The New Deal for Young Unemployed People · attachment to the world of work, the young unemployed...
Transcript of The New Deal for Young Unemployed People · attachment to the world of work, the young unemployed...
The New Deal for Young People:
Implications for the Macroeconomy
National Instituteof Economic andSocial Research
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Website: http://www.niesr.ac.uk
Copyright 1999 National Institute of Economic and Social Research
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We are grateful to the Department for Education and Employment, the Employment
Service and HM Treasury for comments on an earlier version of this report. The
views expressed in this report are the authors’ own.
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Contents
Executive summary 1
1. Introduction to the macro evaluation of the NDYP 3
2. Impact on unemployment 7
2.1 Trends in the labour market 72.2 Impact on youth unemployment and deadweight loss 102.3 Substitution and displacement effects 14
3. Impact on the wider economy 18
3.1 The macroeconomic background 183.2 Key mechanisms 193.3 Impact on output, employment, inflation and the cost to
the exchequer 203.4 Sensitivity of results 26
4. Further work 31
References 33
1
Executive summary
This report summarises results from the macro evaluation of the New Deal for Young
People (NDYP) in the first year after its national roll-out. It incorporates the results
of both the DfEE internal analysis and the evaluation undertaken by the National
Institute of Economic and Social Research (NIESR).
The purpose of the macro evaluation is to assess the overall impact of the NDYP on
youth unemployment and employment, on unemployment of other groups in the
labour market, and on the wider economy.
The programme has had a positive effect on the numbers of young people leaving the
claimant count and is estimated to have reduced youth unemployment in Great Britain
by approximately 30 thousand relative to what it would otherwise have been. This is
equivalent to a reduction in youth long-term unemployment of nearly 40 per cent.
Approximately 50 per cent of individuals leaving unemployment via the NDYP
would have done so in absence of the programme. Approximately 10 thousand
individuals per month leave unemployment as a consequence of the NDYP.
There are no signs that the NDYP simply circulates young people through the
programme and back on to the claimant count, although it is generally too early to
assess this. Individuals are only just starting to complete NDYP options in large
numbers, which may lead to a rise in the numbers rejoining the claimant count.
The employment subsidy could have an adverse impact on other groups in the labour
market if employers substitute young workers with subsidised wages for older
workers. There is little evidence of this so far. By the end of April 1999, only a fifth
of those who had joined an option had taken up subsidised employment, partly
explaining why the adverse effect on other groups appears to be small.
However, the number of long-term unemployed from other age groups leaving the
claimant count is lower than expected. We do not see this as evidence of an adverse
effect from the NDYP since the exit rate from unemployment for this group was
comparatively higher in the NDYP pathfinder areas than in areas where the NDYP
was not yet fully implemented.
2
There is some evidence to suggest that other groups were adversely affected by the
concentration of Employment Service resources on the young during the initial
implementation of NDYP.
The impact of the NDYP on the wider economy depends crucially on the economic
background. The fewer young unemployed there are, the less there is for the
programme to do and so the smaller its impact will appear. The situation in which the
NDYP was introduced was one of relative labour market stability and low
unemployment. As a consequence the impact of the NDYP on the overall economy
is likely to be small, adding about 0.1 per cent to national income (that is around £800
million per annum). However, should macroeconomic conditions deteriorate, then the
NDYP is likely to have a much bigger impact.
The success of the NDYP primarily depends on improving the employability of those
in the programme and in reducing wage pressure. Additional jobs can only be
sustained if wage pressure is reduced.
Our analysis of the budgetary implications of the NDYP indicates that it will be close
to self-financing as the extra activity it generates leads to higher government revenue.
The next stages of the macro evaluation will need to focus on whether young people
are going into sustained employment or whether the NDYP is simply moving people
off the register. It will also need to assess more fully the impact of the NDYP on
wage-setting behaviour.
3
1. Introduction to the macro evaluation of the NDYP
The purpose of the macro evaluation of the New Deal for Young People (NDYP) is to
assess the overall impact of the programme on youth unemployment and employment,
on unemployment of other groups in the labour market, and on the wider economy.
The macro evaluation is part of an extensive evaluation strategy commissioned by the
Employment Service (ES) in collaboration with the Department for Education and
Employment (DfEE) including both qualitative and quantitative research of the
impact of the NDYP at the micro level.1
This report summarises results from the macro evaluation in the first year after the
national roll-out incorporating both the DfEE’s internal analysis and the evaluation
undertaken by the National Institute of Economic and Social Research (NIESR). We
are able to provide an early assessment of the effects of the programme on
unemployment generally and to estimate its impact on the wider economy. At
present, some of these results are quite speculative. A more informed assessment will
only be possible when the programme has been in operation for longer.
The NDYP is designed to reduce youth unemployment by assisting young people,
who have been unemployed for six months, to improve their job search and by
providing work experience and/or training for those who do not find work. Thus if
successful it should increase the employability of young people and, through that,
increase the level of sustainable employment.
The NDYP is claimed to be different to previous active labour market programmes
aimed at young people. Firstly, assistance in job search and training provided through
the NDYP focuses on clients’ individual needs and circumstances. Secondly, the
NDYP gives young people a very clear incentive to improve their employability by
threatening to withdraw their Jobseeker’s Allowance (JSA) if they do not actively
participate in the programme. Young people are guaranteed the equivalent income
contingent on participation in the NDYP.
The NDYP began in a number of pathfinder areas, representing about 11 per cent of
national unemployment, in January 1998, before being launched nationally in April
1998. As well as those who were unemployed for more than six months when the
programme began, people expect to enter the NDYP process at the latest when they
1 See Hall & Reid (1998) for a review of the evaluation strategy.
4
have been unemployed for six months.2 At first they join a ‘Gateway’ period of
intensive job search, where they are given help and advice in finding a suitable job.
This period is intended to last for up to four months, but early evidence suggests that
some have remained on the Gateway for longer than this.3 Many will find
unsubsidised jobs within this period. If by the end of the Gateway they have not
found a job, they will have to choose one of four NDYP options. These are a period of
subsidised employment, a course of full-time education or training, a job in the
Environmental Task Force or a job in the voluntary sector. All options offer NDYP
participants an income equivalent to or above the normal JSA and guarantee a
minimum of one day of training per week. There is no fifth option to continue
claiming JSA.
In simplified terms, the NDYP acts as a buffering mechanism that prevents
unemployment spells from lasting for much more than ten months. Instead of
allowing the possibility of endless unemployment where people can lose their
attachment to the world of work, the young unemployed now know that in less than a
year they will no longer be unemployed. As well as the additional individual support
provided by the personal advisors, this should encourage much more intensive job
search among the young unemployed than would have been the case without the
NDYP.
