A GUIDE TO UNEMPLOYMENT REDUCTION MEASURES

A GUIDE TO UNEMPLOYMENT REDUCTION MEASURES

Also by Edwin Whiting HOW TO GET YOUR EMPLOYMENT COSTS RIGHT A GUIDE TO BUSINESS PERFORMANCE MEASUREMENTS

A Guide to Unemployment Reduction Measures Edwin Whiting Honorary Fellow, Manchester Business School M MACMILLAN PRESS

Edwin Whiting 1987 Softcoverreprint ofthe hardcover1st edition 1987 978-0-333-41295-4 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended), or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 7 Ridgmount Street, London WCIE 7AE. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1987 Published by THE MACMILLAN PRESS L TD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library Cataloguing in Publication Data Whiting, Edwin A guide to unemployment reduction measures. I. Unemployment 2. Full employment policies I. Title 331.13'77 HD707.5 ISBN 978-1-349-08623-8 ISBN 978-1-349-08621-4 (ebook) DOI 10.1007/978-1-349-08621-4

To James and Janet and Sophie and Nick

Contents Preface Supplement: updating schemes and cost data to 1986/87 Xl xm PART 1 OBJECTIVES AND SCOPE 1 1 Introducing the concepts 3 Basic approach. Cost and benefit. Structural unemployment. Summary. 2 Explaining the framework 8 Choice of measures. Reviewing the measures. Background (1). Variations on the theme (2). Effect on employment (3). Effect on productivity (4). Costs (5). Long-term aspects (6). Problems of implementation (7). Social and political implications (8). Conclusion. Summary. 3 Defining unemployment 16 Work, jobs and employment. Types of unemployment. Registers and surveys. Benefit recipients. Summary. 4 Counting the costs 22 Importance of cost. Use of net cost per person. Calculation of cost per person. Productivity and investment. Social costs. Summary. Analysis of benefits paid to unemployed. Exchequer gains from employment. PART II APPRAISAL OF THE MEASURES 35 The sections of each chapter in Part II are standard throughout and are numbered after each chapter number as follows:.1 Background.2 Variations on the theme.3 Effect on employment.4 Effect on productivity.5 Costs.6 Long-term aspects.7 Problems of implementation vii

viii Contents.8 Social and political implications.9 Summary.10 What the author might do Group A Reducing the numbers of people needing paid work 5 Retiring earlier 6 Stopping work after retirement 7 Substituting directly retired by unemployed 8 Partially retiring 9 Expanding education 10 Providing more training Group B Sharing the work 11 Shortening the working week 12 Shortening the working year 13 Reducing overtime 14 Fostering part-time employment 15 Reorganising working patterns 37 57 68 76 83 100 114 123 130 147 159 Group C Matching people with jobs 16 Bringing jobs to depressed areas 167 17 Helping people in depressed areas to take jobs elsewhere 182 18 Improving the job finding process 194 19 Building the confidence of the unemployed 201 Group D Using marginal subsidies 20 Reducing wage cost by recruitment subsidy 213

Contents 21 Awarding grants for increases in employment Group E Organising business for employment 22 Averting closure and redundancy 23 Promoting and assisting new businesses ix 224 234 245 Group F Providing work in the community and public sector 24 Finding work for the long-term unemployed 265 25 Employing people directly in jobs in the public sector 278 PART III COMPARISONS AND CONCLUSIONS 285 26 Summarising and comparing the various measures 287 General summary of measures. High yield schemes. Measures saving money for the Exchequer. Perils of numbers. Summary. 27 Reviewing major issues 297 Introduction. Compulsion. Education and training. Discrimination by area. Public sector image. Headcounts. Types of unemployment. Social costs. Research and statistics. The informal economy. Conclusion. Summary. Abbreviations 306 Index 307

Preface Somehow unemployment ought to be reduced. In Britain it has been at almost unbelievable levels for over ten years. Is it beyond the wit of man to find some solution after all this time? Many economists complain that their solutions have not been tried and continue to press for macroeconomic measures such as increasing Government spending or reducing taxation. But many others are against such moves and there is a growing consensus that 'little can be done by macroeconomic policy to reduce unemployment' (to quote the OECD in January 1986). Ever since 1976 I have been interested in the unemployment problem and particularly in the true cost of unemployment. At Manchester Business School, where I was teaching management accounting and control, I felt that somehow the same kind of techniques could be used to sort out the various proposals for reducing unemployment. I envisaged each measure in the same way as a business project. Could it not be treated as a capital investment, using a cash flow projection and discounting it over the probable life of the measure? I soon found that such an idea would not work. But I did find that there was data enough on some measures to produce a comprehensive statement of costs and revenues in the same way as would be done for a business decision, and not many of the measures seemed to have large investment components. The cost per person to the Government of each measure struck me as the key ratio on which decisions should be made. When I retired from the Business School I was more free to pursue this further. I identified about twenty to thirty measures or schemes and tried to work out a cost per person for each one. Lack of data was my main problem. I was not in a position to do my own new research, but I did find a collection of other people's research that proved very useful, often from unexpected sources. The rest of the data came from my own estimates or guesstimates, which I admit are far from adequate, but better than nothing. It may be that readers have xi

