Why Osborne’s crackpot jobs policy will not work

Denying housing benefit to youngsters will push them back home with their parents

My first academic job in the mid-1980s was as a researcher at the University of Warwick, and I was given the job of evaluating the effectiveness of the Youth Opportunities Programme, known to us researchers as “YOBS”.  I was given some survey data on a few thousand youngsters to examine by the Manpower Services Commission in Sheffield, which wanted to know if YOBS made fewer yobs.

I dutifully explored the data but for the life of me couldn’t work out why all the kids who had been surveyed had been on the programme. The client didn’t want to waste money surveying people who hadn’t been on the programme; each year they could say x per cent had successfully obtained jobs.

In the end, I never did write the report as I had no way of determining the counterfactual of what might have been, absent the treatment. Simply because, say 50 per cent of kids obtained jobs, this didn’t mean the treatment worked, as a higher percentage potentially could have obtained jobs on their own. Inputs determine outputs. The schemes were less effective when the unemployment rate was high and there were fewer jobs available. We now know mass programmes such as YOBS were a waste of money, so governments scrapped them.

It is easy to understand the need to have control groups in medical trials. But it is hard with labour market experiments to get suitable control groups. Yet Nobel Economics Laureate Jim Heckman from the University of Chicago developed methods to evaluate credibly how to do so. Much of this work involved examining the Job Training Partnership Act that Jim showed had a negative rate of return; participants were worse off going on it than doing nothing. Closing the programme saved the US about $500m a year.

Of course, the problem with such evaluations is that everyone hates the economist who says it doesn’t work; the politicians don’t want to hear that, the bureaucrats that implemented it along with those hired to work on it also didn’t want to face that truth. What works in Manchester may not work in Birmingham. One size doesn’t fit all .

But the Coalition doesn’t seem to care about evaluating programmes to determine they are value for money; the inevitable U-turns arise because they haven’t done their due diligence and piloted properly. They made a really bad start by abolishing both the Future Jobs Fund and the Educational Maintenance Allowance, which they claimed didn’t work before their own evaluations were in.

Shortly after abolition, the Department for Work & Pensions (DWP) published studies showing exactly the opposite. The two policies produced big positive rates of return, implying they were extremely successful in keeping youth unemployment down and provided great value for money. George Osborne and Iain Duncan Smith shouldn’t have scrapped them, so they shoulder the blame. In contrast, the Coalition’s ill-designed Work Programme (WP) doesn’t work. To this point, studies show it has negative rates of return. Participants’ chances of getting a job are lowered by signing up for the WP. They would have had a better chance of finding a job if they hadn’t gone on the program. Another example is the Mandatory Work Activity scheme where Jobcentre Plus advisers can refer claimants to a compulsory four-week work placement is also continuing despite the fact the DWP’s analysis shows it also doesn’t work.

But the Chancellor recently announced two ill-thought-out, crackpot labour-market policy treatments that at best will not work and at worst will harm participants’ chances of finding a job. It appears they are driven by the view that unemployment is voluntary, whereas the vast body of scientific evidence suggests it is largely involuntary. These plans in all likelihood raise unemployment.

First, Mr Osborne unveiled a Help To Work, or workfare, scheme that will cost £300m and starts in April. It will force welfare recipients who have been unemployed for up to three years either to do 30 hours a week of unpaid community work, report to a job centre daily or undergo intensive treatment to tackle underlying problems such as illiteracy or mental illness. Their time would be better spend job-searching.

The DWP commissioned a meta-analysis to determine the effectiveness of similar workfare in the U, Australia and Canada. The study concluded there was little evidence that it increases the likelihood of finding a job. “It can even reduce employment chances by limiting the time available for job search and by failing to provide the skills and experience valued by employers.” The treatment makes the patient sicker.

Second, Mr Osborne announced a scheme to deny housing benefits to those under the age of 25. As far as I am aware, the Government didn’t pilot this one either. My research on the housing market suggests this will lower mobility, preventing youngsters striking out on their own and moving to where the jobs are.

Benefits are meant to grease the wheels of the labour market and make it work better by matching seekers to jobs. This flawed policy is likely to lower youngsters’ chances of getting a job and push them back home with their parents where the jobs aren’t, just as happens in Spain where the youth unemployment rate is over 60 per cent and  most under 25s still live with mum.

Show Dr Danny the evidence that I am wrong. The treatment is a curse rather than a cure as it lowers mobility. Unemployment rises. These are classic examples of Mr Osborne deciding that politics trumps economics but the British people, and especially the unemployed, are worse off because of it. A doctor’s first priority is to do no harm. The same rules should apply to chancellors of the exchequer. Those damn economists.

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