Select Committee on Education and Employment Appendices to the Minutes of Evidence


APPENDIX 19

Memorandum from Professor Mike Campbell and Professor Ian Sanderson, Policy Research Institute, Leeds Metropolitan University (JG 25)

The Jobs Gap and Structural Unemployment: Re-balancing Local Labour Markets

SUMMARY

While the emphasis in employment policy has shifted towards more "active" supply-side measures to improve the "employability" of the long-term unemployed, some concerns have arisen about the extent to which such measures can be effective in localities experiencing a shortage of jobs or a "jobs gap". However, the notion of a "jobs gap" is difficult to operationalise given the complexity of the processes of matching labour demand and supply in local labour markets. The key problem for labour market policy is the existence of persistent long-term "structural" unemployment. Our analysis shows the substantial local variability in levels and rates of change of long-term unemployment and demonstrates that these are not correlated with changes in employment. Jobs growth appears to provide jobs primarily for the short-term unemployed—those who are least "detached" from the labour market and best able to secure work with relatively little assistance. However, it does not "trickle down" to the long term unemployed and the inactive—those who are most "detached" from the labour market.

  We argue, therefore, that the primary focus at the local level should be on developing effective targeted local assistance to improve the "employability" of the most disadvantaged groups. This is not to argue that labour demand is not a significant issue for public policy; lack of jobs growth is certainly likely to constrain efforts to reduce unemployment and measures to stimulate labour demand must be part of a coherent welfare-to-work policy. There is a need for a balanced approach within the context of broader local economic strategy which integrates action on both the demand and supply sides. Such a strategic approach needs to be based upon an understanding of how the barriers facing jobseekers operate in localities as part of a complex of factors which erode "social capital" and therefore need to be addressed through a "joined up", multi-agency strategy which integrates actions across all relevant policy areas. Moreover, there is a need for effective "vertical" integration of policies and actions at EU, national, regional, local and neighbourhood levels which can tie supply-side measures in with actions to stimulate jobs growth. Finally, on the basis of recent evaluation research we identify a number of key aspects of programme design and delivery at the local level which promote effective action to "re-engage" the long-term unemployed and other disadvantaged groups with the labour market. Such an agenda offers the prospect of "re-balancing" local labour markets and re-connecting those currently most excluded from labour market opportunities.

1.  INTRODUCTION

  In the context of increasing concern about the persistence of relatively high levels of long-term unemployment, there has been a shift of emphasis in employment policy internationally towards more "active" supply-side measures. The focus of such measures is on improving the "employability" of the long-term unemployed by increasing their skills, removing obstacles due to personal and family circumstances, improving job search and seeking to enhance the willingness to take up work (Meager and Evans, 1998). Moreover, there has been a trend towards decentralisation and an increased focus on action at the local level in the context of policies which have transferred regulatory powers and responsibilities to regional and local agencies and private sector bodies whose activities are closer to local labour markets (Martin, 1998; OECD, 1998, 1999). In the welfare to work agenda, the Government has adopted this emphasis on local, supply-side focused action in the New Deal, Employment Zone and ONE initiatives.

  However, some concerns have arisen about this local supply-side emphasis especially about the extent to which local action can be effective if there is a "shortage of jobs". For example, Turok and Edge (1999: 52), based upon an analysis of employment change in 20 British conurbations and cities between 1981 and 1996, have recently argued that: "Retraining and upskilling are likely to have a limited impact on unemployment in the context of generally deficient labour demand." This raises two key questions which we address in this paper: In programmes to reduce unemployment in localities, particularly long-term unemployment, how important is action to boost jobs growth relative to measures to build bridges between the unemployed and job opportunities? How can action to tackle unemployment at the local level be made more effective?

  The paper is structured as follows. In section 2 we discuss the concept of the "jobs gap" arguing that, in policy terms, the key issue is not necessarily shortage of jobs per se but the capacity of those who are seeking employment to gain access to available jobs. In section 3 we discuss the extent of variability at the local level in rates of unemployment and inactivity while in section 4 we go on to analyse the relationship between jobs growth and changes in unemployment and inactivity. In section 5 we discuss findings of recent research on the effectiveness of local action to address unemployment and set out an approach to policy which integrates action at different levels to address both labour demand and labour supply issues in the context of a broader framework to promote economic and social regeneration and "social inclusion". Section 6 presents brief conclusions.

