Making the labour market work better
A Department for Education and Employment case study

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Page 6: Conclusion

Department For Education And Employment 4 Image 3It is too early to assess the success of these ambitious programmes but the Government is aware of a few possible problems which it aims to limit. The programmes may involve spending money on people who would have found jobs on their own anyway. In economic jargon, this is a dead weight loss which represents a waste of Government resources.

In addition, new workers may merely displace existing workers already in jobs, instead of new jobs being created. Finally, the subsidised jobs for youths and the long-term unemployed may distort competition in the market and give some firms an unfair advantage over others. This may lead to some firms being able to sell their products much cheaper than their competitors - possibly driving them out of business.

The success of the New Deal will be judged by whether those helped are more employable and better able to obtain and retain jobs in a continually changing labour market. By increasing the size of the effective labour force, the New Deal will, if successful, enhance the trend rate of growth of the economy i.e. the rate of growth which can be sustained without inflationary pressures building up or inflation emerging.

The immediate effects of the New Deal can be judged by comparing the flows into and out of unemployment each year against pre-New Deal or ‘normal’ flows, adjusting for changing economic conditions. The effect of the New Deal should be to ensure that more people leave unemployment than would have done so otherwise and that the employability of young people is increased. By adding to the effective labour force, it will, if successful, enhance the capacity of the economy to grow without inflation and so enable the Bank of England to maintain interest rates at their current level or to lower them. This in turn will help generate additional economic activity and more jobs. Government officials will evaluate the scheme regularly to ensure that it is meeting its long-term aim of increasing overall employment levels in the economy.

Department for Education and Employment | Making the labour market work better
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