Reducing unemployment – a simple blueprint

The UK’s Chancellor is forecasting unemployment will reach double digits (up from under 4% in March 2020), but what are his plans for reversing this social and economic catastrophe? Once we emerge from our shelters, it is entirely possible to help more people find jobs again more quickly (and speed recovery) and it is not rocket science. It requires the deployment of effective ‘job intermediation’, which links jobseekers with jobs. In the UK, it also requires the application of a few simple lessons, including reinstating accountable leadership and transparent performance reporting in the public employment service (i.e. jobcentres), and the rejection of naive and damaging price competition in public procurement.

UK unemployment has already seen the biggest monthly increase since the early 1970s. According to the Institute for Employment Studies, the number of people claiming unemployment benefits probably now stands at around 3 million (up from just over 1 million in March 2020 and over 2 million for the first time since 1996). In April alone, the Office for National Statistics report that the number increased by 69%. Alongside this, the government now pays the ‘salaries’ of 8 million people in around 1 million businesses – people who are ‘furloughed’ and not actually working but are not counted (at the moment) as unemployed.

It is becoming a familiar picture across the world. The Australian Treasury report an additional 700,000 already out of work, with unemployment set to double to over 10%. The last time Australia had double-digit unemployment was in 1994. McKinsey predict unemployment across Europe will double, with 59 million jobs at risk, and their recent report highlights the widening of the gap between rich and poor, and the wider costs of unemployment including mental health impact. The southern European countries will feel it worst, with Greece and Spain probably close to 20% unemployment. According to the US Labor Department, 36.5 million Americans filed unemployment claims over the eight weeks up to mid May. The overall unemployment rate is now at 14.7%, the worst since records began in 1948. Goldman Sachs warn that this could rise to 25%, more even than at the height of the Great Depression (which was 24.9% in 1933).

As always, it will be those who are closest to the edge who will fall first and furthest. The young and new entrants to the labour market will find it particularly hard to secure jobs, as will older workers (over 50), people who are ‘non-white’ and from ethnic minorities, and people with disabilities. These are the groups already suffering higher rates of rising unemployment and their return will be most troubled. Relatively easily addressed constraints on someone’s employment will become insurmountable barriers, such as ‘mild’ mental or physical health conditions.

The impact will also be localised. Like the pandemic itself, it will hit some communities much harder. Again, it will be the usual suspects. The UK’s Institute for Employment Studies report the pace of rising unemployment is faster in poorer areas. More generally, claims for unemployment benefits increased most in the north of England and Northern Ireland, and rose least in the South-east and east of England.

These are, of course, unprecedented times, however, from previous recessions in OCED countries, as well as in the struggling labour markets of the developing world, we know that effective ‘job intermediation’ can make a significant difference. Good job intermediation can reduce the total numbers of unemployed people. It can also reduce the time that people spend unemployed, speeding their return to work – with every day out of work making the return harder.

The cost of such job intermediation is tiny when compared with the costs incurred otherwise, in increased welfare payments, lost tax revenue, poor health and social exclusion.

What are the characteristics of effective job intermediation?

Some people will be closer to work, because they are only recently unemployed and are highly motivated still and have skills/experience matching immediate demand. These people probably benefit from a relatively light touch assistance – mainly being given access to as many job vacancies as possible. Twenty years ago, with highly proactive employer engagement, the UK jobcentres maintained the biggest resource of vacancies in Europe.

As people’s time out of work increases, their distance from the labour market increases.
This will be exacerbated by things that they or others perceive as ‘barriers to employment’ such as a lack of qualifications or caring responsibilities or disabilities. Now they are likely to need more intensive, personalised support. This is usually best delivered in some sort of ‘case management model’ with a case manager (or consultant, advisor or coach) responsible for a caseload of such people, building an understanding of their individual needs and providing things like: help with job applications; interview skills; help to secure documentation; debt advice and in-work budgeting; presentation skills and motivation, and; practical assistance with interview clothes, work tools and travel costs. If there is any vocational skills training, it will be demand-led (i.e. designed by employers) and probably short and very focused (ideally delivered on-the-job).

