Select Committee on Education and Employment Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. Are you monitoring those trends?
  (Dr Young) We will not be from now on, because, as I said, our part of the evaluation has pretty much finished now; so, no.

  101. So that does not particularly appear in your analysis?
  (Dr Young) No, it does not.

Mr Allan

  102. Can I ask about overall UK competitiveness, moving on to the sort of wider economic issues. Have you got any evidence as to whether or not, I suppose on either way, either the improvement in the skills levels or the improvement in numbers of people employed is affecting the competitiveness of the UK as a whole in a positive way, and can we calculate that, is it possible to separate it out, in any sense?
  (Dr Young) It is not something that we have done for this Report; and, I think, in some ways, it would be very difficult, because, as I hinted earlier, the New Deal is quite a small programme in relation to the overall economy, and I think other factors will just dominate any effect on that it might have. So the answer is, we had not really looked at it, and I do not think we would be able to identify that effect either.

  103. Can I follow that up, just briefly, to say, are you aware of any international work that has been done on youth unemployment between the UK's New Deal programme and what is happening, say, in other European countries; have you done any, or are you aware of any other work that has been done on looking at the international impact?
  (Dr Young) No, I am not aware of any. Obviously, there have been comparisons of different labour market programmes, but not to the extent that they affect competitiveness, only to the extent that they affect employment and aggregate unemployment.

Judy Mallaber

  104. Garry, in your opening, you said that you had now looked at wage pressures, and it would be interesting to know a bit more about that. I suppose the most interesting question is whether the New Deal, particularly the subsidised employment option, has had any impact on wage levels, and is that getting passed on to young workers, in terms of them getting higher wages than they might otherwise do, or are there any other effects that you can highlight for us?
  (Dr Young) The way in which we have approached this is that the sort of fairly conventional macroeconomic analysis now suggests that long-term unemployed people have less impact on wage-setting than short-term unemployed people, because they get somehow detached from the everyday labour market. And so, if you look at wages, of any given level of unemployment, the higher the number of long-term unemployed people there are in the stock then the more wage pressure there is; that is the general hypothesis. So that if you can do something to reactivate the long-term unemployed then the argument is that they will, by searching more, put downward pressure on wages, and that will generate extra jobs through the market mechanisms. And what we have done really is just to look at that in an aggregate sense and find out if that sort of mechanism is still working; and what we have done really is, we have looked at the historical pattern, and that sort of confirms what I have just said, that the composition of unemployment has an effect on wage pressure. And then, since the New Deal has come in, it has obviously changed the composition of unemployment, reduced long-term unemployment, relative to short-term unemployment. Now if it was only having a cosmetic effect, you would expect to see wages much higher than you would have expected on the basis of past experience, and so we have looked at that evidence, and we do not find any evidence of wages being higher than previous experience would suggest because of the New Deal; we have found evidence that wages might be a bit higher, but we attribute that to the minimum wage rather than to the New Deal.

  105. And your analysis would not enable you to find out what had happened to the subsidies that the employer gets, because you are looking at the macroeconomic effects rather than the micro?
  (Dr Young) Exactly. I think, in the rest of the evaluation, there is some evidence on that.

  106. Evidence that, what?
  (Dr Young) That some people have looked at that, at a detailed level, have looked at wages where subsidies have been taken up, and so on.

  107. Do you know what they have found?
  (Dr Young) I think it was mainly qualitative rather than quantitative evidence. I think there was some suggestion that, in some areas, I think there was some evidence about fork-lift truck drivers, the wages of fork-lift truck drivers being driven down because lots of people were getting jobs in that line of work; but my memory on that is quite hazy.

  108. I am not sure, from that; is there any further analysis that you can give, from looking at the wage pressures, besides what you have already said to us, and I am not sure how far I can go into more detailed questions on the basis of what you said? Are there other trends that you have identified at all?
  (Dr Young) No, I think that is the basic thing, that what has been observed historically seems to be holding up since the New Deal has come in, in that reactivating the long-term unemployed does seem to be having the effect on wage pressure that you would expect.


  109. Do you have any evidence of significant differences by areas on that effect?
  (Dr Young) We have looked at it on a regional basis, but it just seems to be that where the New Deal is larger the downward effect on wage pressure is larger; so it seems to bear out the more aggregative evidence.

Judy Mallaber

  110. And presumably the ratio of short- to long-term unemployment will have changed over this period?
  (Dr Young) Yes, it has changed, because of the New Deal.

  111. So what impact is that likely to have on wage rates?
  (Dr Young) By changing the composition of unemployment, it is likely to put downward pressure on wages, and that is the mechanism by which we are expecting more jobs to be created. And that seems to be the experience of the last few years, that there has been less wage pressure generally than people might have thought, and jobs have been created; but how much you attribute that to the New Deal and how much to other things is more difficult.


