Work and Pensions Select Committee enquiry into youth unemployment. Submission from the Centre for Economic and Social Inclusion

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1 Work and Pensions Select Committee enquiry into youth unemployment Submission from the Centre for Economic and Social Inclusion

2 Introduction Young people have lost out significantly both during and since the recession, and long-term youth unemployment is now at levels not seen in a generation. These impacts can in part be explained by the economic cycle: young people are more likely to be moving in and out of work and therefore more likely to lose out in a weaker labour market. And the labour market outlook has deteriorated still further since the Work Programme was announced in However there is also evidence of underlying structural problems around how young people are prepared for the world of work, how those furthest from work are supported, and how the system joins up for those making the transition from learning to work. We argue that the Government response must address both these cyclical and structural challenges. We welcome the Youth Contract as a substantial step in the right direction. However we consider that there is more that can be done to better join up services for young people; to target support at those who are most disadvantaged; and to reduce complexity for employers, those supporting young people, and young people themselves. This submission covers each of the Committee s five areas of interest, under three headings: The reasons for young people s disadvantage in the labour market The design of the Youth Contract Lessons from the Future Jobs Fund The Centre for Economic and Social Inclusion (Inclusion) is the leading not-for-profit organisation dedicated to tackling disadvantage and promoting social inclusion in the labour market. Our response incorporates findings from our recent report Youth Unemployment: A million reasons to act 1, as well as our work on fragmentation of support for young people 2 and our independent evaluation of the Future Jobs Fund 3. These reports are all attached. 1 Bivand P, Gardiner L, Whitehurst D, and Wilson T (2011) Youth Unemployment: A million reasons to act 2 Gardiner, L and Wilson, T (2012) Hidden Talents: Analysis of fragmentation of services to young people 3 Fishwick T, Lane P and Gardiner L (2011) The Future Jobs Fund: An independent National Evaluation

3 Reasons for young people s disadvantage in the labour market The impacts of the recession on young people are well rehearsed and are set out in Chapter 2 of our November report. Most strikingly, youth unemployment not only rose by nearly twice as much as it did for older people during the recession (as a share of the population), but it has accounted for nearly all of the increase in unemployment since Figure 1 Percentage point change in proportion of population unemployed Source: Labour Force Survey, ONS Underneath these headline figures, of most concern is the sharp rise in longer term unemployment. The number of young people unemployed for more than a year now stands at over 250,000 the highest since The impacts of this may be felt for decades, with some studies suggesting a permanent impact on wages, health and wellbeing from a spell of long-term unemployment when young 4. 4 Gregg P and Tominey E (2004) The Wage Scar from Youth Unemployment, CMPO, University of Bristol

4 Figure 2: Number of young people unemployed for more than twelve months Source: Labour Force Survey, ONS Causes of worklessness and disadvantage Clearly, a large driver of the recent rise in youth unemployment and worklessness is cyclical in nature young people have been impacted more by the downturn than older people. This can partly be explained by the fact that young people make up a disproportionately large share of those who move in and out of unemployment. So for example, young people account for 38% of those making a new claim for JSA but only account for 15% of the population of working age. Since January 2008, there have been around 15 million new claims for JSA and around 14 million people have left JSA the result being that overall JSA has increased by nearly a million (970,000). Within this, youth claimant unemployment has increased by 410,000 while claimant unemployment for those over 25 has increased by 560,000. As a result, this means that 7% more young people (18-24) are on JSA now than in 2008, while just 1% more people aged are on JSA. This is even though young people account for almost exactly the same proportion of people entering and leaving JSA now as they did before the recession began.

5 The fact that young people are more likely to enter and leave unemployment is also the key reason why governments must increase support for young people during and after downturns so as to reduce the number becoming unemployed, reduce the amount of time spent unemployed, and increase the speed at which people enter work or learning. However, not all of the youth unemployment problem is explained by the downturn. Youth unemployment has not been below half a million at any point in the last twenty years, and throughout that time at least one in seven young people has been outside learning and work. So there is an underlying structural issue that successive governments have grappled with (with limited success). Inclusion would argue that there are four key structural problems: Ensuring that young people have the skills to succeed Supporting the most disadvantaged Ensuring that services are coherent and joined up Tackling low demand Ensuring that young people have the skills to succeed As we set out in Chapter Four of A million reasons to act, there is a mis-match between the skills that young unemployed people have and the skills that employers want. In part, this is about attainment. As the chart below shows, nearly two thirds of unemployed young people have qualifications at Level 2 or below (five good GCSEs) while more than half of the recruitment of young people is from those with higher level qualifications. The Government s focus on raising participation in learning is therefore welcome.

