A new, New Deal

On Monday, the BBC reported on the Freud Report on welfare reform. This report discusses the use of the private firms and charities to get the longest-term unemployed into work. However, the most newsworthy part was suggestions that private companies may pay for tattoo removal.

The Freud report approach incentivises firms and organisations to rapidly push the long-term unemployed into any type of work and keep them there for three years. This has several problems:

First, the New Deal has moved some of the previously long-term unemployed into in insecure work. This is because the New Deal encourages people to enter work experience placements or training. Should they be unable to find permanent work as a result, they sign back onto JSA. Since employers have no incentive to create permanent jobs for those undertaking work experience (it is much better to lay them off and get a new New Deal person) and since training or education do not necessarily lead to employment, there are increasing numbers of people switching between New Deal and JSA. The Freud report doesn't seem designed to place these people into structured, secure work.

Second, the Freud incentive system benefits the provider of work opportunities and not the claimant. Although the Freud incentives system is designed to stop providers placing people in 'dead-end jobs', e.g. paying if the claimant remains in the job for three years or gains qualifications, the provider's incentive is to jump through government funding hoops and not to do what is best for the unemployed [I have only had a quick check through this report so could be wrong]. In the words of Adam Smith writing about subsidies to the eighteenth-century Scottish herring fishery, 'fishermen went to sea to catch not the fish but the bounty'.

A third problem is that the Freud report system degrades the claimant. Long-term unemployment can be degrading, demoralising and sap initiative even for the best of people. Being bugged by a provider to tick boxes for government funding is probably not the best way of addressing this problem.

So what should we be doing? I quite like the SMF's recent proposal for personal employment accounts [downloadable here]. This replaces the New Deal and brings responsibility for gaining employment and career development back to the claimant in conjunction with their personal advisor.

I would make one change to the SMF's proposal. The Freud report suggests a more personalised approach to helping job seekers into work would place a huge workload onto Jobcentre Plus. The SMF suggest that JSA continues as it is now. Having experienced the system myself, I would disagree. Dealing with longer-term temporary workers or those in insecure employment, who sign on and off JSA repeatedly is a huge waste of Jobcentre time and money. I was unemployed for a week after submitting my PhD but had to go through a 30 minute discussion about my employments prospects before getting JSA. This was a waste of both my and the PA's time (we spent much of the time discussing welfare politics). This experience has convinced me that some variant on a non-quibble 'citizen's income' is probably the best approach for the first 3 - 6 months of unemployment.