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Modernisation or Workfare? New Labour’s Work-Based Welfare State

Dan Finn, Reader in Social Policy, University of Portsmouth

(Draft, please do not quote without permission)

Welfare to Work

Fundamental changes in the nature of and availability of employment have intensified the pressures being experienced by welfare systems throughout the OECD. In particular, it is suggested that long term unemployment and social exclusion are being exacerbated by changes in the character and availability of ‘entry level’ jobs and in the demand for unskilled workers, and by the passive nature of traditional social assistance and unemployment compensation systems.

In response to the OECD’s ‘Jobs Strategy’ and the EU’s ‘Employment Pact’ Government’s are modernising the relationship between their benefit systems and labour markets. New and tougher work tests have been introduced, especially for the unemployed, and these are linked with voluntary or mandatory attendance at a diverse range of job search, employment and training programmes. In what the Director General of DGV hailed as a ‘decisive shift away from passive to active measures’ EU Member States have committed themselves to providing a ‘New Start’ for all those under 25 unemployed for six months and for those over 25 after a year out of work (Laarson, 1998, p.6). The shared aim of what are increasingly described as these ‘Welfare to Work’ regimes is to increase economic activity rates through the creation of ‘active’ benefit systems for all those of working age which improve employability, reinforce work incentives and reduce costs and welfare dependency.

At the heart of this modernisation of Welfare States has been a continuing attempt to define and create a new type of social contract between the individual and the state. Whether it be the ‘reciprocal’ or mutual’ obligation of Australia; the transition from ‘sharing’ to ‘earning’ of the Netherlands; or the ‘helping hand’ rather than ‘handout’ rhetoric of the USA and UK, active job search and employment requirements are being intensified for the unemployed and are being extended to other groups - lone parents, carers and people on disability benefits - who were previously exempt. For some this represents a welcome modernisation of the post war welfare state (Milliband, 1999), for others it represents the creation of an Orwellian sounding ‘Schumpterian workfare state’ (Peck and Jones, 1995; Jessop, 1994).

Welfare to Work strategies are not just about the abstract redefinition of rights and responsibilities, or the creation of new opportunities, incentives and sanctions. Governments have coupled changed policy objectives with organisational reform and have linked the transition to active benefit regimes with radical changes in the bureaucracies delivering and administering programmes. New post-Fordist institutions are emerging where monolithic national service agencies are now being required to work in local partnerships and public sector monopolies, in the delivery of employment and training services, are being dismantled and being replaced by quasi-markets (Finn, 2000; de Koning et al, 1999; Le Grand and Bartlett, 1993). These organisational reforms are linked with the introduction of new management techniques and a new generation of front line employment advisers who have the task of turning abstract incentives, opportunities and sanctions into real day to day choices.

The New Labour Government has put itself at the forefront of this international process of ‘welfare reform’. For the British Prime Minister the "greatest challenge" for his "Welfare to Work" Government is "to refashion our institutions to bring the new workless class back into society and into useful work" (PM 1997, 4). The objectives of this transformation are both economic and cultural - to "increase the sustainable level of employment by getting more benefit claimants into work by putting them in touch with the labour market through the intervention of a personal adviser"; and to "change the culture of the benefits system.. towards independence and work rather than payments and dependence" (HMSO, 1999, p.?).

In practice, the key changes have involved the introduction and rapid extension of a complex array of mandatory New Deal training and employment programmes; the delivery of these programmes through local partnerships and a new generation of ‘front line’ advisers’; tax and benefit reform to ‘make work pay’; and the "activation’ of the benefit system, where lone parents, carers and people receiving disability benefits, can now be required to attend work related interviews and assessments (DSS, 1999).

The New Deals

The overall objectives of the New Deals are:

• to increase long term employability and help young and long-term unemployed people, lone parents and disabled people into jobs; and

• improve their prospects of staying and progressing in employment.

