Welfare reform – what do employers want?

The unemployment figures are finally heading in the right direction – but beneath the headlines there is an inconvenient truth: long-term unemployment is here to stay. It may have fallen as the economy has recovered, but whether in growth or recession there remains a stubborn and damaging structural long-term unemployment problem.

There are 574,000 people in the United Kingdom who have been unemployed for over one year, while 326,000 have been unemployed for over two years. This is a significant number of people facing a horrendous situation: it is hugely damaging to the individuals concerned, and comes with a wider economic cost of wasted, undeployed labour and skills. However, despite the rhetoric, this is not a particularly costly problem for the Treasury.

Given this wasted talent, it is astonishing that policymakers are content with both the performance and the scope of policies aimed at helping people back into work. The most recent work programme figures showed that only 28 per cent of the most recent participants to spend two years on the scheme had spent six months in work (three months for the harder to help), and that seven in 10 of them simply returned to the jobcentre. It is clear from our research that the programme is utterly failing those who are least employable; that it does little to align with demand in local economies; and that it has little to offer jobseekers in areas of economic stagnation or decline. Yet this performance is badged a success because it meets the government’s ‘minimum performance levels’.

But in an extremely polarised debate about welfare reform, one of the key players is left out of this discussion: employers. What do they think of welfare reform?

In a survey we conducted of 500 UK employers, we found something policymakers will find surprising. We asked their opinion of several different measures for making the long-term unemployed more employable, and their preferences were clear: 79 per cent of employers thought work experience was either effective or very effective, and 72 per cent thought the same of formal qualifications. However, only 54 per cent thought threatening to remove welfare benefits effective or very effective – this was the least popular option, and a significant proportion – 39 per cent – thought it not very or not at all effective.

This appears to indicate that employers would prefer policymakers to focus on the skills and experience of the long-term unemployed, instead of forcing them into work with the threat of sanction.

The fact that current policy is so far removed from employers’ preferences reflects how marginalised employers are from such an important debate. Employers would clearly prefer policy to focus on developing the ‘human capital’ of the unemployed workforce, instead of taking a purely ‘work first’ approach, which forces them to take the first job available with the threat of sanction. This is backed up by research into the effectiveness of welfare policies – investing in the skills of the workforce is clearly something of enormous value to employers and employees alike. While more expensive upfront, it can even be more cost-effective in the long run.

There is more than one way of getting people into work and saving on the welfare bill. Instead of extending conditionality further, the government should listen to employers, and invest in the skills of the unemployed workforce.

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Luke Raikes is a research fellow at IPPR North. He tweets @LukeRaikes

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Photo: submarin

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