to 40,181,000, for the employment rate to have remained stable, the total number of employed would have had to increase by around 150,000 over the period.
Where have all these private sector jobs gone? If the private sector is “more than capable” of making up for public sector job losses, why isn't the Employment Rate stable? And given that the government has diligently followed the business leaders advice of October 2010, and remained on its path of austerity, where is the improved “business and consumer confidence” promised?
Although the Commons Select Committee seemed to be working on an assumption that the private sector could create jobs, there were notes of caution even then:
Neil Carberry: “I also echo the point made about labour conservation. There has been a strong stream across the private sector- probably based on the experience of the ’90s recession when some executives felt that the axe was taken a bit far, a bit early and the firm was not then prepared for the recovery [...] That means that there is quite a lot of excess capacity in terms of human resources within members. That is one of the factors that is driving lower hiring. […] lower hiring does affect the issue.”iii
At this time, many businesses were implementing a shorter working week to avoid redundancies. In effect, they were “hoarding” surplus labour, waiting for an upturn in demand. If workers are on short hours or reduced overtime, employers will generally look to increase capacity with the current workforce before taking on additional employees.iv
The claim that the private sector would take up the slack has turned out to be based on ideology rather than fact. The government has kept its half of the bargain, but the private sector has been placed under no obligation to reciprocate. As noted in this edited exchange between the Government Minister, Chris Grayling, and Glenda Jackson MP of the Select Committeev regarding the Work Programmes, the private sector was never expected to make up the difference:
Glenda Jackson: “Could I just take you back to the Marks and Spencer experience? Is this something that other retailers are participating in? I am thinking of those, for example, who wrote that letter saying that the private sector would be able to create the jobs necessary. Are they all participating in this, and are they actually coming to you and saying, "We can guarantee to create this number of jobs for this number of young people."?”
Chris Grayling: “We’ve been very encouraged by the response so far to the work experience initiative we launched three months ago […] Certainly we have found bigger retailers and bigger employers very co-operative.”
Amazingly, large retailers, in the run up to Christmas, were happy to have large numbers of “work experience” people at minimal cost to themselves:
Glenda Jackson: “So you are not actually pushing those companies that are engaging in the work experience programme to give you some kind of numbers of the jobs that they can guarantee to create? In that work experience, is there any cost to the employer that the Government have to cover?”
Chris Grayling: “Beyond some core costs of just people’s time organising it, no. This is something that employers will be doing themselves and we are looking at employers on a large scale and a small scale.”
But would this equate to new jobs?
Glenda Jackson: “But you’re not asking the private sector to guarantee an increase in jobs?”
Chris Grayling: “The private sector will never guarantee to recruit a certain number of people, but the point is we have to ensure that those people who are [on] benefits are ready to take advantage of the opportunities that arise.”
So, private sector businesses, including many retailers, asked the government to reduce the deficit, leading to the axing of paid-work schemes to be replaced by “work experience” schemes, for which they had to contribute minimal resources and offer no guarantees of employment.
Why is nobody asking why the private sector employers who signed that letter have failed to deliver their half of the bargain?
i Uncorrected Transcript of Oral Evidence to House of Commons Work and Pensions Committee, 27 October 2010 ref: HC472-i Q94 . Professor Paul Gregg is Professor of Economics at the University of Bristol.
Note: This document references quotations from the above document. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not an approved formal record of these proceedings.

ii Source: ONS Labour Market Survey February 2012

iii See (i) Q95. Neil Carberry is Director of the CBI

iv An example of negotiated “short hours”. Production did return to normal, only to be reduced again in this case following the 2011 Japanese earthquake and tsunami.

v See (i) Q125-130 . See also Note for (i). Glenda Jackson MP is a member of the House of Commons Work and Pensions Select Committee. Rt Hon Chris Grayling MP is the Minister of State for Employment, Department for Work and Pensions.