The New Deals for the unemployed consist of a complex mix of mandatory advice, employment and training programmes. They normally commence with an advisory process aimed at helping an individual find work, followed by a more or less resource intensive range of employment and training options which aim to improve individual employability. There is a ‘follow through’ process of advice and support for those who fail to get a job. Individuals who fail to take up a place or leave early without good cause, have their benefit reduced or withdrawn. In particular, the Government has emphasised that there is ‘no fifth option of an inactive life on benefit’ for the younger unemployed (PM, 1997, p7). If an eligible young person rejects a New Deal option without ‘good cause’ they are initially subjected to a two week benefit sanction, a second refusal results in a four week sanction, and a third refusal can result in a loss of benefit for up to six months.

In addition, the Government is testing new approaches to targeting additional assistance, often linked to the New Deals, at those areas which have high levels of long term and persistent unemployment. In particular the Government is testing out the concept of ‘benefit transfer’ where in 14 ‘fully fledged’ Employment Zones up to 48,000 of-the long term unemployed will be able to combine the resources that were available both for benefits, training and job search into a ‘personal job account’ which can then be used flexibly to obtain the most appropriate support for the individual. The Government has made it clear that it expects the partnerships running the zones to build "synergy between their activities and other Government interventions, such as the New Deal for Communities’, aimed at tackling the problems faced by poor neighbourhoods and areas with multiple social and economic problems.

New Deals have also been created for working age people living on state benefits who were previously regarded as ‘economically inactive’. For example, from 2000 the wives or dependent partners of those unemployed people who are eligible for the young persons New Deal, and who do not have child care responsibilities, have been required to register and regularly sign on as unemployed and participate in ES programmes and, when eligible, enter what is called the New Deal for Partners’. Initially this approach will only apply to small numbers of 18 to 24 year old partners but the intention is to gradually extend this approach to the older age groups. In a context where both partners in most British families of working age now have jobs the aim is to end the assumption of ‘spouse dependency’ in the benefit system which reflects an outdated family structure where male ‘bread winners’ worked and women stayed at home.

Finally, there are voluntary New Deal programmes for lone parents and for people with disabilities. Lone parents who make their first claim for state benefits or whose youngest child starts school are invited to their local Jobcentre, to be given advice, directed as to where they might get jobs or upgrade their skills and be advised about any child-care support that c" be obtained. The programme for people with disabilities has been less prescriptive, and between 1998 and 2002 organisations working with the target group are testing new advisory services, and a limited range of more intensive support aimed at enabling people claiming disability benefits to return to work.

In effect, through the New Deals the Labour Government is integrating the active benefit regime it inherited into the broader process of welfare reform through which it intends to "rebuild the welfare state around work". In this new era "it is the Government’s responsibility to promote work opportunities" and "the responsibility of those who can take them up to do so" (HMSO, 1998a, p 23 & 31). The critical assumption is that welfare dependency and unemployment can be substantially reduced by both improving the employability of working age benefit recipients and by connecting them more proactively to the labour market.

The ‘One’ Service

The Government intends to radically extend its new approach and to ‘activate’ the benefit system for all working age lone parents, carers and those claiming disability benefits. The approach is being tested in twelve pilot areas where what is described as the ‘One Service’ - a ‘single work focused gateway to the benefit system’ - integrates the delivery of the previously separate benefits claimed through the ES, the Benefits Agency and Local Authorities. This ‘One’ gateway has three key objectives:

• to increase the sustainable level of employment by getting more benefit claimants into work by putting them in touch with the labour market through the intervention of a personal adviser;

• to ensure that individuals experience customer service that is efficient and tailored to their personal needs; and

• to change the culture of the benefits system and the general public towards independence and work rather than payments and dependence.

The aim is to provide a seamless and more coherent service for claimants where they will be able to access information on work, benefits and other services in one place. Most significantly, in the pilot areas, since April 2000, new legal obligations have been placed on all people of working age who now have to attend an initial work focused interview, and subsequent recall interviews, as a condition for receiving benefit. There are safeguards to ensure that only those who can benefit from the advice are called to interview and only unemployed JSA claimants can be required to take a job or participate in a particular programme (HMSO, 1998b).

The Government intends to extend the ‘One’ Service throughout the country but is waiting for the results of the pilots before deciding how and when that should happen. When implemented nationally it is estimated that just over two-thirds of those using the ‘One’ Service will be traditional unemployed JSA claimants. Nearly one in five will be people with disabilities or health problems, and around 7% will be lone parents. The remainder will be other working age claimants such as carers and widows.

