Select Committee on Education and Employment Third Report


Demand-led Approaches

The US experience: demand-led intermediaries

49. The Personal Responsibility And Work Opportunity Reconciliation Act, enacted in the United States in 1996, brought sweeping changes to America's welfare system. Eliminating previous programmes, the new law created the Temporary Assistance for Needy Families (TANF) block grant and shifted the emphasis of the US welfare system from providing long-term cash assistance to placing welfare recipients in jobs. The TANF eligibility criteria and conditions, set at federal level although the programme is administered by individual States, stipulate that the benefit is available only, but not always, to those needy families which include a child under 18 or a pregnant women and that recipients must engage in community service after two months and work activity after two years.[94] One of the results of these strict criteria is that the vast majority of TANF recipients are women; single mothers in particular have been the focus of recent welfare reform. For example, in the United States, single mothers in receipt of welfare payments are required to return to work when their children are very young. Men generally are excluded from the US benefits system.[95] More recent reforms have established welfare-to-work projects which are open to non-custodial fathers but these are limited. The vast majority of participants in welfare-to-work projects are still women.

50. There is a growing number of demand-led intermediaries operating in the US. At the Wildcat Corporation in New York the Sub-committee witnessed firsthand the innovative Private Industry Partnership (PIP), designed by Wildcat in 1994. Traditionally, intermediaries (both the US and the UK) have seen providing a service, such as technical and social skills development and job placement assistance, for welfare recipients and other clients as their primary purpose. PIP reverses this process. PIP managers first identify companies that have vacancies for particular jobs. Then the programme trains selected clients specifically to match the requirements of the jobs available. Wildcat's clients are all unemployment welfare recipients (and therefore mostly women) referred by the City of New York; it has no choice in their selection but only around a tenth of Wildcat's clients are entered into the PIP programme. Before the introduction of the scheme, Wildcat had been achieving results on a par with other well-performing intermediaries: 65 per cent of clients were placed in employment with an average starting salary of around $14,000 to $15,000 and after six months 50 per cent were still in work. PIP participants achieved a placement rate of 85 per cent and an average starting salary of $25,000. After four years 92 per cent of those placed under the PIP scheme were still in employment.[96] Only a small proportion, around a tenth, of the welfare recipients referred to Wildcat are entered into the programme; Wildcat imposes entry requirements—for instance applicants must have a High School Diploma or appear capable of obtaining one while on the programme before they are enrolled. Indeed, the Sub-committee was struck by the high quality of PIP participants it met during its visit to one of the participating employers, Morgan Stanley Dean Witter in New York.

51. Impressive though the results of Wildcat's PIP programme are, there is however little evidence of its specific approach being successfully replicated elsewhere in the United States. There are also concerns that the PIP programme 'creams' the most skilled and most job-ready welfare recipients, leaving others to programmes associated with less remarkable job outcomes. Moreover there are significant differences between the labour market environments in the UK and US. The selective nature of the US welfare system provides a stark contrast to the inclusiveness of the benefits system in the UK. Nor does the US have a nationwide Employment Service; rather its public provision is State-based and therefore there are variations in scope and performance from State to State. Furthermore, as Mr Lewis pointed out, some of the roles performed by private and voluntary sector organisations in the US are performed by the public sector Employment Service in the UK.[97] The characteristics of the labour itself are different too in terms of labour mobility. Although it cannot be assumed that labour market programmes and models for intermediaries developed in the US will be directly applicable to circumstances in the United Kingdom, we recommend that the Government should examine whether there are lessons that could be applied to those areas, where there are high levels of vacancies alongside substantial pockets of unemployment such as in inner London.

52. The UK Government believes that there are few organisations in the UK capable of delivering demand-led strategies[98] and have asked Wildcat to assist in the development of the demand-led sector in the UK.[99] Wildcat has agreed to act as a partner to around five of the successful bidders under the New Deal Innovation Fund (see paras 55 to 58). Wildcat has already been working with NEWTEC in East London to set up a modified version of PIP there. Together they have identified ten employers with which the first cohort of participants have already been placed.[100] It is too early to judge the success of the programme or to establish whether the transfer of the model from the US to the UK has been successful, although we should note that the Sub-committee was as impressed with the quality of those participants in the UK PIP scheme it met when it visited NEWTEC as it was by those it met in New York.

53. Ms Munro, Chief Executive of the Gorbals Initiative, and Mr Baldrey, the Chief Executive of Talent Resourcing Ltd, both questioned the basis for the Government's decision to invite Wildcat to lead the development of demand-led strategies in the UK when they appeared before the Sub-committee, arguing that there were already a number of demand-led intermediaries of equal calibre in the UK which could have performed the task. A number, including the Gorbals Initiative[101] and Talent Resourcing, were highlighted in the New Deal Task Force's Report on Improving the Employment Prospects of Low Income Job Seekers: Case Studies. Mr Baldrey said that he believed there many, equally as good, but which had not come to the Government's attention and had therefore been overlooked.[102] He suggested that this may have occurred as a result of a fragmented and distanced relationship between the Government and intermediary organisations.