Friday, March 2, 2012

Community Jobs Scotland - an overview

The Community Jobs Scotland scheme is, in essence, a continuation of the Future Jobs Fund that was launched towards the end of the UK Labour Government's tenure in 2009 and withdrawn after the Conservative-Liberal Coalition government was formed in May 2010. This new scheme is funded via the devolved Scottish Government and managed by the Scottish Council for Voluntary Organisations (SCVO) in partnership with Social Enterprise Scotland.

As with the Future Jobs Fund, Community Jobs Scotland (CJS) aims to provide six months' work experience at the national minimum wage (NMW) for young people who had been unemployed for six months or more. The primary target is long-term youth unemployed aged between 18 and 24, but the scheme is also open to 16-17 year olds and, in some areas of high unemployment, long-term unemployed aged 25 and over. Applicants must be referred through Jobcentre Plus or a Skills Development Scotland Advisori.

The CJS scheme also differs in that it is restricted to “Third Sector” only. The Future Jobs Fund simply required that any posts should have “community benefit”, but this was requirement was interpreted differently across the UK regions which took part in the scheme, leading to varying levels of private sector involvementii. CJS is specifically targeted at the Third Sector only, that is, charities, community groups, voluntary organisations, not-for-profit organisations and social enterprises in Scotland. In some cases these types of organisation have a specific definition in Scottish or English Law (such as a Registered Charity), or will be defined in UK tax law as such an entity, such as a Social Enterprise. In other words, there is generally a clear legal “marker” of some kind for most Third Sector organisations in the UK, although the term generally refers to anything that is not public/government sector and anything that is not private/commercial sector. There is no specific, single legal marker or definition of a “Third Sector organisation” in the UK.

The scheme is funded from the budget allocated to the Education department of the Scottish Government, along with additional funding from the European Social Fund. A budget of £10 million was allocated to the scheme for the year 2011-12, with a proposed budget of £6 million announced for 2012-13. The scheme set a target of creating 2000 opportunities in its first year, with half that number proposed for 2012-13. The vast majority of these opportunities are reserved for 18-24 year olds.

The Scottish Government is not monetarily sovereign, so budgets are allocated through negotiation and haggling with the central UK government in Westminster. At present, the UK has a pro-indepenence devolved Scottish Government run by the Scottish National Party (SNP) in Edinburgh and an ostensibly pro-union UK Government in Westminster. A referendum on Scottish independence is proposed in the next few years, so this scheme is set against a backdrop of the SNP setting out its stall for full Scottish independence.

Given the lack of monetary sovereignty in Scotland, or ability to borrow independently in sterling (or euros), a financial cap on the CJS scheme is a necessity. Even so, it is revealing that not only has the budget allocated to the scheme reduced in the coming financial year (2012-13), but that the cap has been set relatively low, given the rate of youth unemployment in Scotland. Over the period July 2010 to June 2011, there were on average 66,088 18-24 year-olds registered as unemployed by the Office of National Statistics (ONS) in Scotlandiii, against 296,674 employed. This means that the scheme at inception could only cover 3% of Scotland's young unemployed. The number of unemployed has risen since the scheme was introduced, and the number of opportunities has been reduced. The Scottish Government has maintained that its allocation of funds from the central UK government in Westminster has been cut, but as with all constrained budgets, the allocation of spending is revealing.

The funding allocation publicly announced for the CJS of £6 million for 2012 (shown as £4 millioniv in draft budget proposals) is out of a total budget for Employability Skills and Lifelong Learning of approximately £223 million. This is in turn just one part of Scotland's overall Education budget. By comparison, the budget allocated for renewable energy projects stands at £29 million, £49 million has been allocated to tourism, and £20 million from the same Education budget has been allocated to the promotion of the Gaelic language. This is not intended as a value judgement as to the relative usefulness of wind farms, Visit Scotland advertising or Gaelic language television, but these are examples of public spending on projects which are not generally considered front-line services so funds could potentially be redirected from one of these or other similar areas without a direct impact on welfare. These spending decisions suggest many areas are considered more of a priority than directly supporting youth employment.

The allocation of direct public spending will generally have the same overall effect on aggregate demand, and a job provided to a recycling awareness officer or tourist information bureau is as good as any other in this respect.