This could have long lasting effects on the individuals concerned. By avoiding long
spells of unemployment at the early stage of their working life, they will escape the
permanent scarring effect suffered by previous cohorts. This, together with the extra
training they receive through the NDYP, ought to increase their employability
throughout their lifetime and not just in the short term.
From the outset, as part of the government’s Welfare to Work programme, the NDYP
has been seen as a programme which would provide the means for the young
unemployed to find work. Besides encouraging job search by putting an effective
time limit on JSA claims, the NDYP would increase the job opportunities available to
young people through advice and training both during and after the Gateway period
and by providing job subsidies to employers who take on participants in the
programme. This would take place immediately if they found unsubsidised work or if
they started on the employer option. Alternatively, their experience on one of the
2 Individuals identified at risk of becoming long-term unemployed are eligible for earlier entry toNDYP. See DfEE New Deal Statistical First Release series for details of early entry criteria.3 E.g. 11 per cent of those who joined the New Deal in January 1998 in the pathfinder areas were stillon the Gateway eight months later.
5
other options would prepare them for future work. Roughly half of all clients are
expected to proceed directly to work via the gateway or the subsidised employment
option.
The net effect of the NDYP will depend on the extent to which it makes a difference
to the labour market prospects of those who participate in the programme and whether
this is offset by an adverse effect on those who are not able to participate (such as
older JSA claimants). Some of those who go into jobs from the NDYP would have
done so at roughly the same time without the programme. A necessary condition for
the NDYP to be effective is that it helps into work those people who would not
otherwise have gone into work. One of the key components of this part of the
evaluation is to measure the net impact of the NDYP on the youth labour market by
evaluating the extent of unnecessary assistance (known as deadweight).
But there are also questions concerning the extent to which the NDYP actually moves
participants into work rather than another form of unemployment. If the options do
not improve the chances of finding work and participants therefore return to claimant
unemployment, inflows to unemployment will increase and the programme will
simply be churning individuals through the system with only a minimal effect, if any,
on the level of sustainable unemployment. Thus a further key component of this
evaluation will be to examine the impact of the NDYP not just in moving young
people off the unemployment register, but also on where they are going and whether
those moving into employment can sustain that move.
Even if the NDYP succeeds in having a favourable impact on the labour market
experience of young people who have been unemployed for more than six months, it
is possible that this could be at the expense of others. The rest of the economy cannot
be seen in isolation from the youth labour market. The impact on other groups in the
labour market depends on the extent to which they are disadvantaged by efforts to
help the young. There are a number of possible ways in which this could occur.
Employers might substitute NDYP participants for other workers who thereby lose
their jobs or find it more difficult to obtain work (known as substitution). The same
outcome might also occur indirectly if the NDYP gives some firms a competitive
advantage over others (known as displacement). A different type of substitution
could also occur if other unemployed people receive less help in their own job search
because the resources of the ES are diverted to NDYP participants. Thus a key part of
the evaluation will be to pay close attention to the labour market experience of those
not eligible to participate in the programme.
6
It is inevitable that an extensive labour market programme such as the NDYP will
involve elements of deadweight and some adverse effects on other groups. But to be
judged a clear success it will need to raise the overall rate of employment in the
economy relative to what it would otherwise have been. For this to happen it needs to
improve the employability of those who participate in the programme and to put
downward pressure on wages.
The difficulty in assessing the overall impact of the NDYP on the macro-economy is
in establishing what would have happened in absence of the NDYP. It is only then
that it is possible to calculate the difference that the programme has made. The
majority of this Report describes our approach to evaluating the impact of the NDYP
relative to what would otherwise have happened.
Section two draws on the DfEE internal evaluation and Anderton et al (1999a) to
evaluate the effect of the NDYP on the labour market. By generating counterfactual
scenarios for unemployment stocks and flows from information available before the
NDYP was implemented it is possible to identify the impact on unemployment,
substitution and displacement effects, and the deadweight loss associated with the
programme.
Section three draws on Anderton et al (1999b) to illustrate the possible effects of the
NDYP on the wider economy. This is assessed by means of simulations using the
NIESR model of the UK economy. Here, the behaviour of the whole economy is
compared against a benchmark given by the outlook for the economy as it appeared in
July 1998. As yet, this work is illustrative only, since the data necessary to undertake
a fuller empirical analysis is only gradually becoming available.
Section four outlines the next stages in the macro evaluation of the NDYP.
7
2. Impact on unemployment
This section reviews the findings of Anderton et al (1999a) and of the DfEE’s internal
evaluation on the impact of the NDYP on youth unemployment and the
unemployment of other groups. The analysis in Anderton et al (1999a) was based on
a detailed investigation of flows out of unemployment in the designated Pathfinder
areas, where the NDYP began early, and a number of comparison areas, where it
began in April 1998. Rather than simply repeating that analysis here, we instead
apply the same techniques to the national picture (Great Britain).
2.1 Trends in the labour market
At the national roll out in April 1998 the NDYP client group represented 8½ per cent
of the claimant count in Great Britain. This amounted to 114 thousand 18-24 year olds
who had been unemployed for at least 6 months (see chart 2.1 below).
Chart 2.1 Claimant unemployed 18-24 year olds
Source: NOMIS
Over the period of sustained growth since the recession of the early 90s, youth
unemployment and unemployment in general have fallen. Youth unemployment fell
by more than that of other age groups, partially reflecting the sharp decline in the
proportion of the population aged 18-24 over this period, but fell in tandem with
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overall unemployment from early 1996 onwards. Since mid-1998 however, youth
unemployment has fallen noticeably more quickly compared to that of other age
groups. From April 1998 to April 1999, the share of unemployed 18-24 year olds in
total unemployment dropped by 8½ per cent in Great Britain.
The decline in youth unemployment from its peak in 1993 had reduced long term and
short term unemployment in roughly similar measure up until 1997. Thereafter the
share of long term unemployed has dropped significantly, falling by 18.5 per cent in
the year to April 1998 and since the introduction of the NDYP by a further 32.2 per
cent in the year to April 1999.
