Youth Contract – Giving public money to private firms in return for?

The Youth Contract is the Coalition’s response to youth unemployment. A key element of the Youth Contract is the offer of a wage subsidy of up to £2,275 to businesses who take on an eligible unemployed 18-24 year old for 6 months. The plan was to provide 160,000 of these subsidies over a three year period. The programme began in April last year, but details about how it’s doing have been thin on the ground. Finally, and without fanfare, the DWP published an “Early Evaluation of the Youth Contract wage incentive scheme” (a summary of the findings can be read here). Some of its findings are quite interesting and tell a slightly different story to the one the Government spun at the programme’s launch.

The researchers surveyed 279 employers who had recruited somebody eligible for a wage subsidy and had been sent a claim form. They also interviewed Work Programme providers and Jobcentre Plus staff. Here are some of the findings:

• Only 56% of employers had actually heard of the wage subsidy scheme before they began recruiting;
• 63% of employers had recruited the person on a permanent basis, while 31% were temporary or fixed term contracts;
• The main reason for taking on someone eligible for subsidy (given by 30% of employers) was to gain some extra money. 22% said it was to give an unemployed person a chance;
• Jobcentre Plus staff did not believe the wage incentives were creating new jobs, nor encouraging employers to retain staff;
• Only 9% of employers had created new jobs as a result of the wage incentive scheme;
• Only 7% of employers would not have hired a young unemployed person but for the wage incentive;
• There was some evidence that some employers were taking on a person for 6 months, then letting them go before hiring another person and claiming another wage subsidy, even though this is against the rules.
• Only 20% of employers said they have difficulties with recruiting young people.

What can we conclude from all this then?

New jobs are not being created as a result of this scheme. Employers with vacancies are just using the scheme as an extra revenue stream. At best we are talking about a young person being taken on where otherwise the employer might have hired someone over 25. At worst, the employer would have hired a young person anyway, so the wage incentive just represents a transfer of money from public to private sectors with no additional benefit whatsoever accruing to the Government (or the young person). 

So on the one hand you have a jobs scheme that creates no jobs, being talked up because it costs less than Labour’s previous scheme, and on the other, you have Labour’s Future Jobs Fund which actually created over 100,000 additional jobs (albeit for only a 6 month duration). Cheaper is not always better. The Youth Contract demonstrates one area of welfare spending that is not being cut – corporate welfare. Lets not forget as well that for every young person from the Work Programme completing 6 months work with an employer, the Work Programme provider gets a nice juicy outcome payment, so there’s a double helping of corporate welfare. As Private Eye is fond of saying “Trebles all round!”

There is an alternative to this kind of nonsense. Its called a Job Guarantee.

alittleecon