First, the fact that it will be compulsory for the long-term unemployed to take up the jobs panders to a mistaken "divide and rule" rhetoric that distinguishes between skivers and strivers. As Neil says, the party is - yet again - "running scared of the Daily Mail".
Secondly, the policy will, as Liam Byrne says, "provide subsidy" to private sector employers to hire the long-term unemployed.Labour will, in effect, give taxpayers' money to Tesco so it can employ more shelf-stackers.
And herein lies the economic problem with the scheme. At the margin, employers will prefer to hire a subsidized long-term unemployed person rather than an unsubsidized short-term unemployed one. In this sense, Labour's plan improves job prospects for the long-term unemployed, at the expense of the short-term unemployed, and has a deadweight cost of paying companies to do what they would have done anyway*.
Labour's plan thus falls far short of more sensible "employer of last resort"-style policies to combat unemployment. It accepts capitalism as it is, and fails to confront the fact that capitalism is unable to provide work for all.
All that said, there is something to be said for the plan. It starts from the sad fact that public opinion about welfare is ill-informed and ignorant. Faced with this, a sensible party should campaign in lies and govern in truth. It should wibble, as Byrne does, about people needing to be "working or training, not claiming" simply because this is the easiest way to get votes from bigots. In office, when the scheme is up and running, the compulsory element can be quietly dropped, on the grounds that it is costly to administer and enforce.
And then, when the evidence shows that subsidized jobs are of poor quality, and are displacing the shorter-term unemployed, the party can switch from subsidizing the private sector to creating new jobs through a programme of public works, in the way a proper job guarantee scheme would.
In this sense, if Labour's plan has any merit, it is as the thin end of a wedge.
* Granted, there might be an income effect; employers getting the subsidy might feel able to hire more people generally, but this effect might not be large.