Both the marked reduction in the share of the NDYP client group in total youth
unemployment and the larger reduction in youth unemployment compared to
unemployment of other age groups coincide with the national introduction of the
NDYP, suggesting some impact of the NDYP. But how much of the apparent
improvement in the youth labour market is actually due to the NDYP and how much
is due to other factors? This is the question the macro evaluation attempts to answer
by generating a counterfactual estimate of what unemployment would have been in
absence of the NDYP. One possible counterfactual is that in the absence of the
NDYP youth unemployment would have fallen at the same rate as that of other age
groups. In fact, if youth unemployment had fallen at that rate then there would have
been at least 35 thousand more unemployed 18-24 year olds in Great Britain by April
1999. This is one estimate of the impact of the NDYP on youth unemployment.
As mentioned in the previous section, the rest of the economy cannot be seen in
isolation of the youth labour market. One also needs to take account of the impact the
NDYP may have on other groups within the labour market. For example, if employers
substitute NDYP participants for other workers or if workers in firms that do not hire
NDYP participants are displaced, the NDYP will have an adverse effect on these
other groups. Therefore, the NDYP may not reduce overall unemployment, even it
reduces youth unemployment.
The employment option offers a good deal to employers and there has been a
significant interest in hiring NDYP participants from the employer’s side.4 The
subsidy of £60 per week represents a substantial contribution towards the pay of
young workers, many of whom receive low rates of pay. For example, 37% of 18-19
year olds and 11% of 20-24 year olds are in the bottom decile of the wage
4 See Snape (1998).
9
distribution.5 This roughly corresponds to the group who benefited from the
introduction of the minimum wage in April 1999. The £60 per week subsidy amounts
to close to half of the wage costs of those earning the minimum wage.
Of the young people who passed the six month unemployment threshold (hence
qualifying for the NDYP) when the NDYP was operating in the pathfinder areas only,
the proportion leaving the claimant count before October 1998 was 18 percentage
points higher in the pathfinder than in the non-pathfinder areas. Of this difference 6
percentage points were due to increased movements into both subsidised and
unsubsidised jobs, suggesting that the NDYP is having a positive effect on moving
young people into work. The rest of the increase in outflows is mainly due to young
people leaving to take up non-job options.
Looking at the destinations of young people leaving NDYP over the year to April
however, the subsidised employment option has not been the most common amongst
NDYP participants. By the end of April 1999, only 20.5 per cent of those who had
joined an NDYP option had taken up subsidised employment. In contrast, 47.1 per
cent had taken up the full-time education and training option. Chart 2.2 shows the
destination of young people leaving the claimant count after a minimum claim of six
months. The proportion of the NDYP target group leaving the claimant count to take
up either subsidised or unsubsidised jobs has fallen since mid 1998 matched by a rise
in the proportion leaving for full-time education and training.
Chart 2.2 Outflows of youth 6 months plus claimants by destination
Source: DfEE internal evaluation
5 Labour Force Survey Spring 1997 (GB)
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It is possible that the high proportion going into education and training reflects the
type of people likely to be on the claimant count at a time when unemployment is at a
twenty year low. They are likely to be the ‘least employable’. The relatively small
number of young people going into subsidised jobs means that the potential adverse
effect of the NDYP on other groups is likely to be minimal.
Another factor to keep in mind, when quantifying the effect of the NDYP on other
groups in the labour market, is the size of the youth labour market. At the time the
NDYP was introduced, only 12.4 per cent of the population of working age in
employment were between 18 and 24 years old.6 The magnitude of any potentially
adverse effects of the NDYP on other age groups will be restrained by the
comparatively small size of the youth labour market.
2.2 Impact on youth unemployment and deadweight loss
The impact of the NDYP on the stock of unemployed depends on the impact of the
programme on both the numbers of young people leaving and joining the claimant
count. As well as determining the difference that the programme makes to the stocks
of employment and unemployment at any given moment in time, the effect of the
programme on outflows and inflows will also determine the actual number of people
who will benefit from the programme.
By definition the NDYP will increase the numbers leaving long term unemployment
as there is no fifth option to remain on the register. As mentioned in the previous
section, the early introduction of the NDYP in the pathfinder areas was followed by a
significant increase in the outflow rate of long term unemployed young people
compared to the non-pathfinder areas. The impact on outflows from shorter term
unemployment and on the numbers joining the claimant count is less clear.
In order to quantify the effect of the NDYP on outflows from unemployment we used
statistical analysis to estimate what the relationship between outflows and overall
economic activity had been in the period before the NDYP was introduced. We then
used this relationship to inform us what rate of outflow we should have expected from
unemployment for people of different ages and different spells of unemployment if
the NDYP had not been introduced. This is our counterfactual. Any difference
6 Labour Force Survey Spring 1998 (GB)
11
between the actual outflow rate from unemployment and the counterfactual then
provides an estimate of the effect of the NDYP.
Chart 2.3 Forecast versus actual outflow rates:18-24 year olds (GB)
Notes: solid line represents actual outflow rate; thick dashed line represents forecast mean; thin dashedlines indicate the 95 per cent confidence interval of the forecast; dynamic forecast from 1998Q1-1999Q1
The thick dashed line in Chart 2.3 shows what outflow rates (the number of people
leaving the claimant count relative to the number of claimants) were expected to be
had the NDYP not been implemented. Also shown are actual outflow rates. For the
longer term unemployed, outflows were much higher than they were expected to be
without the NDYP.7 For example, during the first quarter of 1999 between 28.2 and
37.3 per cent of those unemployed for 9-12 months were expected to leave the count.
The actual numbers leaving the count amounted to almost 63 per cent.
In contrast chart 2.3 shows that outflow rates for the shorter term unemployed were
very much as they were expected to be, suggesting that the NDYP has not had an
adverse effect here. Indeed, outflow rates were showing signs of being more than
expected at the beginning of 1999 suggesting a possible beneficial impact of the
NDYP on young people with short unemployment spells. Separate analysis of the
impact of the different stages of the NDYP shows that the proportion of the client
group in the Gateway may have a negative impact on the outflow rate from short-term
unemployment. By contrast, the proportion of the client group on NDYP options
7 The outflow rates shown in this report refer to net outflows (i.e. calculated from the stock ofunemployed) rather than gross outflows as in Anderton et al (1999a).
unemployed 3-6 months
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generally has a positive effect on their outflow rate.8 The first result may indicate that
the short-term unemployed are facing fiercer competition from the long-term
unemployed whose job search skills are improved during the Gateway. It may also
indicate that the initial implementation of NDYP reduced ES support provided to
other unemployed groups, such as the short-term unemployed. The latter result is
open to several interpretations. For example, it may reflect the growing numbers of
early NDYP entrants or it may reflect that claimants are deterred from the register by
the prospect of active participation on one of the NDYP options. Alternatively, if
NDYP options do actually represent additional opportunities for the target group, it
may represent an increase in the number of employment opportunities available to the
short-term unemployed (which would otherwise have been taken up by the target
group).