6 Figure 3: Qualification levels of young people entering work or unemployed Source: Labour Force Survey, ONS However, raising attainment is not enough on its own. Young people need to be able to make the right choices and to then be able to get the right skills to succeed. On supporting young people s choices, Inclusion is concerned that the Government s reforms to careers advice and guidance to young people which have incorporated funding for careers guidance into the Dedicated Schools Grant could lead to a reduction in the quality of careers advice and guidance, and ultimately poorer outcomes for young people. On ensuring that young people get the right skills, Inclusion strongly supports the recommendations of Professor Alison Wolf in her review of vocational education 5. Professor Wolf estimated that between a quarter and a third of year olds were engaged in low-level vocational qualifications, most of which had little or no labour market value. 5 Department for Education (2011) Review of Vocational Education The Wolf Report

7 Supporting the most disadvantaged The Government s strategy for raising participation 6 sets out clearly the link between disadvantage, attainment and the likelihood of being in education or employment. For example, young people who received Free School Meals are nearly four times more likely to drop out of education, employment or training before age 19. And those who have spent extended periods out of learning or work are far more likely to be lone parents, disabled people or to have health conditions. Ensuring that services are coherent and joined up Research by Inclusion for the Local Government Association 7 has identified 40 current funding streams and seven further planned funding streams providing support to young people in England. While there is some simplification and consolidation in train, in other respects the situation will become even more complex in the future with a new Innovation Fund funding support through the Youth Contract, local commissioning of careers guidance and local rules on access to Bursaries. These funding streams are accountable to five central government Departments and at least four Government agencies. Locally, accountability for supporting young people to make the transition from learning to work can be duplicated, confused and often in competition. These issues have existed since (at least) the 1980s, when 16 and 17 year olds were taken out of the national benefits regime and given a replacement guarantee of a training place (through the YTS or similar) and training allowance which was never fully implemented. A consequence of this fragmentation, in our view, is that too many young people particularly those who are most disadvantaged slip through the cracks between agencies, programmes and funding streams. Tackling low demand The Committee has asked for views on local variations in youth unemployment. Figure 4 plots the proportion of young people unemployed before the recession against the increase in youth unemployment since then, for every Local Authority in the United Kingdom. This shows a strong positive link between unemployment before the recession and increases since. In other words, those areas that previously had the highest unemployment have seen the largest increases. 6 HM Government (2011) Building Engagement, Building Futures 7 Gardiner, L and Wilson, T (2012) Hidden Talents: Analysis of fragmentation of services to young people

8 Figure 4: Relationship between proportion of young people unemployed (Jobseeker s Allowance) in 2008 and subsequent growth in youth unemployment UK Local Authority level Source: NOMIS Primarily (but not exclusively) this is being driven by weak local demand both before and since the 2008/9 recession. Of the 20 local authorities with highest unemployment now, 15 were also in the top 20 in 2008 with three each in the North East, Wales and the West Midlands. As the Figure 5 below shows, growth forecasts have been consistently revised down since funding for the Work Programme was agreed (October 2010). With weaker demand, it is essential to increase investment in supporting people back to work. Increasing demand for unemployed people in general, and young unemployed people in particular, must therefore be an essential part of the Government s approach.