2.  WHAT IS A "JOBS GAP"?

  The notion of a "jobs gap" implies that the supply of labour in a locality exceeds the demand for labour, ie there are insufficient jobs available for all those who want to work. On one level, the local unemployment rate, which represents the "imbalance" between the available supply of labour and existing demand, can be an indicator of a "jobs gap". As we shall see below this "imbalance" can be measured in different ways. However, for a number of reasons, the existence of unemployment defined in these terms does not necessarily imply a lack of jobs. First, there may be jobs available but these may be "unsuitable" for the unemployed in terms of the skills and experience they require. Second, the unemployed may not consider the jobs available to be "opportunities" because of the wages and working conditions associated with them. Third, the jobs may be in the "wrong" places, with weak or expensive transport connections between the locations of the jobs and the locations of the unemployed. Fourth, employers may prefer to employ workers other than the unemployed to fill the jobs available; for example, they may prefer new labour market entrants (school, college and university leavers, women returners), commuters from other localities or inward migrants. Therefore, jobseekers can face difficulties obtaining work even when the overall demand for labour in a locality is numerically sufficient to employ all those without a job, and, of course, unemployed people can obtain jobs even when there is a (large) "jobs gap" because they may be able to fill jobs that become available through labour turnover, "replacing" those who previously filled them.

  Furthermore, unemployment, per se, is not the central "problem". In a market economy, the continuous creation and destruction of jobs inevitably means that some people will face spells between jobs. These spells, if short, are not a serious public policy problem. Indeed, 50 per cent of those who join the unemployment register leave it within three months. However, long-term "structural" unemployment is a serious problem, both for the people themselves and for the economy; it is the existence of persistent long-term unemployment which is of greatest concern in policy terms. The above qualifications to the notion of the "jobs gap" apply with greater force in relation to long-term unemployment.

  Indeed unemployment is, in fact, a rather "porous" concept, since people have different degrees of attachment to the labour market and these vary over the business cycle and, therefore, with the availability of job opportunities. Furthermore, the benefits system affects both the measurement of unemployment, (short and long term) and people's actual labour market status. This is particularly important in two ways. First, there are people who want a job but who are not in receipt of job seekers allowance (JSA). These people do not enter the administrative count which is the source of the bulk of local labour market unemployment data. On the other hand, some of those in receipt of JSA may be considered to be less actively searching for jobs than they might. Second, the boundary between being long-term unemployed and being inactive is not clear cut. Those in receipt of JSA are recorded as unemployed, while those in receipt of other income support, such as disability benefits, will not be recorded as unemployed.

  Because of these arguments and the way in which the term "jobs gap" has come to be associated with the notion of "shortage of job", we prefer the term "labour market imbalance" to denote the mis-match between labour supply and demand at the local level.

3.  VARIABILITY AND CHANGE IN UNEMPLOYMENT, LONG TERM UNEMPLOYMENT AND INACTIVITY

  In this section we examine the variability at the local level in absolute rates and in rates of change over time of claimant unemployment and long-term unemployment (12 months plus) and in inactivity. The substantial degree of such variability is an indicator of the significance of specific local conditions in particular labour markets which require detailed attention and targeted action to address these problems.

  First, as regards variability across English local authority districts (LADs), the claimant unemployment rate varies from less than 2 per cent in 24 LADs (in 1997) to more than 10 per cent in 32 other LADs. Localities with the highest rates include Lewisham (and several other London boroughs), Knowsley, South Tyneside, Liverpool, Redcar, Wirral and Rotherham, whilst those with the lowest include Surrey Heath, Winchester, Fylde, Rutland and Guildford.

  Long-term unemployment, is even more variable and highly concentrated. 37 per cent of the long-term unemployed are concentrated in just 10 per cent of all LADs, with particularly large numbers in Birmingham, Glasgow, Liverpool, Sheffield, Manchester, Leeds and a number of London boroughs. In 24 LADs the proportion of the unemployed who are long-term exceeds 50 per cent. These include various London boroughs, Liverpool, Southend, Birmingham, Knowsley and Sheffield (Campbell, Sanderson and Walton, 1999).

