How we turn the jobless into the hopeless

THE real measure of Britain's unemployment problem is not the figures published yesterday, dispiriting though they are; it is the much less frequent count of the long- term unemployed. In the latest quarterly figures, published in May, the number of people who had been out of work for more than six months rose to 1.439 million. That represented a rise of 472,000 long-term unemployed in just one year. More than half of the total 2.753 million jobless have now been out of work for more than six months.

This trend is deeply worrying. After all, a short term of unemployment may be a temporary social embarrassment, but it is of little enduring consequence. Indeed, spells of joblessness are essential in an efficient economy. Come boom or slump, there are always hundreds of thousands of people losing and finding jobs each month. Even this July, some 344,000 left the claimant count, although they were swamped by the 448,000 who joined it.

But long-term unemployment is a different matter. The longer anybody spends unemployed, the more demoralised and demotivated they become. Many employers refuse to hire people who have been out of work for a long time, believing that it reflects on their employability. People who have been out of work for more than a year are only a third as likely to be hired as those who have just lost their job. The long-term unemployed are like wilting flowers: the longer they remain unsold, the less attractive they become, and the further back in the shop they are moved.

This is a social problem, but it is also an economic waste. The main point of any substantial amount of unemployment is to scare those in work into moderating pay demands. Modern economics recognises that Karl Marx was right about the reserve army of the unemployed: they compete with the employed, controlling business costs, and hence prices. But if the long-term unemployed are not attractive to employers, they are not a threat to employees. They fail to curb inflation.

So bringing the long-term unemployed back into the labour market has no economic disadvantage. Indeed, there is a positive economic gain. Their re-entry would increase competition, and should therefore cut inflation. At the same time, each person who finds a job should produce a saving of some pounds 14,000 a year in benefits and lost tax revenue, on the Employment Institute's calculations.

Much of this thinking was already taken on board by the Government when it introduced the Restart programme in 1986, whereby the long-term unemployed were reinterviewed and more actively helped into training places or jobs. Restart was one of the reasons why the unemployment rate fell from 11.8 per cent in 1986 to a low of 5.5 per cent in the middle of 1990, a much sharper drop than past relationships between economic growth and unemployment suggested.

But Richard Layard of the London School of Economics, together with his collaborators and some political supporters such as Michael Heseltine, advocate that the Government should go further: it should adopt a much more active labour market policy that guarantees people a training place or a job after a year on the dole. Indeed, people should not be entitled to benefit if they refuse such an offer.

This element of compulsion - work or you will be refused welfare - has obvious attractions to the right, which has long admired American-style 'workfare' schemes. But its principal advocates in Britain are impeccably centrist. Indeed, Professor Layard and John Philpott, his co-author*, recently pointed out that exactly such a scheme has traditionally operated in Sweden, which has suffered relatively low unemployment. There, all unemployment benefits run out after 14 months, but anyone who has not yet found work at that stage is guaranteed work by law.

Such a scheme is in line with the intentions of Lord Beveridge, the Liberal founder of the British welfare state, who argued that the receipt of unemployment benefit should 'be conditional on attendance at a work or training centre' on the grounds that 'complete idleness, even on an income, demoralises'.

The snag is that any such scheme would require a large provision of jobs to absorb all the long-term unemployed. This is not impossible: at the beginning of the Eighties, the Government created 450,000 places on the Youth Training Scheme. But if the jobs or the training places are to be more than make-work schemes, they will cost money. The administration costs alone of the Government's present Employment Action scheme are said to run to pounds 3,000 per place. The Swedes spend three times as much as we do, as a proportion of national income, on active labour market measures.

The temptation, therefore, is for ministers to argue that the Government is doing enough. When the upturn comes, the existence of Restart may ensure that many of the long-term unemployed are reintroduced into the labour market exactly as they were between 1986 and 1990. Compulsory 'workfare' would cause an outcry unless it was clearly linked to a real attempt to improve skills and opportunities. But Whitehall believes that any

such scheme would prove prohibitively

expensive.

It is a shortsighted view, and entirely in line with the British elite's traditional disregard for the importance of educating and training the workforce. Even Restart managed to push only half of the long- term unemployed back into the labour force in the late Eighties, and it did so by helping to create thousands of low-paid and low-productivity jobs.

An active labour market policy should be more ambitious: it should be the engine by which businesses can drive into high-productivity processes and high- margin and high-technology markets. Sadly, the Government's present labour market policy is designed to help us compete by means of low wages with Singapore and Korea, rather than by means of high quality with Germany and Japan.

*'Stopping unemployment'; Employment Institute, Southbank House, London SE1 7SJ, pounds 9.95.

Peter Kellner is on holiday.