It is as yet too early to assess the full impact of the NDYP on inflows to
unemployment, as individuals who have passed through both the Gateway and options
would have completed their options at the earliest in February 1999. The first to join
the full-time education and training (FTET) option in the pathfinder areas will only
just have passed through the programme in April 1999 if they spent a full 12 months
in education. Furthermore, there will be relatively few of these as most entries to the
FTET option were delayed until the autumn.
Despite this there will be a number of individuals who have passed through the NDYP
by now. Initial analysis of inflows to unemployment does not suggest that the NDYP
is just circulating young people through the programme and back on to the claimant
count. The number of 18-24 year olds joining the claimant count in Great Britain
since the NDYP started is not greater than expected. Chart 2.4 shows the distribution
of new claimants by the length of time since their last claim. Since the introduction of
JSA in October 1996, the distribution has been steady, which would also suggest that
NDYP has, so far, had very little effect on inflows. However, looking at year on year
changes in repeat claims in recent quarters highlights some interesting points,
including some possible early effects of NDYP. The increase in inflows in the year to
April 1999 is partly generated by an increase in inflows of those who were last
claiming JSA less than 6 months ago. This could reflect NDYP, with young people
returning to JSA from an option.9 If this is the case we would expect this to increase
over forthcoming months as more people complete their options and return to JSA.
8 The exact magnitude of these effects is sensitive to details of the econometric specification of theoutflow equations.9 Individuals leaving the NDYP and returning to unemployment within 13 weeks return to the NDYP.
13
We may also see an increase in returns this autumn as people start to finish their
FTET options.
Chart 2.4 Distribution of claimant count inflows:by duration since previous claim (18-24 year olds)
Source: DfEE internal evaluation
So what do these implications for the numbers entering and leaving the claimant
count mean for the stock of unemployed 18-24 year olds? Inflows appear to be
unaffected so far, outflows for the shorter-term unemployed are largely as expected
and outflows from longer-term unemployment have risen. Chart 2.5 shows the stock
implied by actual outflow rates and by outflow rates as we would have expected them
to be in the absence of the NDYP. This shows that by April 1999, GB youth
unemployment would have been around 30 thousand higher if the NDYP had not
been introduced. This is very similar to the estimate that would be derived by
assuming that in the absence of the NDYP youth unemployment would have fallen at
the same rate as that of other age groups.
It is worth emphasising that the estimated reduction in unemployment does not imply
an equivalent increase in employment, but implies an equivalent increase in
employment and inactivity (or ILO unemployment), since outflows represent
outflows to all destinations. This is particularly worth stressing given the relatively
large proportion of those on NDYP options participating in the full-time education
and training option.
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Chart 2.5 Unemployment implied by actual and forecast outflow rates
(18-24 year olds)
We can also assess the deadweight loss of the programme so far. Up to the end of
November 1998, a total of 24.1 thousand individuals left the Gateway and the
claimant count in the ten pathfinder areas that we used for detailed empirical analysis.
According to our estimates additional unemployment outflows for 18-24 year olds
due to the NDYP in these areas for this period were roughly 12.3 thousand. This
would suggest that 11.8 thousand individuals who left the claimant count through
NDYP would have done so anyway, equivalent to a deadweight loss in the first eleven
months of approximately 50 per cent, which is broadly in line with estimates from
other active labour market programmes.
These figures might possibly underestimate the actual deadweight loss. The 24.1
thousand leavers from the NDYP do not include those leavers who rejoin the claimant
count within 13 weeks of leaving the NDYP. If, for example, 25 per cent of actual
leavers from the NDYP return to the claimant count within 13 weeks, we would
revise our estimate of the deadweight loss from 50 per cent to approximately 60 per
cent.
2.3 Substitution and displacement effects
We can also assess the impact of the NDYP on other groups. As mentioned above,
one would not expect this impact to be large due to the relatively small size of the
youth labour market compared to the overall labour market. Also, potential
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substitution from the employers’ side will be abated by the small number (relative to
all in employment) that have taken up the subsidised employment option.
Looking at inflows to unemployment of 25-29 and 30-49 year olds in Great Britain
(not shown here) we do not find any evidence of substitution. If these workers were
being adversely affected one would expect inflows to be higher than expected. If
anything, inflows are lower than expected.
Chart 2.6 Forecast versus actual outflow rates:25-29 year olds
Chart 2.7 Forecast versus actual outflow rates:30-49 year olds
Notes: solid line represents actual outflow rate; thick dashed line represents forecast mean; thin dashedlines indicate the 95 per cent confidence interval of the forecast; dynamic forecast from 1998Q1-1999Q1
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Actual and expected outflow rates for 25-29 and 30-49 year olds are illustrated in
charts 2.6 and 2.7. Outflow rates are as expected for the shorter term unemployed. For
the longer term unemployed outflow rates are significantly lower than expected,
particularly in the two quarters immediately after the national roll-out of the NDYP.
On first impressions these illustrations provide evidence that the NDYP is having an
adverse impact on longer term unemployed older workers. That the adverse effect is
concentrated in the initial period after the national roll out could suggest that the
initial implementation of NDYP reduced ES resources available to other unemployed
groups. Alternatively, the longer term unemployed may be facing tougher competition
against more ‘employable’ young jobseekers, with employers substituting younger for
older workers.
At this stage it is tempting to conclude that the NDYP is associated with substitution
of NDYP participants for the non-target age groups. However, it is also possible that
these findings reflect other factors unrelated to the NDYP. To check whether this is
the case the pathfinder areas, where the NDYP was piloted three months before the
national launch, are contrasted with a set of control areas. Generally outflows from
long term unemployment in the first half of 1998 appeared to be more adversely
affected in areas where the NDYP was not yet fully implemented than in the
pathfinder areas. This suggests that the NDYP is not having an adverse effect on the
labour market prospects of other groups. Further evidence of this is provided by the
observation that as more young people join the programme, the outflow rate of older
people from long term unemployment appears to return to its expected level.
What other factors could be responsible? If these results indicate that outflow rates
from long-term unemployment were generally lower due to factors other than
substitution, then several explanations spring to mind.
With the national implementation of the New Deal for the over 25’s in June 1998,
employers may have postponed hirings of the long-term unemployed until they could
take advantage of the New Deal subsidy for the over 25’s (i.e., an ‘anticipation
effect’). This would be particularly pertinent with the introduction of the national
minimum wage in April 1999. As already mentioned, it may also be the case that the
NDYP initially diverted Employment Service resources from its normal job-broking
activities. Likewise, the long-term unemployed may have reduced their search activity
in the early months of 1998 as they anticipate that they will receive extra assistance in
finding jobs once the New Deal for the over 25’s begins. Similar anticipation effects
17
may apply to the 18-24 year olds in the comparison areas in the early months of 1998
as they waited for the NDYP to begin in earnest in their area.