xii Preface some data of their own from which they can calculate a more accurate cost per person themselves. The somewhat troublesome computations which appear in the middle of the text in most chapters are left mainly for people who wish to scrutinise the workings for this purpose; I must apologise to readers who are not interested in such accounting detail. It soon came to me that, like business decisions also, cost would not be the only criterion on which a decision on an unemployment reduction plan would be made. There would be other considerations that should be examined and I found that they were fairly common to most of the measures. I had just completed the book A Guide to Business Performance Measurements at this time and it occurred to me that this new book could follow the same sort of arrangement with standard sections in each of the main chapters. Eventually every measure did squeeze into a standard format. I hope that the facility to compare measures easily outweighs the restricted classification into sections in some of the chapters. My principal assistants have been Ann Poole, who has done all the initial typing with an extraordinarily low error record, and my wife, Patricia, who has read and checked each chapter at least twice. Dr Malcolm Walsh at the Business School has reviewed the whole book and made very many useful criticisms. Dr Michael Whiting, my brother, has also read the text and made corrections and suggestions. To all of them I extend my greatest thanks. To my readers I extend a wish that they may think about the real possibilities of reducing unemployment by detailed examination of the measures in this book and conclude that there is at least something that can be done. Hayfield, Derbyshire February 1986 EDWIN WHITING

Supplement: updating schemes and cost data to 1986-87 4. 7 SOCIAL SECURITY BENEFITS Main benefits are to be raised by 1.1 per cent from July 1986 (Parliamentary statement, 24/2/86). The average benefits paid per annum to an unemployed person then become: Married person Single person: householder Single person: non-householder Overall average 3100 2038 1240 2435 4.8(2) NI CONTRIBUTIONS Rates remain the same in 1986/87 as in 1985/86. The wages/salary bands applied to each rate are changed to: Over 285 a week: employer 10.45 per cent, employee nil From 140 to 265 a week: employer 10.45 per cent, employee 9 per cent From 95 to 140 a week: employer and employee 9 per cent each From 60 to 95 a week: employer and employee 7 per cent each From 38 to 60 a week: employer and employee 5 per cent each. 4.8.(3) INCOME TAX The basic rate is reduced from 30 per cent to 29 per cent with increased allowances of 3665 for married men and 2335 for single people and married women at work. The changes reduce the Exchequer gains shown in tables 4.8.1-4.8.5, but the effect is less than one per cent in every case, which is well within the margin of error in estimating the benefits saved. xiii

xiv Supplement 6.3 EFFECT ON EMPLOYMENT OF STOPPING WORK AFTER RETIREMENT AGE Amost half of those working after the official retirement ages are women aged 60 to 64. Following a recent ruling by the European Court of Justice the Government has published proposals which would make it unlawful for employers to require women to retire at an earlier age than men, that is before 65. Pension ages are not to be changed so that the costs of retirement are not affected. But the result of the edict could well be that more women will continue working after age 60 and there will be no psychological barrier to taking a pension as well as a paid job. 20.2(1) (b) NEW YOUNG WORKERS SCHEME The Young Workers Scheme (YWS) for people aged 17-18, closed on 31 March 1986, is to be revived for 18 to 20 year-olds providing the same subsidy of 15 a week as the old scheme. The subsidy is now given to employers who recruit 18 and 19 year-olds at less than 55 a week and 20 year-olds at less than 65 a week. It seems that the new Scheme will have the same high proportion of deadweight as the old, with a similar net cost per person. 23.3(b) NI CONTRIBUTIONS FOR SELF-EMPLOYED Some changes are made for 1986/87: Class 2 (weekly standard rate) is raised to 3.75 a week ( 195 a year). Class 4 (based on the year's business profits) is taxable between 4450 and 14 820. (The rate of 6.3 per cent remains unchanged.) The total annual maximum of tax to be paid is 848 ( 195+653). 24.1-24.6 COMMUNITY PROGRAMME (CP) The Government hopes to provide 255 000 places by April 1987-an increase of 25 000 over last year (24.1 and 24.3). The limit on average earnings per person working on a CP scheme is

Supplement XV raised from 63 to 67 a week (24.2(1) (a), and 24.5). The normal weekly wages of a CP worker will rise from about 58 to 62 (24.3). The Exchequer cost per person of 4330 in 1984/85 will probably rise in 1986/87 to 4600 at least. The net cost per person is likely to be about 500, after deducting European Social Fund grant (ESF) and value of work done (24.5). The effect of the income tax changes on the net Exchequer gains from CP is negligible. 25.2 JOBS IN THE PUBLIC SECTOR In the USA several states have adopted a scheme known as Workfare (instead of Welfare) providing regular public work on a part-time basis at normal wages for the unemployed. If a reasonable job offer is not taken up, the welfare benefit can be stopped. 26.1 NET COSTS PER PERSON The Government has recently published (in Expenditure Plans 1986/87 to 1988/89, Volume II) net costs per person of certain schemes. The table below shows the Government figures compared with those calculated in the book. Net cost per person Government Book 1985-6 1984-5 1984-5 Leakage Govt Book 1984-5 1984-5 % % CP JRS PTJRS JSS YWS 1900 1870 1330 (150) 1400 2200 1650 555 (200) 2400 250 2500 1600 nil lloo 7 12 14 5 73 nil 20 20 nil 80 Notes: 1. The basis of each costing is similar, with the Government using the term 'person no longer unemployed' and the book using 'person ex-unemployed'.

xvi Supplement 2. Leakage covers job substitution, displacement and deadweight, in both cases; the Government uses the term 'percentage impact on unemployment'. 3. The book uses any convenient year for which data are available, most usually around 1984-5. 4. In the costing the book deducts 1100 for the economic value of work done by CP workers and 380 for the ESF grant, which are not apparently taken into account in the Government figures.