  112. I just wonder whether you can distinguish the normal effect of reducing unemployment anyway or the strength of the economy; that will obviously have an effect upon the ratio. How significant is the effect of the New Deal as compared with the other effect, on wage rates?
  (Dr Young) In some ways, I think, we are able to calculate what the New Deal has done for the long-term/short-term ratio, and, as I said, from the historical experience, we know what that is likely to do to wages; and the evidence of the last couple of years is that there is no evidence that historical experience has changed, it is still affecting wages in the way we would expect.

Mr Twigg

  113. On a related issue, from your research and analysis, has the New Deal had any wider impact on productivity in the overall economy?
  (Dr Young) I think it has. We could probably think of a few effects which might go in different directions. Overall, I expect that it has reduced productivity, marginally, over the last couple of years.

  114. By bringing into the economy people—
  (Dr Young) Basically, because it is bringing into the economy people with lower skills than the average, and also because employment has gone up more quickly than capital has gone up, and that also tends to reduce productivity. But, on the other hand, our estimate is, anyway, there has been a general rise in economic activity, small, but there has been a rise because of the New Deal, and generally when you get a rise in economic activity, in the short term, that tends to raise productivity, because firms make more use of the workers that they have got rather than taking more on, in the short term. So that effect will tend to raise productivity. I think, overall, the net effect is a small, negative one, but there are probably effects going in both directions.

  115. Is there a positive effect of enhanced employability from skills training?
  (Dr Young) This is what is hoped, but we do not have the evidence that that has happened yet; we have made an assumption that there will be some effect, but this will build up gradually, as more people go through the programme.

  116. It is too early to say?
  (Dr Young) It is too early to say, and it is not something which is addressed really by our analysis, but other people should be—it should come out of other parts of the evaluation.


  117. Can we turn just for a moment to the effect upon the public finances. I think we were all rather struck, in your earlier Report, when you said that the New Deal for Young People "is close to being self-financing." Now does your latest research or latest evaluation reinforce that view, first of all? I will let you handle that.
  (Dr Young) Yes. I think our finding is that, for every £5 spent on the New Deal, about £3 comes back via savings on benefits and higher taxes; so there is, in a sense, a 60 per cent return on expenditure. So that is not self-financing, but I consider it to be a good result. We have changed one of the assumptions we have made, this time, in that last time we took account of the windfall tax that was introduced to pay for the programme; and one of the reasons why we thought the programme might be self-financing was because that money was received up front, whereas the expenditure was going to be spread over a number of years, so there were interest flows coming from the up-front receipt of that money. This time, we decided to ignore the windfall tax altogether and just concentrate on the programme itself, rather than that finance area, and so there is a slight difference in results because of that. But overall we think that the cost of the programme to the Exchequer is relatively small, and the figure that we would prefer to give is one of it costing about £150 million per annum, in net terms.

  118. Thank you. Can you tell us whether it is one of the reasons why it is almost self-financing, or in the terms that you have described that there has been lower than the expected number of participants, and particularly there have been fewer people taking part in subsidised employment, are those lower costs, one of the explanations that the thing is almost self-financing?
  (Dr Young) Perhaps I could answer it in this order. Different parts of the programme have different costs. I think the Gateway is the cheapest part of the programme, so the more people you can get out of unemployment through the Gateway then the cheaper it is going to be. The subsidised employment option is also relatively cheap, because the employer is making a lot of the investment, you are subsidising them but then you are not having to give the person anything extra. The more expensive parts are the other options, the environmental task force, voluntary service and the education options; and so, to some extent, the more people you use in those then the more expensive the programme will be. But, I think, generally, more people have left through the Gateway than was initially expected, so that makes it cheaper; but then, on the other hand, more people are using the other options than the employer option, and that makes the average cost slightly more expensive. But, generally, the fact that the programme has been smaller than expected could make it more expensive for every person who goes into it, because, in a sense, you have set up a programme which could deal with a large number of people and, in actual fact, not many people are using it, so you are losing out on the economies of scale from that. And, also, the fact that the programme is smaller means that generally it costs less to run it.

Mr Allan

  119. Can I just ask, on that, would you venture a cost-per-job figure, I know it is a horrible thing, but that has caused quite a lot of political debate, but, based on everything you have done, and you are saying it is 60 per cent, effectively, so 60 per cent of the cost is recouped, I think that is right, have you got a sort of cost-per-job figure you would be prepared to put in the public domain?
  (Dr Young) We have, yes.

  Chairman: I was just about to raise that question; and it is alright, no problem.

  Mr Allan: The Chairman's prerogative.

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