9 Figure 5: Falling forecasts of economic growth, Source: Office for Budget Responsibility and HM Treasury Design of the Youth Contract We support the Youth Contract and believe that it is a firm step in the right direction. However we have three key concerns around its design and delivery: 1 That the wage subsidies learn from previous subsidy schemes 2 That it supports better joining-up of services 3 That support is targeted at the most disadvantaged These issues are taken in turn below. 1. Design of Youth Contract wage subsidies In our November report, we called for the introduction of a targeted wage subsidy of 2,000-3,000 to support employers to create new jobs for young people on the Work Programme. We therefore welcomed the introduction through the Youth Contract of the 2,200 wage subsidy. While the Work Programme should increase the support available to long-term unemployed young people, as Figure 5 above shows the economic outlook has deteriorated significantly since the Work Programme was designed. The Office for

10 Budget Responsibility are now forecasting that unemployment will be higher for longer, and that employment will be lower (300,000 lower) than was previously forecast. We consider that it is therefore right to target additional support at young people currently long term unemployed and on the Work Programme. Learning from the past take-up Wage subsidies for taking on a long-term unemployed person are not a new idea in fact they existed continuously from 1995 until they were ended by the coalition in summer However previous subsidy programmes have all been undermined by low take-up: The first subsidy programme a National Insurance holiday for employers launched in 1995 and was expected to benefit 130,000 people a year. However by January 1996 there had been just 2,300 successful applications (it was closed down in 1999). 8 The New Deal for Young People, which ran from 1998 to 2010, included an Employment Option that paid an up to 1,560 for employing a young person for at least six months. Overall the New Deal was found to have a significant impact on unemployment 9, but the Employment Option was paid for just 7% of participants (equivalent to around 10,000 people a year) 10. Most recently the Six Month Offer ran from April 2009 to June 2010 and paid employers 1,000 for taking on anyone who had been on JSA for more than six months. It was paid 46,000 times, but just 8,400 payments were made for year olds. 11 In this context, the targets for the Youth Contract 150,000 subsidy payments over three years would substantially exceed what has been achieved in any previous subsidy scheme. However the subsidy level is not significantly higher than previous programmes and the design is not as straightforward as previous schemes for example in the Six Month Offer every eligible jobseeker was issued with a simple voucher which entitled the employer to claim 500 upfront and the following 500 after six months of employment. We would argue that there are two ways in which the administration of the Youth Contract subsidy can be improved in order to increase take-up and better target support. 8 (1998) Employment and Training Programmes for the Unemployed, House of Commons Library Research Paper 98/111 9 Rebecca Riley and Gary Young (2000) New Deal for Young People: Implications for Employment and the Public Finance, NIESR 10 De Giorgi, G (2005) Long term effects of a mandatory multistage program: the New Deal for young people in the UK, Institute of Fiscal Studies 11 Source: Six Month Offer Official Statistics, October 2010

11 First, the subsidy should be routed through Work Programme providers. Work Programme providers will be the point of contact for employers. Requiring employers to instead go via DWP for payment will introduce unnecessary complexity. Secondly, the subsidy should be paid substantially (or even entirely) up front. DWP is concerned that by paying up front there is a risk that employers will game the system by taking on young people for very shortterm employment and claiming the subsidy. However if the subsidy is routed via Work Programme providers then this risk simply would not exist providers are usually only paid once someone has been in a job for six months, so they would ensure that subsidised jobs are sustainable jobs. The far greater risk, currently, is of employers simply not taking up the subsidy. Learning from the past deadweight General wage subsidies can also suffer from high deadweight this is where employers are paid for recruitment that would have happened anyway. For example in Workstart in the early 1990s deadweight was estimated to be as high as 85% 12, while even in the New Deal it was estimated variously at 35% 13 and 70% 14. It is inevitable that Youth Contract subsidies will pay for some recruitment that would have happened anyway. However again we would consider that by routing the subsidies via Work Programme providers these risks can be reduced. For example if each provider had an indicative allocation of subsidies, with more subsidies made available as providers meet and exceed their minimum performance levels for young people, then the Department could create strong incentives for providers to maximise the impact of the wage subsidies on creating additional employment. Innovation As we set out in our November report, we would favour models that combine the wage subsidy with funding from the Work Programme provider or another source. For example through our work with the Give Us A Chance consortium of social housing providers we have developed a model (Proving Talent) which will create jobs lasting at least six months funded via the Youth Contract and social housing 12 Institute of Employment Research Bulletin (1999) Young people, employment programmes and the new deal 13 Rebecca Riley and Gary Young (2000) New Deal for Young People: Implications for Employment and the Public Finance, NIESR 14 Hales, J., D. Collins, C. Hasluck and S. Woodland (2000) New Deals for Young People and for Long Term Unemployed: Survey of Employers, Research and Development Report ESR58, Employment Service