  Inactivity rates vary from a low of less than 15 per cent in 15 LADs, including Sutton, Thamesdown, Newbury and North Hertfordshire, to over 30 per cent in a further 15 districts, including Manchester, Liverpool, Newcastle, Salford and Middlesborough.

  Second, turning to changes over time, whilst claimant unemployment fell nationally by 23 per cent over the period 1991-97, there was substantial local variation—from a reduction of more than 70 per cent (in Vale Royal) to an increase of 25 per cent (in Waveney). Localities experiencing the largest reductions include: Tavistock, North Dorset, Mid Sussex, Horsham, Newbury and South Oxfordshire. Localities experiencing the largest increases in unemployment include Southend, Dover and Brighton.

  Long-term unemployment increased by 22 per cent nationally between 1991 and 1997, but change at the local level ranged from an increase of 80 per cent to a reduction of 250 per cent. Localities experiencing particularly large increases in long-term unemployment include: Milton Keynes, Watford, Barrow, Dover, Waltham Forest, Exeter and Portsmouth. Localities experiencing large reductions in long-term unemployment include: Burnley, Knowsley, Blackburn, Hull, Wolverhampton and Manchester.

  Looking at inactivity, there was an increase nationally of 4.5 per cent between 1991 and 1997; change at the local level varied from an increase of nearly 80 per cent (in Crewe and Nantwich) to a reduction of nearly 40 per cent (in Kingston on Thames). Localities experiencing the largest increases included: Waltham Forest, Newcastle upon Tyne, Plymouth, Norwich and Cambridge, whereas areas experiencing the biggest reductions included: Oxford, Slough, Portsmouth and Hartlepool.

  Therefore, there are very considerable differences in the scale of "labour market imbalance" across localities in England; but are they associated with a shortage of jobs?

4.  IS JOBS GROWTH THE ANSWER TO UNEMPLOYMENT?

  We approach this question by examining the extent to which unemployment, long-term unemployment and inactivity are associated with job generation and employment opportunity. The outcome of such an analysis has significant implications for policy: How significant are measures to boost the availability of jobs in efforts to reduce unemployment? Do new jobs "trickle down" to the unemployed? In short, is the answer to the problem "more jobs"?

  First of all, how significant are local variations in jobs growth in England? Over the period 1991-97 whilst the total number of jobs grew by 2 per cent it varied in different localities in England from a growth of 65 per cent in Caradon to a decline of 25 per cent in Barrow. 115 LADs experienced a jobs growth of up to 10 per cent; about 80 experienced a growth of between 10 per cent and 20 per cent and more than 50 experienced a growth of more than 20 per cent. On the other hand, nearly 100 experienced a decline in jobs of up to 10 per cent whilst 23 experienced job losses of over 10 per cent. These are very substantial variations and a cause of considerable concern in themselves. We saw in the previous section how much levels and rates of change in unemployment vary at the local level. The question which arises, then, is how much do these local variations in employment and unemployment change "match up"? It might be expected that variations in jobs growth would feed through to a substantial impact on unemployment with "job rich" areas experiencing reduced unemployment and "job poor" areas experiencing growing unemployment.

  In order to test this, we have examined the relationship between changes in full-time employment in LADs from 1991 to 1997 on the one hand, and changes in claimant unemployment and long-term unemployment, and inactivity on the other. The statistical correlations from this analysis are summarised in Annex 1. Certain qualifications to this analysis need to be made. First, statistical correlation does not, of course, imply a causative relationship but it is useful in indicating where further investigation might be warranted. Second, while LADs are not necessarily good approximations to labour market areas, the analysis has validity because the majority of potential job opportunities for unemployed people will lie within their local authority area. Third, we focus on full-time (not part-time) employment as this is the most valid indicator of jobs growth in relation to claimant unemployed (data for the broader ILO definition of unemployment is limited for analysis at the local level).

Unemployment

  Figure 1 shows the relationship between jobs growth (as measured by the per cent change in full-time employment between 1991-97), and unemployment (as measured by the per cent change in claimant unemployed), across all 366 LADs in England. There is a clear, positive relationship: the Pearson correlation coefficient is—.339 and is statistically significant at the 0.01 per cent level. This indicates that jobs growth is associated with falling claimant unemployment; job generation appears to make a difference. However, it can be seen that a relatively narrow range of employment growth conditions appears to be associated with widely different changes in unemployment as there is a large vertical spread of observations around zero employment growth.





