Long-term unemployment in 2012

a report published by CESI (Centre for Economic and Social Inclusion)

Executive Summary

The release of the first Work Programme performance statistics on 27 November is an opportunity to review how successful the government has been in holding down long-term unemployment.

Long-term unemployment has more than doubled since 2008 and young people have been hit the hardest, with a 145% increase.

Long-term unemployment for those claiming Jobseeker’s Allowance (JSA) has seen the largest increases – for all ages it is up 173% and for young people up 339%. This has been fuelled by claimants being switched to JSA from ‘inactive benefits’ – which have seen decreases in long-term claims.

Women have seen particularly sharp increases – a 173% increase in long-term unemployment, which includes a 289% increase in JSA long-term unemployment.

Being out of work for over a year has a significant impact on people’s confidence, finances and future earning power. Inclusion has argued that governments should focus on: preventing long-term unemployment and on helping those long-term unemployed to maximise their chances of getting and keeping employment.

Preventing long-term unemployment

Jobcentre Plus is the front line in preventing long-term unemployment. It is monitored by an ‘impact indicator’, which measures the number of new claimants that have stopped claiming within 12 months. The latest published figure shows that 87% of new claimants have left before 12 months, but this has worsened since 2010.

In comparison with the 1990s recession, Jobcentre Plus performance is considerably better. In 1991 one in four of all new claimants became long-term unemployed. Now it is one in six.

Performance has varied considerably since the start of the recession in 2008. Last autumn and winter, the speed at which people left JSA fell by between 15% and 25%. This is the same period that covers the first Work Programme performance results. This likely reflects both tough labour market conditions and the impact of significant changes in policy and programmes by the new government. However, since spring this year, off-flows have significantly improved – a sign that subsequent Work Programme results will also improve.

The Department for Work and Pensions (DWP) recognises that the wider economy can affect Jobcentre Plus performance: ‘in a recession, even if Jobcentre Plus is performing well, the off-flow rate is likely to fall.’¹ However, DWP does not currently recognise this for the Work Programme.

The Work Programme

The weaker than expected economy in 2011 means that DWP’s expectation for Work Programme performance in its first year is unrealistically high. We think a realistic benchmark for Work Programme performance in Year 1 is to reduce DWP’s minimum performance level (MPL) by 15%.
In the invitation to tender (ITT) for the financial year 2011–12 DWP originally set an MPL of 5.5% of all referrals achieving a job outcome in that same year. Because the programme started late, the first full operational year was June 2011 to May 2012 and the equivalent MPL is 6.1%.

However, this was set when the economy was forecast to grow. Instead we have had a double-dip recession. Inclusion has found a strong relationship between changes in gross domestic product and the rate at which unemployed people start jobs. We have used this to adjust the MPL so that it reflects the reality of the last year.

Our expectation is that tomorrow’s published results will be around 15% lower than planned – if they are above then contractors would have done well despite the recession. If they are below this, it will be an indication there have been deeper problems in the first year of the Work Programme.

Fewer job outcomes will mean lower spending per participant, and lower payments to contractors. There is a danger of a downward spiral of lower performance leading to lower spending, leading to even lower performance. Tightening finances will also increase the risk of ‘parking’ the most disadvantaged participants and will increase the financial pressures on specialist providers, such as voluntary organisations.

The first results are not likely to give a definitive answer about whether the Work Programme is on track or needs fixing. But they will likely illustrate that ‘payment by results’ can lead to lower spending when the jobs market gets weaker – and that contractors alone should not be blamed if performance expectations don’t respond to the ‘rough waters’² of the economy.

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¹ See: www.dwp.gov.uk/publications/corporate-publications/dwp-business-plan-2011-2015/businessplan-transparency/people-moving-from-key-out-of-work/ 
² Mervyn King, Governor of the Bank of England, on economic prospects, August 2012

Full text (PDF 45pp)

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