That said, the CJS does provide a source of free labour to charities and community organisations in Scotland, resulting in some community-based output that would not have otherwise happened. This may result in greater levels of community wellbeing than if the scheme did not exist and the money was spent elsewhere.

There is also potential for a small multiplier effect from these young people moving temporarily from welfare benefits into a higher-paid salary, since they are very likely to spend 100% of their income. It may be that these minimum wage jobs have a smaller net saving rate than other, better paid publicly funded jobs, but the macroeconomic effects are likely to be very marginal with such a small number of vacancies over a relatively short period.

Displacement in the Third Sector is less clearly documented than in the private and public sectors. The CJS, like the Future Jobs Fund, requires that the opportunities submitted for funding are “new” and would not have taken place otherwise. Blatant displacement would probably be discouraged by this requirement, but there have been examples in both the charities and public sector of paid staff being replaced by volunteers, so it is possible that some displacement could occur. Third Sector employment in the UK is often fixed term and project-based due to the variable nature of funding, so although it is less likely that the CJS workers will directly displace permanent employees, there is also less scope for ongoing employment offered at the end of the project without additional funding.

The SCVO is carrying out evaluations of the scheme, but no overall findings have yet been published. The scheme is very similar in nature to the Future Jobs Fund, so the impact is likely to be comparable. For the Future Jobs Fund, although the feedback from participants seems to have been generally positive, the scheme did not lead to an increase in employment levels that the new UK government felt justified the 'cost' of up to £6,500 per participant. This was, of course, set against a generally rising rate of unemployment in the UK during the period, when competition for permanent employment will have significantly increased.

Given the relatively small number of scheme participants compared to the numbers of unemployed, the CJS scheme cannot have a dramatic impact on overall youth unemployment in Scotland. Unless aggregate demand is supported, it is unlikely that new, permanent opportunities will be created sufficient to reduce unemployment. The charities and community groups involved cannot offer permanent jobs to participants unless they have sufficient funding to do so, just as a business cannot hire additional staff unless there is sufficient demand for the increase in output sufficient to cover the cost of hiring. Therefore, the CJS, though laudable, can be no more than a paid “work experience” programme to de-risk a small number of young and inexperienced workers.

Furthermore, as these jobs are temporary, there is the danger that younger workers could be locked into a cycle of short-term, low paid work, unless long-term employment opportunities are available. While some work experience is clearly better than none at all, short-term “work experience” projects cannot replace an adequate supply of permanent jobs with the opportunitiy to enhance pay and skills over a sustained period.

Without a net increase in the total quantity of jobs, more “young people” getting jobs means fewer “everyone else” get jobs. Youth unemployment has been thought to lead to “scarring” or hysteresis effects on long-term employment, so this sacrifice may be optimal given the constraints. However, this does not help overall unemployment levels in Scotland.

From a Job Guarantee perspective, the decision to allocate a relatively small budget to the project against other non “front-line” services funded via Edinburgh suggests that the CJS is another case of a government being seen to do something, rather than making a universal job guarantee a commitment and priority. Without a significant increase in aggregate demand, any scheme of this type is unlikely to create permanent new jobs; it can only reallocate the same quantity of resources. As it is budget-constrained, the Scottish government can only use the scheme to signal intent, perhaps remove some supply-side barriers to employment, and perhaps make sure public spending in Scotland has the maximum long-term investment or current multiplier benefit. The CJS scheme does give a working model of how a Job Guarantee could be phased in, targetting high-risk groups and community-based work, and how the scheme could be administered.

Ironically, set against the political backdrop of the independence campaign, the SNP-led Scottish government could use this scheme to promote the concept of a universal Job Guarantee in a monetarily sovereign Scotland, enabling them to engage the Scottish electorate in a truly unique selling point of independence which the three main “Westminster” parties are ideologically prohibited from offering.


ii Centre for Economic and Social Inclusion, Future Jobs Fund: An Independent National Evaluation, July 2011,

iii, Office of National Statistics, Regional Labour Market Statistics, February 2012.

iv Scottish Spending Review 2011 and Draft Budget 2012-13