Operating at this very individual level also means it is highly localised. It takes account of the personal context of the jobseeker as well as their social context and their geographical location.

As the distance from employment increases still further, there may become a need for more specialist psychosocial support. In the New Deal for Disabled People programme that I ran in Birmingham, we embedded a cognitive behaviour therapist and a physiotherapist in our team of case managers.

These are levels of intermediation. They obviously increase in cost as the intensity of engagement ramps up. Effective job intermediation is targeted at need – with resources carefully deployed to those that need it, using a mix of public and contracted provision. Achieving this requires an overarching strategy for your employment services system.

Effective job intermediation also has one absolutely key characteristic. It is ‘work first’. It focuses, rigorously, on delivering employment outcomes. It measures success not in terms of processes or administration, but in the number of people securing and sustaining employment. In order to achieve this, it has to be closely performance managed.
And to enable this performance management it has to be data-rich and transparent – recording and reporting on the contact with every jobseeker and their progress back to work.

In the UK, the public employment service has been progressively weakened over the last 15 to 20 years. After the departure in 2002 of Leigh Lewis, the Chief Executive, there was a succession of weak leadership, with the whole agency ultimately being subsumed within the Department for Work and Pensions. Strong performance management requires strong leadership in a strong structure, with clear accountability all the way to the frontline. It is not rocket science. However, frontline targets for job placement were removed from jobcentres. They stopped measuring performance in terms of job outcomes and sustained employment. They stopped managing staff and managers on this.

In 2006, around £2 billion per year was also spent on external service providers, contracted by the Department (£1 billion on ‘mainstream’ jobseekers and another £1 billion on disabled people). Some of these providers delivered high performance (i.e. sustained job outcomes), used as a second tier of more intensive support for people who could not be helped by the relatively light touch, high-volume service in the jobcentres. Their incentives to perform were aligned with the Department’s incentives through the use of outcomes-based contracts – the payments to the providers were linked to each person they helped into work and then helped to stay there.

However, as new contracts were introduced, the Department insisted (like the rest of government) on naively persisting in awarding contracts on the basis of price. The successful contractors were not the ones capable of delivering the highest performance, but those who offered to deliver the contract cheapest. Once secured, they inevitably then cut costs, which reduced performance. All the terrible perverse consequences of this ‘winner’s curse’ have been discussed at length on this site. They are evident across cheap outsourcing – such as chronic prison conditions fuelling reoffending or the tragic deaths caused by cheap cladding on buildings. In the area of employment services, it meant a disintegration of provision, such that current spending on service providers has been reduced by nearly 90% and now stands at around £250 million per annum (that’s in total, across both mainstream and disabled).

It takes a brave and morally committed Minister to allow for the transparent reporting of performance in the things for which they are responsible. In 2002, it was possible to compare, every month, how every jobcentre and every contractor was performing, i.e, how many people they were helping into work and how many were staying in that work. As the leadership of jobcentres was weakened, this started to become more difficult. In 2010, Chris Grayling as the new Minister for Employment pulled the shutters down completely, saying that he had used performance data to beat up the Minister when in opposition and would not provide that ammunition now. The shutters have stayed down. Unless we know what is working, we cannot do more of it. Unless we know what is failing, we cannot fix it.

We surely face huge challenges in the months and years ahead. The impact of the waves of unemployment will be devastating for so many people. This can be mitigated and done so relatively simply, based on strong past evidence. The jobcentres must be put again within a strong, performance-focused management structure. External service providers must be contracted to deliver targeted intensive support, with outcomes-based contracts which are awarded on the basis of quality and track record, not through price competition. And performance of the whole system must be carefully tracked, with monthly reporting on how well it is working.

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