Implementing the New Deals: local flexibility, the role of front line advisers and the

‘implementation gap’

In Britain policy makers recognise that the diversity of local areas - in the structure and development of their labour markets and their patterns of employment, in their welfare populations, and in their institutions and services and the ways they do or do not work together - play a significant role in the delivery of effective programmes. Through partnership working and the involvement of the private sector the Government is trying to create a new balance between national and local delivery and between welfare agencies and employment service bureaucracies.

Although initial (and premature critiques) of Britain’s New Deals highlighted a lack of geographical and programme flexibility (Turok and Webster, 1998; Peck, 1998), the emerging reality is that in most localities significant variations in the options available to unemployed people are emerging. In particular, different types of local New Deal partnerships have been given flexibilities in how they deliver, and increasingly sequence, their programmes and build synergy with other provision (whether funded through the European Social Fund, the Further Education Funding Council, the Single Regeneration Budget, and so on). At the same time there is virtually no part of the country which is not participating in one or other of the various pilots, trials, employment zones, prototypes, or innovative projects which have been introduced for different groups amongst the long term jobless. As a result, it is becoming increasingly hard to distinguish the core programmes from the mass of variants. And the huge mixed-economy of private, public and voluntary sector organisations that are delivering these initiatives is consequently going through a remarkable period of evolution and invention.

One of the key aspects of the new localised system, which is central to all the New Deals, and the variants being tested, involves a significant change in the nature of the relationship between service providers and individuals. Within a context of new ‘rights and responsibilities’, where non-participation in programmes is not an option, the aim is to create a more individualised and negotiated service for the workless where individual action plans or ‘routes’ can be devised with different measures being tailored to the characteristics, motivation and needs of the person. These developments are resulting in changes in the actual structure of offices, in new job descriptions, in referral and attendance procedures for clients, and the development of new aids to help secure employment and other placements. The unemployed increasingly interact with a new generation of front line employment advisers - the ‘street level bureaucrats’ of the work based welfare state (Lipsky, 1980).

Participation in the New Deals and the impact on unemployment

By December 1999, two years after the first dozen ‘pathfinder’ areas began recruitment, over 404,000 young unemployed people had started on the New Deal and 126,400 were still in the programme. Of these nearly half were still in the initial Gateway stage and 36% were in one of the options. Nearly one in four of those on the options were in subsidised jobs, a third were on placements in environmental projects or in the voluntary sector, and just over 40% were in full time education or training. Nearly one in five of all those still on the New Deal were in the ‘follow through period back in unemployment although the ES was expected to continue to try to place them in jobs (DfEE, 2000a).

Of the 277,800 young people who were no longer in the programme two thirds, or 185,250 had been placed in unsubsidised jobs; 12% had started to claim other benefits; 18% had entered other known destinations (for example, full time education); and the destination of over a quarter (28%) was unknown. Data on retention showed that nearly 50,000 of those who were placed in unsubsidised jobs had left them within 13 weeks.

During the first year particular concern had been expressed about the large number of young people whose destinations were unknown. However, follow up research with a sample of this group found that 57% of those contacted had actually left to take up a job, though only 29% were in work at the time of interview. Another 25% had left because of illness or caring responsibilities, and another 12% were no longer looking for work (NCSR, 1999). The findings did not suggest that significant numbers of these young people were at risk of exclusion, instead they indicated that some young people were only tentatively engaged with the labour market and were likely to move in and out of jobs quickly and take intermittent advantage of the help and support offered by the New Deal and other programmes.

The numbers participating in the New Deal for those aged over 25 and out of work for over two years built up from 13,300 in July 1998 to 216,000 starters at the end of December 1999, of whom 86,000 were still in the New Deal. Most of those who were participating in the programme (82%) were still in the three to six month advisory period, with the others moving into subsidised jobs (5%), work based training (8%), or other full time education or training (3%). Of those who had left the New Deal nearly 20,000 had gone into unsubsidised jobs; 15,630 had started to claim other benefits and 62,640 had returned to claim Jobseekers Allowance; 6,360 had entered other known destinations; and the destination of 14,540 ex-participants was unknown.