Long Term Unemployment

  Turning to the relationship between jobs growth and long-term unemployment (Figure 2), we can see that increasing full-time employment is actually associated with rising long-term unemployment (the relationship is significant at the 0.01 per cent level. To unpick this relationship further, we can divide Figure 2 into four quadrants by drawing a vertical line through zero jobs growth and a horizontal line through zero change in long-term unemployment.

  We can see that the largest number of areas indeed experienced a combination of jobs growth and increases in the numbers of long-term unemployed, (the top right quadrant). Examples include areas as diverse as Winchester, Watford, Solihull, Dudley, Wandsworth, Cambridge and Southampton. A much smaller number of areas, experienced the "expected" relationship between declining employment and increasing long-term unemployment (top left quadrant). Examples here include Dover, Newham, Bath, Waveney, Carlisle and Plymouth. Somewhat fewer areas experienced the other "expected" relationship between jobs growth and falling long-term unemployment (bottom right quadrant). Examples include, Tamworth, Salford, Chester, Preston and Sunderland. Finally, some localities (in the bottom left quadrant) experienced both job loss and reduced long-term unemployment. Examples here, include Liverpool, Manchester, Blackpool and Middlesbrough.

  We can conclude that job creation doesn't appear to be a powerful force in reducing long-term unemployment (except in certain specific areas) and even job loss does not appear to necessarily find its way through to rising long-term unemployment.

Inactivity

  Figure 3 examines the relationship between jobs growth and economic inactivity. The relationship here is not statistically significant; jobs growth does not appear to make significant inroads into reducing local levels of economic inactivity.


  This analysis points up two significant results. First, jobs growth does not appear to be associated with reduced claimant unemployment but not with reduced long-term unemployment or inactivity. This suggests that it provides jobs primarily for the short-term unemployed—those who are least "detached" from the labour market and best able to secure work with relatively little assistance. Second, therefore, jobs growth does not "trickle down" to the long-term unemployed and the inactive—those who are most "detached" from the labour market. This indicates the need for targeted local assistance to improve the "employability" of the most disadvantaged groups irrespective of the "buoyancy" of the local labour market.

5.  RE-BALANCING THE LABOUR MARKET: TOWARDS MORE EFFECTIVE LOCAL ACTION

  We have shown that growth in jobs (labour demand) in a locality appears not to have a significant effect on long-term unemployment nor to make significant inroads into those classified as "inactive" but who may be potential jobseekers. The key policy problem is "structural long-term unemployment" which erodes "employment". This is due to obstacles to the process of local matching of labour supply to demand which require targeted policy action to "re-connect" people with available jobs. This is not to argue that labour demand is not a significant issue for public policy; lack of jobs growth is certainly likely to constrain efforts to reduce unemployment and measures to stimulate labour demand must be part of a coherent welfare-to-work policy. There is a need for a balanced approach within the context of broader local economic strategy which integrates action on both the demand and supply sides. However, we argue that the emphasis at the local level needs to be placed on ensuring effective action to help actual or potential jobseekers who face barriers or obstacles to re-engagement in the labour market. Our analysis in section 4 above provides grounds for arguing that supply-side action can make a difference even where labour demand is relatively static.

Evidence on the Effectiveness of Local Action

  In our view, then, a key policy priority must be on ensuring the effectiveness of such local action. So what lessons can we learn from the available research evidence in this respect? A considerable amount of evaluation research has been undertaken on local schemes which are designed to get unemployed people back into work (Campbell, et al, 1998) but the emphasis in this research has tended to be on two aspects of performance. First, the effects and achievements of schemes have been analysed primarily in terms of outputs and short run gross outcomes, for example, qualifications obtained by scheme participants and jobs obtained immediately or shortly after receiving a programme of assistance. Second, the processes involved in the operation of schemes have been analysed in order to identify "success factors" in terms of operating structures and systems.

