Friday, 15 June 2012

British lefties continue to whine about workfare.

The Guardian – Britain’s leading left of centre broadsheet newspaper – continues to claim that those on the Work Programme (WP) are “unpaid”. E.g. see here, here and here.

These people are not UNPAID. They are paid the same as they’d have got on benefits.

Of course that is not a desperately GENEROUS RATE OF PAY. But someone with two or more kids doing a minimum wage job is in much the same situation: take home pay is much the same as the pay they’d get on benefits. So who no outcry from the political left on the latter point? And why the blatant distortion of the facts: saying people are “unpaid” when they ARE PAID?

Presumably because the Guardian, like most newspapers, is more into propaganda rather than serious analysis or disseminating news. Plus exaggerating the plight of the downtrodden and poor (whether they really are downtrodden or not) gives Guardian journalists that halo over the head feeling when trying to make it looks as though they are riding to the rescue of the downtrodden and poor. Which in turn give me that “reach for the p*ke bucket” feeling.

Serious analysis.

The Department of Work and Pensions HAS DONE some serious analysis of the Work Programme (WP) or “Mandatory Work Activity” as they call it.

This study, at least superficially, does provide opponents of WP with some ammunition.

For example the study found that significant numbers of unemployment benefit claimants when confronted with having to do WP jobs, shifted to another form of benefit: “Employment Support Allowance”.

But that is no big surprise: professional benefit claimants can be relied on to seek another form of benefit if the type of benefit they currently claim becomes more difficult to obtain. In the 1980s and 90s hundreds of thousands if not a million or more unemployment benefit claimants switched to incapacity benefit: strange considering the improving health of the population during that period.

The latter paragraph is not supposed to suggest that a particularly high proportion of the unemployed are “professional” benefit claimants. But certainly one would expect “professionals” to make up a relatively large proportion of those who have been on unemployment benefit for some time - the sort of people likely to be confronted with WP type work.

Jonathan Portes, of the National Institute of Economic and social Research and the Guardian make much of the above “benefit switching” phenomenon. If that is the best criticism they can make of the system, it’s a pretty feeble criticism. Moreover, the benefit switching phenomenon proves nothing about WP: all it proves is that we have a somewhat chaotic benefit system.

Moreover, Jonathan Portes was just recently voicing mild approval of WP, which makes me attach less importance to his views than I otherwise would.

The indirect or macroeconomic effects.

A weakness in the above sort of Department of Work and Pensions study is that, almost inevitably, it looks at microeconomic effects, not the more important overall, or macroeconomic effects.

For example one effect of the WP is presumably to induce the unemployed to try to find jobs more quickly t – because they know they may end up on a WP placement if they don’t. That effect is very difficult to measure.

In this connection, it is important not to fall for the argument that any increase speed with which the unemployed find work is pointless because that just pushes regular employees out of work. This claim was made for example by Chris Dillow. (No disrespect to Chris Dillow, please note: he produces a large volume of interesting material every week, so I’m happy to forgive the occasional mistake.)

The reason the above “pushes regular employees out of work” argument is invalid or at least not wholly valid is thus.

If the unemployed put more effort into job searching, the effect is anti-inflationary, which in turn means government can raise demand and increase the total number of jobs. (The “pushes regular employees out of work” argument is similar to the argument that immigrants push natives out of work: both arguments are invalid for the same reason.)

Another macroeconomic route via which WP type programmes work is thus.

As unemployment falls, and full employment is approached, the marginal product of labour declines. And it continues declining till it reaches the standard wage / union wage / minimum wage, etc. At which point, employers tend to start outbidding each other for labour, rather than take labour from the ranks of the unemployed.

It follows that if the unemployed are available to employers on a subsidised basis, employers will tend to take those employees on, rather than bid up the price of existing labour (or give in more easily to wage demands). And the net effect of that is to reduce the level of unemployment at which demand pull inflation kicks in (or to reduce NAIRU, to use different phraseology).

For more on the latter point, see here.

The latter two macroeconomic effects clearly come into their own when unemployment is relatively low. But doubtless they have a finite effect at current unemployment levels.

And finally, the Guardian of course keeps rather quite about Labour’s alternative to WP. This is rumoured to involve a SIX MONTH loss of benefits for those no cooperating – shock horror.



  1. Yes, you are correct; they are not working for nothing. However, they are working for a fraction of the minimum wage level. How would you like to work 30 hours a week for only £67 - and have to fund all your in-work costs such as transport, clothing, equipment and meals?

  2. Not a bad point. Re minimum wages, the unacceptable anomaly is that they are working at less than the minimum wage PER HOUR. Same goes for interns. However the Guardian, far as I can see, is too much into emotion and propaganda to have spotted this point.
    Re travel to work costs, obviously if £X a week is regarded as the minimum acceptable to live on WITHOUT travel costs, then travel costs should be awarded to those having to travel.

    Re meals and clothes, they are costs even for those who don’t work, so I don’t see a reason for taxpayers stumping up for these two items.

  3. Workfare is a bad idea. Cut it to 50 GBP a week, paid as a negative income tax and abolish the minimum wage! That's what Milton Friedman would do. What's not to like?

    Minimum wage is a price floor, making it illegal to pay and to get paid in market prices, raising the NAIRU, right?

    1. I agree that minimum wages raise NAIRU.

      I don’t think Workfare is an ALTERNATIVE to the UK’s Work Programme. Workfare is a stipulation along the lines of “do this job else your benefit gets reduced”. That’s an element (of varying degrees of severity) than can be incorporate in virtually any employment system or subsidy.

      Re Friedman’s proposal, the weakness with it is that it’s not much different to a lax unemployment benefit system. I.e. people get taxpayers’ money even when they choose not to work. Put another way, the Work Programme specifically rewards people for working, or if you like, punishes them for not working.

  4. The fact that they are not getting paid by employers is important for several reasons:

    * They are not employees, and do not have employment rights such as the right to a minimum wage. This was illustrated by the #JubileeStewards scandal.

    * As non-employees, they may be stigmatised even if their net income happens to be about the same as it would be if they were on benefits

    * Their employer does not pay them, which is psychologically damaging

    * Their employers are private sector organisations, which means that (as you noted) they will choose to take on free workfare help, instead of creating new jobs or refilling existing posts. This means less job creation, more workfare "jobs", and in effect a continuously-increasing torrent of subsidy flowing from the DWP to workfare employers.

    1. Taking your points in turn, I agree they are entitled to the minimum wage per hour.

      Re stigmatisation, all sorts of people get stigmatised: people with ugly faces, people doing minimum wage work, etc etc. If I were an employer, I’d have more respect for someone prepared to do a workfare job than someone who refused same, all else equal.

      Re psychological damage, I think that is far fetched. One could argue that the “employer does not pay the wage” for most of our public sector: e.g. the health service relies on tens of billions worth of subsidy. Indeed, some of those in the private sector look down their noses (unjustifiably) at those in the public sector for this reason. I don’t think health service employees are psychologically damaged to any degree because of this.

      Your final paragraph assumes that workfare people just displace regular employees on a one for one basis. That is the main £64k question at the heart of workfare. I argue here that there are reasons for thinking workfare brings a NET INCREASE in aggregate employment:


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