Results from the New Deal for Lone Parents reflected its voluntary nature, with about 20% of those who were asked to attend an initial interview taking up the offer. Between October 1998 and December 1999 over 116,000 lone parents attended the interview, with just under 90% agreeing to participate further. Of those who participated 35,190 had found jobs and just over 9,000 had taken up education or training opportunities. Of those involved 95% were women (DfEE, 2000b).

In terms of the direct impact of the New Deals on unemployment by February 2000 the number of 18 to 24 year olds unemployed who had been claiming JSA for over six months had fallen to just under 52,000. This compared with 169,500 in May 1997, when the New Labour Government was elected. The fall in the number unemployed for over a year was even more dramatic, from 85,500 to 7,200. Using the more rigorous international (ILO) definition of unemployment, on data collected from the Labour Force Survey (which includes those who are unemployed but not eligible for JSA) the number of young people unemployed over six months had fallen to 117,000 in the November-January 2000 quarter from 221,000 in February-April 1997 quarter (ONS, 2000, Tables 9 & 11). This dramatic fall in unemployment was less marked for the older age groups.

The main reason for failing unemployment was the strength of the economy where continuing jobs growth led to marked falls in the durations and numbers of unemployed in all the groups claiming JSA. The overall statistics also masked the uneven impact of the decline, with the areas with lowest unemployment experiencing the greatest reductions, and those that started with high unemployment the least reductions. This reality helped fuel criticisms of the New Deal with some analysts suggesting that in the areas of highest unemployment the new approach could begin to look very much like the failed programmes of the past. Without jobs to go to the programme could simply waste resources and merely chum "people into and out of temporary projects and work placements, with no lasting reduction in unemployment" (Turock and Webster, 1998, p.325; Peck, 1998).

By contrast Government Ministers pointed out that large numbers of the long term unemployed live close to areas which have job vacancies, especially in London, and that the New Deal is aimed at tackling the attitudinal and physical barriers that prevent them from competing for those jobs. They also pointed out that in those areas undergoing structural economic change there are other programmes aimed at regenerating their economies and additional resources were available through Employment Zones and the New Deal for Communities. Indeed, by the beginning of 2000, with overall registered unemployment at its lowest level for over twenty years, and with record numbers of people in work. Ministers claimed that the New Deals and other welfare to work initiatives had already started to have a positive impact on the operation of the labour market.

Implications of existing evaluation evidence for the New Deals

Preliminary results from more rigorous evaluations of the New Deal, which will be assessing the net additional impact of programmes over the next five years, were first released in early 2000. A Government commissioned report from the National Institute of Social and Economic Research estimated that in its first year the New Deal for Young People had reduced youth unemployment, relative to what it would otherwise have been, by 30,000: equivalent to a reduction in long term youth unemployment of nearly 40%. This did not appear to be at the expense of other unemployed people. The report also suggested that while the overall future net impact of the programme on the economy was likely to be small the programme would be self financing as the extra economic activity it generated would lead to higher Government revenues (Anderton et al, 2000). However, the authors acknowledged that their findings were tentative and the programme was at an early stage. Others were more critical suggesting that they had ‘guestimated’ the precise results the Government would wish to see. While it is difficult to draw conclusions from this early evidence, it is possible to draw out the implications that evaluation evidence from programmes in other countries and from earlier British studies has for the likely success of the New Deals.

Essentially, there are two fundamental propositions that underpin the Labour Governments welfare to work strategy. The first is that a more active benefit regime, coupled with time limits and employment and training programmes, will help reduce wage pressures, stimulate the economy and lead eventually to more jobs. The second assumption is that on an individual level the new approach will improve the employability and/or earning capacity of people currently living on benefits.

Unfortunately, the macro economic evaluation evidence in this area is bedevilled by a number of complex data and technical difficulties, and the results, according to one OECD review, are inconclusive, with "some studies appearing to show robust effects of active policies in terms of lowering the natural rate of unemployment or real wage pressures, others appearing to show zero or insignificant correlations" (Martin, 1998, p. 13). After reviewing much of the available evidence the author concludes that "the jury is still out"; a conclusion supported by another major review which suggested that the "question was unresolved" (Meager, 1998, p. 36).