We may also attribute the general decline in outflows from long-term unemployment
to Jobseeker’s Allowance. The introduction of JSA in October 1996 increased
outflows from unemployment quite considerably for all age and unemployment
duration groups.10 JSA was primarily designed to increase the search intensity of the
unemployed. However, if some workers are genuinely not ‘employable’, one may
expect their increased search effort to make less difference to their chance of leaving
unemployment. Therefore, it might be logical to assume that those remaining
unemployed after the introduction of JSA consist of individuals who are considerably
less able to leave unemployment. Hence, those remaining unemployed after the
introduction of JSA may be more prone to continuing in unemployment. This may
explain the decline in outflow rates for the longer-term unemployed during the period
when NDYP began.
In sum, NDYP does not appear to have had any significant effect on unemployment
of others than the client group so far. However as more people pass through the
NDYP programme, or if the economic background turns less benign, this could
change. Irrespective of the economic background, the impact on other groups will be
mitigated by the size of the youth labour market.
10 See Sweeney & McMahon (1998)
18
3. Impact on the wider economy
This section summarises the analysis of Anderton et al (1999b) which illustrates the
possible effects of the NDYP on the wider economy. The purpose of this exercise is
to set out how we expect the New Deal to develop and what mechanisms are likely to
be important in determining its effectiveness. The original analysis was undertaken
at the end of July 1998. The estimated effects shown reflect what was expected
given information available at that time.
3.1 The macroeconomic background
It is important to stress that the impact of the NDYP will be strongly dependent on
background economic conditions. It can be likened to any control mechanism
designed to prevent extreme outcomes such as a flood barrier. The NDYP is likely to
have a bigger impact when unemployment is high and rising, hence the evaluation of
the scale and effectiveness of the NDYP will depend on the overall state of the labour
market and the background economic conditions. What matters here is the broad
outlook and how this might be affected by the New Deal, rather than the precise
details.
From the perspective of mid-1998, just as the national NDYP roll-out was underway,
it appeared that the economy was slowing down in response to a tightening of
monetary policy and an overvalued exchange rate impacting mainly on the traded
sector. This outlook turned out to be broadly correct as more recent evidence
confirms that the economy stalled in the second half of 1998, with negligible growth.
Claimant unemployment, which stood at 1.36 million in April 1998 (seasonally
adjusted) had been expected by independent forecasters to fall further to 1.35 million
by the end of 1998, before rising to 1.45 million by the end of 1999 (H.M. Treasury,
Forecasts for the UK Economy, July 1998). In fact, it now stands at 1.29 million.
The key point for current purposes is not the exact projection of unemployment, but
the broad magnitude. In mid-1998, UK unemployment and long term unemployment
in particular, was expected to remain lower than it had been for many years. Low
youth unemployment was also expected, even in the absence of the New Deal. The
importance of this is that there are many fewer participants in the programme than
there would have been had the programme been introduced just a few years ago. Its
19
overall impact is therefore likely to be smaller than would have been anticipated two
or three years earlier.
3.2 Key mechanisms
To evaluate the impact of the NDYP it is also necessary to have a clear picture of the
likely mechanisms through which the programme would affect the macroeconomy.
One of the key factors in determining the possible success of the NDYP is its effect
on wage setting and the sustainable level of unemployment. Simply offering wage
subsidies to a particular group when the labour market is already in equilibrium is
likely to distort the market with no overall benefit. There would be an increase in the
demand for those who were subsidised, bidding up their pay. But this would be to the
detriment of other workers, not eligible for subsidies, who would appear less
attractive to employers and whose pay would be bid down.
But the NDYP is not just about subsidies. Instead, its most important element is the
extent to which it raises the job search effectiveness and quality of the young
unemployed by keeping them more closely attached to the world of work. More
intensive job search is equivalent to an increase in their effective supply of labour.
This is liable to put downward pressure on wages, preventing the subsidy being
completely passed on to young workers by higher wages. This in turn should keep the
price of young labour at a level which makes them employable. Of great importance
then is the effect of the NDYP on wage setting.
Historically, there has been a link between the composition of unemployment, as
between long term and short term joblessness, and the level of wages in the UK. The
bargaining power of workers is lower when there is a lot of slack in the labour market.
In addition to this, the bargaining power of workers is also lower when there are more
short term unemployed in the unemployment stock. The rationale for this second
effect is that the short term unemployed are thought to be more active and effective in
looking for work than the long term unemployed. As such, the more long term
unemployed that there are in the stock, the less is the downward pressure on wages for
any given level of total unemployment and the higher the level of sustainable
unemployment.
The important questions for current purposes is what effect the NDYP is likely to
have on the long term unemployment ratio and how much effect this will have on
20
wage setting. This has been assessed from our models of outflows summarised in
section 2. Our central estimate is that the ratio of long term to total unemployment in
the whole economy, around 45 per cent in October 1998, will fall by around one and a
half percentage points as a consequence of the NDYP. This change in the composition
of unemployment is expected to exert downward pressure on wages at any given level
of unemployment.
The NDYP is also likely to have a number of possible effects on productivity. At
least four possible mechanisms are likely to be of some importance:
• By bringing lower productivity individuals into work, the productivity of the
overall workforce in employment is likely to fall. However, this will still leave
overall output higher.
• By reducing the relative cost of labour through subsidies and endogenous
movements in wages, the capital-labour ratio in the economy is likely to fall so
reducing aggregate productivity.
• The NDYP also includes a training element. This applies whether those on the
NDYP options are in employment or not. This should improve the underlying
productivity of the workforce.
• It is also likely that aggregate productivity will be improved if the NDYP is
successful in preventing long spells of unemployment which are thought to lead to
the loss of skills of those affected.
This affects the level rather than the growth rate of productivity. The actual impact of
the NDYP on average productivity in the economy depends on the extent to which
these effects outweigh the lower productivity of those being drawn into work. It is not
clear a priori which of these effects will dominate. The NDYP may also affect the
growth rate of productivity if the training element affects the ability of individuals to
learn generally and so improves prospects for their future development.
