Apropos of this article in the Guardian, I’ve been musing over the impact of mandated work experience placements on the labour market, specifically those that end up replacing paid jobs.

First, I made some assumptions:

  • I’m using ‘work-for-benefits’ to mean work placements that have mandated completion, i.e. they cannot be abandoned by the claimant under threat of loss of benefits. This doesn’t cover fully voluntary work experience; nor does it restrict itself to a particular programme such as the Work Programme.
  • I’m assuming that that the experiences reported in the Guardian article are factual, and that mandated work-for-benefits replacing paid labour does actually exist.
  • I’m assuming that the current high levels of unemployment are due to lack of demand leading to there not being enough jobs to go around.

The intent of welfare to work programmes is to reduce benefits dependency and maximise labour market participation by preparing and placing claimants in paid employment. The end goal is, roughly speaking, as many people in jobs as possible. Therefore, one defence might be that that the increase in job chances of the claimants undertaking experience outweighs the loss of a single job. For example, 26 claimants undertaking a four week part time placement over the course of a year might replace one employee carrying out paid work for a year, but the increased employability of the claimants results in two or three new jobs being created overall. There are numerous reasons why this won’t fly, though:

  • At a time when the job market is constrained by the number of jobs rather than the number of available, employable workers, a job lost really is a job lost. The employee thus freed up won’t fill an otherwise unfilled vacancy elsewhere. The company employing the person is more likely to hold onto the money than invest it in creating another job. So one paid job lost is equivalent to around one less job that someone fills.
  • The ‘lost’ job is unlikely to be made up for by the increase in employability of claimants undertaking work experience. The increase in employment chances of claimants is at best controversial. This JRF blog post summarises the evidence of employment impact from various studies. Even where it does increase employment chances, one job entry by a claimant is not equivalent to a job ‘gained’ in the wider economy, as there is a moderate chance that a non-claimant would otherwise have taken the job and someone will become a claimant as a result. This is especially true in an economy with substantially more workers than jobs, as at present.
  • Over time, unpaid work may well reduce employers’ willingness to hire people to carry out similar tasks, and lower the market price for that job. This reduces job creation further, and lowers the rate of spending in the wider economy.

As far as I can see, replacing a paid job with benefit claimants likely has an impact on the wider labour market that is the opposite of the one that welfare to work programmes are intended to promote.

Additionally, it has to be asked whether welfare to work providers are following their ‘market’ into a particularly unfortunate hole. Recent welfare to work programmes have moved toward aligning the payment of providers with the fundamental aims of the provision (moving people into stable long-term employment) as a way of avoiding perverse incentives, where providers game the system and deliver substandard service to claimants in order to meet targets or maximise profits. It doesn’t feel like these work placements are being set up in the genuine desire to improve people’s employability, which leaves only the ‘bad’ reasons of hitting external targets (e.g. DWP requirements to place people into work placements regardless of need, or a provider’s own sausage machine approach to delivery), or of deliberately making people’s lives unpleasant as a way of encouraging them to stop claiming.

Originally published at https://danieljohnston.co.uk/2012/06/09/what-happens-when-workfare-replaces-paid-workers on June 9, 2012.