12 finance. This scheme was launched by the Minister for Employment in March 15 and we would hope to see wider application of this model, and others, as the Youth Contract rolls out. Eligibility Lastly, we would support the Employment Related Services Association, BASE, Shaw Trust and others in arguing that Youth Contract wage subsidies should be made available to young people on the Work Choice programme as well as the Work Programme. Young people on Work Choice are likely to face greater barriers to work than young people on the Work Programme, and an equally challenging labour market. DWP data suggests that there are perhaps 1-2,000 young people on Work Choice 16, so widening eligibility in this way would have a marginal impact on takeup. 2. Joining up services through the Youth Contract As noted, the current system has created considerable complexity, duplication and unclear accountabilities for supporting young people locally. We consider that it is an urgent priority for Government to now set out a clear accountability framework for supporting young people from learning to work, and to then ensure that the funding and performance regimes across public bodies support this. In the longer term, as we set out in our report A million reasons to act, we believe that there is now a strong case for a single Youth Employment and Skills Service, to combine all employment and skills provision for year olds into a single system (which could be a public agency, fully localised, and/ or commissioned out to private and voluntary sector partners) with a clear and single accountability for supporting young people to achieve in learning and then make the transition to sustained employment. 3. Targeting support at the most disadvantaged young people Inclusion supports the focus in the Youth Contract on increasing the support available to young people outside the Work Programme. Every Jobcentre Plus office now has an implementation plan for the Youth Contract and we have seen some good examples of joining up of services between Jobcentre Plus offices, local voluntary and community sector partners, and skills providers inclusion news/2012/mar/proving young people%e2%80%99s talent socialhousing providers supply tempora 16 Source: DWP Work Choice statistics

13 We welcome the further expansion of Apprenticeships within the Youth Contract. As Alison Wolf s Review pointed out, Apprenticeships lead to higher returns for individuals for the same level of qualification. On the most recent available data, 456,000 young people started an Apprenticeship in the year to January 2012, an increase of 30% on the previous year. 17 However, not all Apprenticeships represent new or additional jobs and not all apprentices will previously have been unemployed. While the Government has not published figures on the proportion of Apprentices that were previously on JSA, we understand from discussions with officials that the figure could be as low as one in eight. We would therefore want to see a far greater focus of additional apprenticeship provision on those who are unemployed or disadvantaged. We believe that work experience for the unemployed also has a role to play. Employers cite a lack of relevant work experience as a key barrier in employing young people 18, and for those who have been unemployed for a long time a lack of work experience can send a strong signal to an employer than an individual is not employable. However it is critical that work experience is targeted at those least likely to move back to work without it, and is limited in its duration otherwise, there are significant risks of individuals actually spending longer on benefit than would have been the case otherwise (so-called lock in ). We would favour a maximum length of six weeks for work experience placements (with a norm of four weeks), and more rigorous targeting on those who have been out of work for an extended time and who have never worked before. Lessons from the Future Jobs Fund The Committee asked for evidence on the lessons from the Future Jobs Fund (FJF). Inclusion carried out an independent evaluation of the FJF which is attached to this response. The most relevant lessons for the Youth Contract are that: The private sector should be fully engaged Support should be targeted at those most disadvantaged or at risk of disadvantage Central government must reduce complexity to an absolute minimum To focus on sustained employment 17 Source: The Data Service 18 See for example the National Employment and Skills Survey (UKCES) or the CBI report Action for Jobs

14 Conclusion Young people now face the toughest jobs market in a generation and for many a significant risk of becoming permanently disadvantaged. Inclusion therefore supports the Youth Contract and the increased focus on tackling youth unemployment through the Work Programme, Jobcentre Plus, local partnerships and engaging employers. However it is critical that the Government learns from previous approaches and does everything that it can to reduce complexity, create clear accountabilities and target support at those most in need.