3.3 Impact on output, employment, inflation and the cost to theexchequer
The results described in this section were generated by simulating the NIESR’s model
of the UK economy. The NDYP is assumed to have an ex ante impact on the
economy. The overall effect of the programme depends on the repercussions of these
individual components throughout the economy more generally. The ex ante impact is
to increase the aggregate demand for labour across the main UK industries, as a
21
consequence of the job subsidies, and to increase employment in the NDYP group,
the number of places on job training programmes and economic activity. The initial
impact is also to reduce long term unemployment among the NDYP group, reducing
the ratio of long term to total unemployment and putting downward pressure on
wages, and to raise the quality of the workforce in the whole economy. Expenditure
on job subsidies rises by a similar amount to company tax payments.11 The impact of
the NDYP, based on these preferred assumptions as to how the NDYP will work, are
summarised in tables 3.1 to 3.4.
Table 3.1 The Possible effect of the NDYP on the Youth Labour MarketDifference from base forecast at end of year (thousands)
Employment Short termclaimant
unemployment
Numbers onTrainingschemes
Long termclaimant
unemployment
Totalunemployment
1998 +18 +6 +10 -33 -271999 +18 +7 +10 -33 -262000 +17 +7 +10 -33 -262001 +17 +7 +10 -33 -26
The effect of the NDYP on the youth labour market reflects our assumptions about
how many people are likely to participate in various aspects of the programme. The
NDYP is seen to bring about a reduction in unemployment of a little under 30
thousand each quarter. This is more than accounted for by lower long-term
unemployment. Short-term unemployment is expected to be a little higher as a
consequence of greater competition in the jobs market. Employment is expected to
rise and there is also expected to be a slight increase in inactivity among this age
group as some withdraw from the labour force to pursue the education options.
The effect of the programme is shown here in terms of the difference that it makes to
the stocks of employment and unemployment at any given moment in time. The fact
that youth unemployment is lowered throughout the life of the programme by about
30 thousand does not mean that only 30 thousand people are affected in this way. The
labour market is in a continual state of flux with people flowing between the different
states of employment, unemployment and inactivity. This is particularly true of the
youth labour market where large numbers of young people experience a spell of
unemployment at some stage or other.
Some idea of the actual number of people who would benefit from the programme in
this case can be estimated by noting that the effect on the stock of unemployment
11 See Anderton et al (1999b) for further details of the ex ante impact of the NDYP.
22
shown here is consistent with our analysis of outflows from the Pathfinder areas.
There we found that the NDYP had raised the outflow rate from youth unemployment
by 7 to 19 per cent in the first year, an increase that, if sustained, would imply an
eventual fall in the stock of youth unemployment in the UK of 15 to 55 thousand.
This rise is broadly consistent with a 50 per cent increase in the outflow rate from
long term youth unemployment as a consequence of the NDYP (as in Chart 2.3
above). With an underlying outflow from the Gateway of around 20 thousand per
month, this suggests that about 10 thousand people per month leave unemployment as
a consequence of the NDYP (this then cumulates to about 100 thousand by the end of
1998).12 Clearly, over the course of the entire programme lasting four years, the
number benefitting from it would cumulate to around 500 thousand depending on the
number who pass through the NDYP more than once. If half of these additional
leavers move into jobs as in the simulation, then this amounts to a movement of
around 250 thousand people into jobs as a consequence of the NDYP.
In the main case shown here, the impact of the NDYP on the youth labour market is
almost constant from the end of 1998 until the end of 2001, with little evidence of it
taking time to have its full effect. This is partly a reflection of the relatively stable
labour market position that is assumed to underlie the simulation. As discussed in
sections II and III, with little change in overall unemployment expected from 1998,
the numbers on the NDYP reach their peak in early 1999 and then stabilise at around
that level. Similarly, the effect of the programme in changing the composition of
unemployment also works through quickly.
But this need not mean that the effect of the scheme on the youth labour market and
the wider economy should also be constant from the beginning of 1999. Clearly, it
can take time for the effects of increased labour market activity among the young to
affect wages and hence the demand for labour.
In fact, it is possible to see the NDYP as being made up of two key components with
contrasting short term and long term effects. The first of these arises because the
NDYP increases the effective supply of labour by bringing the long term unemployed
back into the labour market, thereby putting downwards pressure on real wages.
While this has little impact in the short term, in the longer term it generates a fall in
equilibrium unemployment and a rise in employment. By contrast, the additional jobs
12 Our analysis of outflows, suggested that between 7 and 18 thousand had left long termunemployment in the Pathfinder areas in the first 11 months of 1998 as a consequence of the NDYP.Since these areas account for around 10 per cent of UK unemployment, this amounts to an average ofaround 10 thousand per month at the national level.
23
generated by the provision of job subsidies have an immediate effect on employment
and unemployment. But, other things being equal, this will eventually drive real
wages upward until employment and unemployment return to their initial equilibrium.
Therefore this component has a positive short term effect, but no long term effect.
As it turns out, in the main case examined here, the effect of the overall package is for
an immediate increase in employment generated by job subsidies to be sustained by
the long run effect of greater job search. In the next section we show scenarios where
the opposing forces of job subsidies and greater job search lead to different aggregate
effects of NDYP in the short and long run (this is shown in chart 3.2). Depending on
the strength of the wage pressure effect, the New Deal could either be more effective
in the long run than in the short run or its beneficial short run effect could be offset by
rising wage pressure.
The relatively small effect of the NDYP at any moment of time is a consequence of
the low numbers in the client group in the base forecast. The effects on the overall
labour market are shown in table 3.2.
Table 3.2 The Possible effect of the NDYP on the Labour MarketDifference from base forecast at end of year (thousands)
Employment Claimantunemployment
ILOunemployment
Population notemployed rate
(percentagepoints)
1998 +21 -31 -32 -0.41999 +21 -31 -32 -0.42000 +21 -31 -32 -0.42001 +21 -31 -32 -0.4
Note: The population not employed rate falls from around 22 to 21.6 per cent of the working age population, a fall of around 2 per cent.
Overall, the NDYP is expected to lead to an increase in employment in the economy
as a whole. The increase in employment is very similar to that for young people,
suggesting that it is mainly young people that benefit from the extra jobs. The
predicted fall in claimant unemployment is virtually identical to the fall in young
unemployment, suggesting that the NDYP has no serious adverse effect on the
unemployment of other groups. Overall, the proportion of the population of working
age without work is expected to fall slightly. The reduction in unemployment does
not increase inflationary pressure and is instead associated with a marginal reduction
in the sustainable rate of unemployment. This is brought about by the downward
pressure on wages from more effective job search, which reduces inflationary
pressure and allows the economy to operate at a higher level of capacity.
24
One consequence of this is that prices fall slightly relative to our base forecast in the
short run, this allows the real level of public spending to rise thus increasing real
demand in the economy. This slight fiscal expansion allows employment of the non-
NDYP group to increase a little. Real aggregate demand is also boosted by higher
consumers’ expenditure and higher fixed investment, reflecting expectations of higher
economic activity, and an improvement in net trade as a consequence of a lower real
exchange rate.
