This time we must guarantee to stave off worklessness

Promise of jobs for young people does not go far enough

By James Purnell and Graeme Cook

In the last few months the rise in unemployment has started to slow. This is welcome news, indicating that Britain is finally emerging from recession. However, two big labour market challenges remain, which any future government will have to grapple with.

The first is preventing a rise in structural worklessness, which was the consequence of both the last two recessions. And the second is setting out the next phase of radical welfare reform to get Britain back to work as quickly as possible.

We want to propose a big idea which would address both head on.  The Government should guarantee work to everyone at risk of long term unemployment ­ to make both the right to work and the obligation to work real.

A pipe dream?  Well, the Government is already doing this for young people aged under 25. When they sign on, they are expected to look for work, with help from the Job Centre, like anyone else. Even in the recession, a significant majority do so within a few months. For those who don’t, the Government is becoming the employer of last resort.

At the Budget, we created a £1 billion fund for charities, social enterprises and councils to employ these young people, for at least six months, paid at least at National Minimum Wage.  Nearly 100,000 jobs have already been created, in sports, the arts, environment, tourism and care. The TUC describe this as ‘the most progressive jobs programme for a quarter of a century’.

At yesterday's Pre-Budget Report the Chancellor brought this guarantee forward, so from January, everyone young person out of work for six months will be guaranteed a job or training.

This is an important part of providing support to people during the recession. But in the months and years ahead, once growth returns, there will be a temptation to exit from this investment, as part of demonstrating commitment to reducing the deficit in the medium term. This would be a mistake.

Unemployment, while still too high, is thankfully much lower than the Treasury and external experts predicted at the start of the year.  The rise in unemployment has been slower than in either the Eighties or Nineties recessions, despite the GDP contraction being greater.

Our labour markets have shown themselves to be flexible. Hiring has continued throughout the recession, albeit at a slower pace.  Companies and unions have moderated wages, as a way of avoiding redundancies.  The Working Tax Credit has been a subsidy for short-time working ­ part-time employment reached a record high last month.

However, that unemployment is lower than otherwise it would have been, is also because we decided to invest an extra £5 billion in maintaining our active labour market policies. More advisers were hired, more money was given to private back to work providers, extra help was offered.

This time last year, it did feel like we were learning on the job.  Many of the officials in this area had never worked on rising unemployment.  None of the ministers had.  Search parties were launched for officials who remembered the lessons of the previous recessions ­ mostly lessons in what to avoid, it has to be said.

But thanks to the extra funding, we were able to reinforce the roof as the rain started falling. The Tories opposed this money.  They would have been in the odd position of cutting the support as demand for it grew.  They would have been dismantling the roof as the water was gushing in. Lower unemployment means spending less on benefits and raising more in tax. The lesson from the last year is that investing to prevent long term unemployment and worklessness is not just socially just, it’s deficit reducing.

So as the recovery starts, we should be aiming to extend this job guarantee approach, not unwind it.

Rather than guaranteeing work just for young people, we should extend it to all job seekers, of all ages at risk of long-term unemployment. Hyman Minsky, whose work has been widely revisited as offering the best analysis of financial crisis, argued that since capitalism was necessarily unstable, governments should plan to be employers of last resort, so that ordinary people don’t pay the price for that uncertainty. Where the market doesn’t provide work for people, government must step in. This is especially true during a recession, but the lesson holds in good economic weather too

In fact, it is the final piece of the puzzle of welfare reform.  It makes the welfare state both more supportive and more demanding.  On the one hand, it is real protection ­ instead of offering people a life on benefits, it offers them what they really want: a job, and a chance to get their career back on track.  It particularly helps disabled job seekers, who often face hidden discrimination.  Government would have to make sure jobs were suited to their needs.

But a jobs guarantee also becomes a jobs backstop.  Claimants have to take a job when it’s offered.  That exposes those who are working on the side and claiming fraudulently.  It calls the bluff of those who don’t want to work at all.  We know from the New Deals that mandation works in activating people to find work themselves before compulsory options begin.

The Open Left project, based at Demos, will be publishing a report on how such a jobs guarantee policy could work. But the outline is fairly simple. Initially, the guarantee would come into effect for older jobseekers after the Flexible New Deal (once they’d been looking for work for two years). This could be funded from the money allocated to help people back to work at Budget, which is now being underspent due to lower than expected unemployment.

Over time, that 24 months should be brought forward.  The system should be reshaped so that job seekers spend the first year looking for work with the support of Job Centre Plus and private and voluntary providers, with the jobs guarantee kicking in at 12 months.  This could be funded by a combination of some of the money currently spent on the Flexible New Deal and switching resources from the skills budget. Instead of training people when they are unemployed, we would guarantee people a job where they would get real life skills which could be formally accredited. The strong requirement to take a job would also be likely to increase off flows from benefit within the first year.

We call this ‘supportive conditionality’: ensuring the right to work is real, but not letting people refuse the obligation to work.

Strangely, the Conservatives are against this policy.  There is a cross-Party consensus on some aspects of welfare reform, but not on this. At their Party Conference, they committed to abolishing the Future Jobs Fund, which is at the core of the job guarantee for young people.  Their policy is neither supportive enough, nor tough enough.

At the next election both parties will need to put forward credible plans for getting Britain back to work as quickly as possible. Labour should extend it's job guarantee to people of all ages to end long term unemployment. It would show that Labour wants to renew the welfare state so that people believe it really will protect them, in the recovery, or in a future recession. It would leave at least one silver lining from this terrible recession.

To find out more about this article, visit: http://www.demos.co.uk