Although there is no consensus around the macro economic proposition, many economists and policy makers accept that there is still a strong case for investment in labour market programmes, on the grounds of equity, social cohesion and efficiency. In this context, British programme evaluation evidence has more positive implications for the change of direction represented in the New Deals.

Control group and qualitative local studies show that the net impact of programmes on individual job prospects can be significant, especially where they are more effectively customised to individual and local labour market needs. Higher quality evaluations, using sophisticated comparison techniques, illustrate -that earlier programmes which contain elements of the New Deal approach, especially those either directly linked with real employers or offering training, had an impact on employment prospects and earnings over quite long periods (see, for example, Payne, 1991; Payne et al 1996; Dolton and 0’Neill, 1996; White and Lakey, 1992; White et al, 1997). However, as ~e and his colleagues emphasised, the best results were found with programmes that were "selective, small scale and resource intensive" and they warned that if they were expanded in a simple way this could reduce their success rate (1997, p. 37). A vital challenge for the New Deals, and the related Employment Zones, will be their capacity, through -the local delivery mechanisms that have been established, to build on the positive impact and potential that these earlier programmes have demonstrated is possible.

A more challenging issue, however, involves tackling what has been described as the ‘revolving door’. In particular, the combination of the domestic, personal and local circumstances of many of those who are long term jobless with the temporary or part-time nature of the jobs available means that there is a formidable problem not only of finding but of keeping a job.

The ‘revolving door’: the ‘Job Retention’ and ‘Jobs Gap’ challenges

In common with many other countries, the LTK labour market has experienced a transformation as employer demand has continued to shift away from the traditional jobs taken by male, full-time manual workers. Complex changes in the division of labour have produced more fragmented labour markets with marked increases in service sector employment and in part time and temporary jobs. These changes have had a particular impact on the character of the labour market that the unemployed are trying to enter, particularly in Britain.

For example, by 1995/96 while more than 55% of all job takers in the UK entered full time permanent jobs, only 22% of the jobs taken by those out of work were full time permanent jobs; two thirds were part time or temporary. Most of the new jobs were relatively low paid and were predominantly in personal services, sales and other low skilled sectors (Gregg and Wadsworth, 1997, p. 24). Although the good news for some was that the entry job could become a route to a better job, either with the same or another employer, for others it was a ‘revolving door’ which led to a quick return to unemployment. In 1995 over half the people who stopped claiming unemployment benefit were to become unemployed again within a year, and over 80% of those who completed Government training schemes also returned to unemployment (LMT, 1996)

Although control group evaluations show that the better designed and resourced programmes of the late 1980s and early 1990s had a significant net impact on job prospects, and that those who participated in work based training were more likely to obtain more secure and better paid work, the evidence also showed that large numbers of participants in even the best programmes were likely to return to unemployment. This ‘revolving door’ effect may reflect labour market realities but it did great damage to the credibility of training and employment programmes and managing and minimising its impact will be one of the major tests facing Labour’s New Deals. In this context, particular emphasis is now being placed on improving job ‘retention’ strategies, to ensure that New Deal participants keep the jobs they enter; on the ‘follow through, to get effective assistance to those who come to the end of their placements without a job; and to ‘progression’, where skill training and follow up support can assist those who do take entry level jobs to be able to make progress to higher paid and more secure employment (NDTF, 1999).

If the New Deals and welfare to work programmes are delivered flexibly, and as intended, they could help to improve the employability and job prospects of those living on benefit, especially the younger unemployed. However, closing the ‘revolving door’ and translating worthy policy objectives and theoretical design into day to day practice is fraught with difficulties. Despite an imaginative ‘continuous improvement’ response to operational problems and Ministerial assurances about job creation and availability throughout Britain much of the success of the New Deals will depend on continued economic growth and the macro economic strategy which the Government has committed itself to. Although New Labour has expressed confidence about its approach it may be that its critics will be proved right and that without a stronger commitment to job creation in areas of high unemployment the positive impacts of the New Deals could be undermined when the economic cycle changes and unemployment begins to increase (Turok & Webster, 1998; Peck, 1998).

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