The overall effects on the economy are shown in table 3.3.
Table 3.3 The Possible Macroeconomic Effects of the NDYP Difference from base forecast at end year (percentage difference)
GDP ManufacturingOutput
PSNCR*Fiscal year(£ billion)
Exchange rate RPIX**
1998 +0.10 +0.1 -1.4 -0.2 0.01999 +0.10 +0.2 +0.1 -0.2 0.02000 +0.10 +0.2 +0.2 -0.2 0.02001 +0.10 +0.2 +0.2 -0.2 0.0
*public sector net cash requirement** retail price index excluding mortgage payments
The macroeconomic effect of the NDYP is relatively slight due to both the relatively
small share of the labour market in the client group and the cautious assumptions
made here. Output is higher by 0.1 per cent throughout the four year period. The
effect on productivity is roughly zero as the beneficial effect of a better trained
workforce is offset by the detrimental effect of a lower capital-labour ratio. Changes
in the general level of prices, the exchange rate and interest rates are also very small.
With respect to the public finances, the overall improvement in economic activity is
such that public sector receipts improve so reducing the effect on borrowing: the
NDYP is close to being self-financing. This comes about because the slightly higher
level of economic activity generates more tax revenue and less spending on
unemployment. A break down of the effects on the public finances is shown in table
3.4.
Table 3.4 The Possible Effects of the NDYP on the Public FinancesDifference from base forecast in fiscal year (£ million)
Net PropertyIncome
IndirectTaxes
Direct Taxes SocialcontributionsReceived
Socialbenefits paid
New DealSpending
Deficit
1998-99 150 100 1650 100 0 652 -14001999-2000 200 130 100 120 -40 652 652000-01 180 100 50 120 -50 652 1802001-02 160 80 50 110 -60 652 200
25
We have assumed for the purposes of this simulation that all of the expected cost of
the NDYP is spent evenly from the second quarter of 1998. This is a cautious
assumption since the level of unemployment among the client group is low enough
that it may not be necessary to spend all of the available funds on the programme.
In the financial year 1999-2000 and beyond, NDYP spending is assumed to add £652
million to the budget deficit. But the effect on the public finances of the NDYP as a
whole is much smaller than this. Partly, the adverse effect of the NDYP on the public
finances is smaller than it would otherwise have been because of the early collection
of the windfall tax. By raising the finance for the NDYP before it was due to be
spent, the government has effectively built up a stock of interest generating funds. By
investing these (or by not issuing as much debt as it otherwise would have done) the
public sector generates property income for itself. Overall, taking account of other
effects on the debt interest bill, this is estimated to generate extra income of up to
£200 million per annum.
Extra payments of indirect taxes amount to about £100 million per annum, with extra
direct taxes (excluding the windfall tax) contributing about £75 million per annum.
National insurance contributions are expected to rise by a little over £100 million per
annum, while social benefits are expected to fall by around £50 million per annum.
Putting these effects together, we would expect the government deficit to rise by an
average of about £150 million per annum once the windfall tax has been collected.
This is only about a quarter of NDYP spending. Roughly a half of the spending is
covered by extra taxes generated by higher economic activity, while another quarter is
being funded by the proceeds that arise from the windfall tax being levied in advance
of NDYP spending.
Chart 3.1 shows what the effect on the public finances would have been if the NDYP
had been introduced without the windfall tax to pay for it.
26
Chart 3.1 The Budgetary Implications of the NDYP(increase in public sector lending as a consequence of the NDYP,£ million per quarter)
This indicates that the deficit would have increased by about £400 million per annum
in 2001-02 rather than £200 million in the main case. The difference being accounted
for by the enduring benefits of the windfall tax.
3.4 Sensitivity of results
The previous section sketched out one possible scenario describing the quantitative
effect of the NDYP. This scenario is sensitive to the underlying assumptions about
the workings of the NDYP. What would happen if the NDYP works differently than
assumed?
The relatively small macroeconomic effect of the NDYP derives from two sources.
First, from the relatively low number of people eligible to participate in the
programme. Second, from the cautious assumptions used to calculate its possible
effects. Most particularly, the assumption concerning the effect on wage pressure of a
change in the composition of unemployment. As explained earlier, a change in the
composition of unemployment towards short- term unemployment is likely to weaken
wage pressure because people are thought to have a greater attachment to the labour
force when they have been unemployed for only a short time. However, it was also
-150
0
150
300
450
600
1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1
with windfall tax
without windfall tax
27
assumed that the change in the composition of unemployment brought about by the
NDYP would have a much smaller effect than in the past. This is a crucial
assumption.
There are two reasons for this belief. First, around half of those leaving long term
unemployment as a consequence of the NDYP will be moving onto the non-employer
options. This is unlikely to have any effect on wage pressure in the short term,
possibly even increasing it, although it should have an effect by the time they
complete their NDYP options. Second, it is unclear whether long term unemployment
among the young has the same effect on wage pressure as that among the unemployed
in general.
In the scenario described in the previous section, the employment subsidies encourage
employment to some extent, and extra subsidised employment accounts for most of
the increase in jobs. Downward pressure on wages caused by the NDYP is just
sufficient to ensure that there are not offsetting falls in employment elsewhere.
Unemployment falls, but this is partly because of a rise in inactivity and more
employment programmes brought into operation by the NDYP. The deterioration in
the public finances is not substantial such that the programme is virtually self-
financing.
In the alternative case where wages respond more to the changed composition of
unemployment, the level of unemployment that the economy is able to sustain is
lower. This allows the economy to expand further without substantial pressure on
inflation. This encourages fixed capital investment and increases the overall
productive potential of the economy. The public sector finances would be more or less
unaffected by the cost of financing the NDYP as the extra economic activity would
generate sufficient extra revenue to fully support the programme.
In the case where changes in the composition of unemployment have no effect on
wage setting, there is no beneficial effect on output from the NDYP. Other than in the
very short run, output is lower than it would otherwise have been for a number of
years. This reflects the fact that in this case there is no change in the sustainable rate
of unemployment, but there is a small increase in inflationary pressure because the
actual unemployment rate is reduced slightly due to the availability of subsidised jobs
and extra places on training programmes. This puts some slight upwards pressure on
prices thus reducing the volume of public sector consumption as well as reducing
investment somewhat.
28
In order to make more clearly the point that job subsidies are not the key factor in the
NDYP, chart 3.2 shows how employment would be expected to develop if the other
parts of the New Deal were implemented without subsidies. The response is shown
for two different assumptions concerning the sensitivity of wage setting to changes in
the composition of unemployment.