  This evaluation research has resulted in a large amount of "good practice" literature but has largely failed to provide definitive evidence of the effectiveness of local action in getting people into work who would otherwise have remained unemployed (Meagre and Evans, 1998). That is, the research has not adequately addressed the issue of dead-weight—what value can local schemes add in terms of improving the job prospects of unemployed people over and above what they would be given "normal", mainstream provision. Other issues requiring more attention include the quality and "sustainability" of employment obtained and the value of "non-employment" outcomes such as an increase in "employability" (or "distance travelled" as it is sometimes referred to). Finally, insufficient attention has been given to macro-level effects, including problems of substitution and displacement and broader economic multiplier effects.

  Identifying these effects at the local level poses difficult "technical" challenges to evaluation research and requires a more systematic approach to building evaluation into local initiatives so that, for example, more longitudinal research can be undertaken. However, such research is expensive and the often tenuous funding basis of local schemes means that they usually have difficulty in prioritising such research. Nevertheless, there is a need for "smarter" evaluation research to tell us how effective different models of local action are, to provide a sounder basis for identifying "success factors" which can contribute to improved effectiveness.

  Our recent research for the Joseph Rowntree Foundation (Campbell, et al, 1998; Sanderson, et al, 1999) summarises results from other research and provides new evidence indicating that the shortcomings of local schemes are due mainly to the following:

    —  insufficient targeting on those with the worst prospects of obtaining work and a tendency towards "cream-skimming";

    —  failure to provide tailored packages of support which address the full range of problems, obstacles and needs of such individuals in an "holistic", co-ordinated way;

    —  failure to achieve integrated working with other local agencies and to engage effectively with local employers to ensure that packages of support are oriented closely to meeting employers' needs;

    —  failure to marry a "client-focused" with an "employer-focused" approach in an action-planning framework underpinned by effective management.

Addressing the Barriers

  As a result of these factors, schemes fail to "get to grips" with the processes operating in local labour markets to exclude unemployment people from work. The value of local action is precisely this potential to address these obstacles and barriers, providing a basis firstly for understanding their nature and extent, secondly for securing involvement of all stakeholders and, thirdly, for harnessing action across the full range of local agencies required. This has been emphasised in recent work by the OECD (1998, 1999). The nature of these barriers has been extensively researched and is now widely understood (Campbell, et al, 1998; Gardiner, 1997). Essentially they relate to:

    —  health, family, housing and personal problems which may mean individuals are not prepared to look for work;

    —  lack of qualifications, skills and personal attributes required for jobs which are available;

    —  lack of motivation to look for work, constraints on the scope of job search and wage expectations which do not match available jobs;

    —  caring responsibilities which constrain ability to take up work;

    —  employers' attitudes and recruitment practices and conditions of employment which hinder the recruitment of unemployed and other disadvantaged groups.

  However, it is increasingly recognised that the barriers which disadvantaged groups face in obtaining work exist as part of a wider complex of problems which relate to the community in which they live. For example, many studies have demonstrated the importance of personal and institutional contacts and networks in obtaining jobs and have highlighted the disadvantage experienced by unemployed people living in communities where such contacts and networks are poorly developed or have been eroded. As Molina (1998) argues, success in job seeking is not simply dependent upon having the necessary skills but also requires ". . . job leads, referrals and references to specific employers" (p13). In neighbourhoods with high and persistent unemployment the networks which sustain information flows, contacts and referrals break down both at the personal level (based on family, friends, neighbours) and at the institutional level (based on education, training and employment). This process reinforces the disconnection' of unemployed residents from the labour market (ibid.).

  This problem has been analysed in recent literature on "social capital" which emphasises the role of social relationships, ties and networks in facilitating effective economic and social functioning (Midgley and Livermore, 1998; Lang and Hornburg, 1998). Thus, residents of communities suffering from a lack of social capital are likely to experience social exclusion due to poor educational attainment, lack of access to jobs and services and attendant poverty and multiple deprivation. This literature indicates the importance of local action across a range of policy areas to address these problems in an integrated way, including the need to build the social capital necessary for sustainable economic, social and community development. Thus, action to develop educational achievement and skills, to support and develop networks for connecting jobs seekers with job opportunities, and to promote the development of local businesses needs to be set in the context of broader strategies to strengthen the capacities of local communities and address wider problems such as poor housing, crime and substance abuse. This is recognised in the Government's Strategy for Neighbourhood Renewal to address social exclusion (Social Exclusion Unit, 1998).