54. We welcome Wildcat's willingness to share its expertise and the establishment of the NEWTEC PIP programme. We are also adamant that the Government should be aware of developments on the part of domestic intermediaries so that their experiences and innovative ideas can also be recognised and exploited. There has been a failure to recognise fully the good work that is already taking place in the UK. We recommend that the Employment Service, through its network of local offices, should ensure that it identifies and maintains a dialogue with all labour market intermediaries and that procedures are in place for the information gathered to be shared across the Service and with Government as appropriate.

The Innovation Fund

55. The New Deal Innovation Fund has been established as vehicle for accelerating the development of demand-led strategies with New Deal.[103] The Government has set aside £9.5 million to support the development of demand-led intermediaries in the UK. £5 million of the fund has been ring-fenced for use in the 11 inner-cities area where there are Employers' Coalitions. The objective of Part I of the Innovation Fund is to support inner-city intermediary organisations in developing demand­led, employer-focussed strategies which will increase the placement, retention and progression of unemployed people in work. The remaining £4.5 million is to be split between Part II of fund which has the same objectives as Part II but covers the rest of the country and is open to a broader group of intermediaries and Part III, which will be used to support continuous improvement projects under New Deal.[104]

56. The Minister described the Innovation Fund as the 'venture capital' for New Deal and explained that the package had been constructed to "raise the sights of New Deal" by experimenting with promising but untested methods of placing unemployed people into higher level jobs and identifying what is required to keep them in post for longer. Hence parts of the fund will be allocated only to those proposing schemes which will provide a minimum wage upon placement of £15,000 and a placement period of at least twenty six weeks, twice the length of time usually used to denote sustained employment. This strategy is supported by the report of the New Deal Task Force on Improving the Employment Prospects of Low Income Job Seekers, which argued that job quality is critically important to the ability of demand-led intermediaries to succeed, because organisations that could point to high-quality employers as customers were more likely to be able to attract additional employers.[105] The Employment Service added that the Fund could also be used to test whether demand-led strategies adopted from other countries were applicable to the UK.[106] Given our concerns over the transferability of models developed in the US, we welcome this aspect in particular (see para 51).

57. We heard some criticism of the Innovation Fund both in terms of its design and implementation.[107] In particular, the decision to set the wage floor at £15, 000 was challenged. Mr Baldrey, Chief Executive of Talent Resourcing, thought that the idea of a nationally-uniform wage floor was "preposterous"; and that while £15,000 might be achievable in London, it was certainly not in some other parts of the country.[108] It should be noted that only a small part of payments under the Innovation Fund is dependent on the achievement of a £15,000 starting salary. Payments made under parts I and II of the Fund to service providers are output-related. A unit price per client will be agreed and of this, 40 per cent will become payable when a job starts, 10 per cent if the starting salary is £15,000 or higher and the remaining 50 per cent when the client has been in post for six months. Nevertheless, we can see little justification for imposing a higher hurdle on fledgling intermediates outside the London area than on those in the capital. Both the Employment Service and Minister were reticent over why the figure of £15,000 had been fixed upon but undertook to monitor its impact.[109] The Minister told the Sub-committee "In the light of experience, if it becomes unrealistic then of course we will vary it".[110]

58. We commend the Government for its commitment to achieving quality employment outcomes for programme participants, but the salary floor set out in the Innovation Fund prospectus is too blunt a tool. We recommend that the salary levels attracting outcome-related payments should be based on salary levels in regional labour markets.

94  See Second Report from the Social Security Committee, Session 1997-98, Social Security Reforms: Lessons from the United States of America, HC 552. Back

95  Q. 59. Back

96  Informal visit to USA; Q. 51. Back

97  Q. 257. Back

98  Q. 71. Back

99  New Deal Innovation Fund Prospectus. Back

100  Informal visit to NEWTEC; Q. 70. Back

101  See Ev. pp. 54-55. Back

102  QQ. 183-4. Back

103  Q. 47. Back

104  Prospectus for the New Deal Innovation Fund in England, Scotland and Wales, p. 2. Back

105  New Deal Task Force, Improving the Employment Prospects of Low Income Job Seekers, Main Report, p. 27.  Back

106  Q. 251. Back

107  Q. 218. Back

108  Q. 205. Back

109  QQ. 263, 311. Back

110  Q. 311. Back

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