Chart 3.2 The Sensitivity of The New Deal Effects to the Subsidy Assumption
The Response of employment (thousands)
The chart shows that the response of employment to the NDYP depends very much on
how sensitive is wage setting to changes in the composition of unemployment. In the
more sensitive case employment increases by about 50 to 60 thousand, irrespective of
whether the subsidy actually effects the demand for labour. Other than in the short
run, the employment response is very similar whether displacement is 50 per cent or
100 per cent (i.e. whether the job subsidy creates additional jobs or not).
Similarly, in the case where wage setting is less sensitive to the composition of
unemployment (as in the previous section), employment expands by around 20 to 30
thousand irrespective of the effect of the subsidy.
In the short run, which means for up to three years, the subsidy does have a beneficial
effect on employment, but ultimately it is the effect on wage setting that matters. This
0
15
30
45
60
1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1
50% displacement, high wage sensitivity
100% displacement, high wage sensitivity
100% displacement, low wage sensitivity
50% displacement, low wage sensitivity
29
indicates that the important component of the NDYP is its effect in stimulating and
improving job search, rather than in generating extra job offers through the provision
of employment subsidies. It is the extra and more effective job search which ensures
that the benefits of subsidies are not dissipated through higher wages.
The prospective effects of the NDYP are also sensitive to the assumptions made about
a training effect on productivity. Changes in productivity do not affect the sustainable
rate of unemployment since they lead to an increase in both the desired real wage and
the real wage that firms can afford to pay. Thus, the effect of the NDYP on
employment and unemployment is broadly independent of its effect on productivity.
The overall effect on productivity does depend on whether training has a positive
effect. In the scenario described in the previous section productivity rises by about ½
per cent. If the quality of the labour force is unaffected by the training component of
the NDYP, productivity falls by ½ per cent. The difference reflects the assumed
effect of training on technical progress. This indicates that in the absence of a
positive effect from training, the NDYP would lead to lower productivity as a
consequence of substitution of labour for capital.
Given that these two cases do not differ significantly in their effect on employment, it
is clear that output must rise by more where there is a positive effect of training. The
effect on the public sector deficit is surprisingly little different in the two cases despite
the greater response of output when there is a positive training effect. This arises
partly because nominal income is very similar in both cases: prices fall by more when
the output increase is largest. With nominal government spending assumed to be the
same in both cases, and with little change in nominal income, there is very little
difference in budget deficit.
As well as the uncertainty surrounding the assumptions about the effect of the NDYP
on wage-pressure and productivity, there are other risks associated with the way in
which the NDYP is likely to work. As described above, the NDYP is being
introduced at a time when long term unemployment among the target group is low
and expected to get smaller. This may be seen as a good thing in the sense that help
can be directed to those young people who really need it. But it also means that there
is ample scope within the programme should the demands on it increase.
Should the demand on the programme increase, the NDYP is likely to have a bigger
impact than would be the case in its absence. The policy would then be reaching
different groups to the one it is now mostly likely to be helping. At present, the
30
NDYP looks set to be helping the hard-to-employ. Should an economic downturn
arise, it will be helping those who might through a period without employment
become the hard-to-employ. One of the benefits of the programme is likely to be its
ability to act as a safety-net to catch people who might otherwise drop out of the
effective labour force. Like other safety-nets, its value will not be appreciated until it
is needed.
31
4. Further work
Two important questions remain unanswered in the summary of results in the
previous sections.
First the question of whether young people leaving unemployment through the NDYP
are going into sustainable jobs or whether the fall in the claimant count is merely
cosmetic. To answer this we will need to analyse trends in youth employment, ILO
unemployment and inactivity. Chart 4.1 shows total claimant unemployed and total
ILO unemployment of 18-24 year olds. There has been a notable divergence between
the two measures of unemployment since 1996, with the claimant count decreasing
relative to the ILO measure. The continued divergence could reflect factors such as
the economic cycle, more students looking for work or NDYP, or some combination
of these. If the continued divergence is due to the NDYP, this might indicate that
NDYP is having a cosmetic effect, pushing young people off JSA but not leading to
an increase in sustainable employment. It might also, and more positively, indicate
increased job-seeking in accord with the intended effects of NDYP.
Chart 4.1 Claimant versus ILO unemployed 18-24 year olds
Source: DfEE internal evaluation
The second question left unanswered is the effect of the NDYP on wage-setting
behaviour. As was emphasised in section 3, the impact of the NDYP on wage-setting
behaviour is expected to be central to its impact on the labour market and the wider
economy.
250
350
450
550
650
750
850
spr-92 spr-93 spr-94 spr-95 spr-96 spr-97 spr-98
thou
sand
s, G
B
ILO unemployment
Claimant count
32
Both questions will be central to the further understanding of the impact of the NDYP
on the macroeconomy. The next stage in our research will include analysis of both of
these questions.
We intend to update our analysis of trends in unemployment stocks and flows at the
national and local level. Given the focus of the Welfare-to-Work programme on
shifting the unemployed back into work, our analysis will examine in more detail than
hitherto the effect of the NDYP on the destinations of outflows from unemployment
as the data becomes available. Other strands of the macro evaluation looking at the
effect of NDYP on individual outcomes will complement this.
An important part of our future work will be to transform the macroeconomic analysis
of the NDYP from a description of what might happen to a quantified account of what
has happened. This will involve extending the model to take full account of the extent
to which companies substitute young workers for old workers as well as building in
our estimates of the effects of the NDYP on wage setting and productivity. This will
then enable us to provide estimates of the effect of the NDYP on the economy
generally, including evidence contributing to an informed judgement as to whether it
has provided value for money for the British taxpayer.
33
References
Anderton, B., R. Riley and G. Young (1999a). The New Deal for Young People: EarlyFindings from the Pathfinder Areas, Report for the Department for Education andEmployment
Anderton, B., R. Riley and G. Young (1999b). An Illustration of the PossibleMacroeconomic Effects of the New Deal for Young Unemployed People, Report forthe Department for Education and Employment
Hall, J. and Reid, K. (1998), ‘New Deal for the young unemployed: monitoring andevaluation’, Labour Market Trends, November 1998, 549-553.
Snape, D. (1998), New Deal for Young Unemployed People: A Good Deal forEmployers?, Research and Development Report, Employment Service & SCPR
Sweeney, K. and D. McMahon (1998). ‘The effect of Jobseeker’s Allowance on theclaimant count’, Labour Market Trends, 106(4), pp. 195-202