  Effective action therefore requires strong and coherent local strategies which co-ordinate the work of all the relevant agencies and comprise a range of policies and programmes which acknowledge the inter-related nature of the problems in communities experiencing high structural unemployment. In our recent research (Campbell, et al, 1998; Sanderson, et al, 1999) we have identified from the evaluation of local schemes a number of lessons for effective local action which are consistent with a range of other recent research on the Government's welfare to work agenda (eg Bennett and Walker, 1998; Legard, et al, 1998; Woodfield, et al, 1998) and on action by local authorities (Audit Commission, 1999). Moreover, these lessons are also consistent with findings of recent research on "employment linkage programs" in the USA (Molina, 1998). Therefore, there is a developing body of knowledge in this area which is becoming quite rebust. The implications for local action can be considered in three key areas:

    —  developing a strategic approach to policy formulation;

    —  developing effective programme design;

    —  developing effective programme implementation and delivery.

  We consider each of these in turn.

A Strategic Approach to Policy Formulation

   A key characteristic of the challenge for local action to reduce structural unemployment is the complex, multi-dimensional nature of the problems facing people in disadvantaged, high unemployment and high inactivity neighbourhoods. Not only is there potentially a wide range of interrelated factors to be addressed but there is also a need to accommodate the dynamics of labour market change. Given this complex and dynamic context, there is a need for integrated action over a prolonged period of time across all relevant policy areas. Action to address structural unemployment needs to be part of a broader long-term strategy for economic and social regeneration to promote "social inclusion". Such a strategy needs to incorporate measures to "re-balance" the labour market—to overcome barriers to the efficient matching of labour supply and demand—while stimulating broader processes and economic growth and social development to promote economic competitiveness, enhanced social welfare and environmental sustainability.

  Such a strategic approach needs to achieve both "vertical" and "functional" integration. Effective 'vertical integration' requires co-ordination of different levels of policy action in relation to both labour demand and labour supply: EU structural funds and programmes (eg ERDF, ESF); national level policies (eg welfare benefits); regional and sub-regional level policies (eg on skills, inward investment and infrastructure development); local labour market/TTWA level policies (eg on education and training, sectoral business development, industrial site development; prevention of job losses); and neighbourhood level action to address the barriers faced by local jobseekers. Thus, local action with a supply-side emphasis needs to developed in the context of a coherent policy framework for stimulating labour demand which co-ordinates instruments and action at the above levels.

  Such local action also needs to achieve "functional integration" at this level with co-ordinated action on three main fronts (see Figure 4):

    —  to promote and influence labour demand in general, but particularly focused on the needs of the long-term unemployed, for example, by developing small businesses and Intermediate Labour Market models (including those within the "Third System"), and by working closely with local employers who are generating new jobs seeking to influence their recruitment;

    —  to improve the matching of labour supply to available demand by developing the "employability" of local jobseekers (especially the most disadvantaged groups) and achieving sustainable employment, for example through training, job search and job placement activities;

    —  to support this matching process through complementary measures which address broader personal, family and social problems faced by jobseekers, for example homelessness, substance abuse, offending, transport problems and a need for childcare.

  The basis for co-ordinated action across all these policy areas is a long-term strategic approach which involves all the relevant agencies at the various levels in effective partnership working. Key requirements for effectiveness at the strategic level are:

    —  an inclusive strategy development process which seeks to involve all key stakeholders from the outset in order to ensure their commitment and support—representatives of target client groups, local communities and local employers as well as the relevant agencies;

    —  a good understanding of the dynamics of the local labour market, the problems to be addressed and likely future trends to provide the basis for effective targeted action; this requires a capacity for high quality labour market research and a commitment to "evidence-based policy making";

    —  the specification of clear objectives and meaningful measures of performance which capture the key desired effects and outcomes of the strategy to provide the basis for monitoring and evaluation;

    —  a sound funding basis and accountability mechanisms which allow a long-term approach, support and encourage the achievement of the desired outcomes and do not promote manipulative "numbers games".


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2000
Prepared 18 May 2000