A burden on the taxpayer?

The government's planning a big rise in spending on training in the hope of getting the unemployed back to work. Is this cost-effective?
Take a married couple with one child with both out of work.  Let's say one of them gets a full-time minimum wage job, paying £220.80 a week (40 hours at £5.52) . How much would this save the taxpayer? 
Out of work, this family gets benefits of £320.62 a week (table 1.5d of this pdf). In work, they still get  net state benefits of £118.77 a week, in tax credits and housing benefit.
The taxpayer therefore saves just over £200 a week.
If we assume - heroically - that half of the 824,800 claimant count unemployed find work this way, the taxpayer saves a total of £4.4bn a year. If - heroically again - all this saving is used to cut income tax, we'd save a mere £3.10 for every £100 of income tax we pay.
And against this saving, we must weigh the cost of training people up to get basic skills: the total training budget is £11bn.
The benefits to the taxpayer are, therefore, small.
But what of the benefit to the unemployed? In our example, their income rises by just £36.25 a week - less than £1 an hour.
The message here is simple. In narrow financial terms, the benefit of shifting people from unemployment to low-paid work is small, to both the worker and taxpayers generally.
You might reply that work - even minimum wage work - is a stepping stone to better things, to better-paid jobs. But it ain't.
The strongest justification for schemes to move the unemployed into work is probably the non-financial gain. There's evidence that the employed are happier than the jobless. But how strongly does this weigh in  Boss Party thinking?

Comments

[MJW]

I think you've answered your own question, work isn't just about money, although money is obviously a major part of it. Apart from the immediate economic benefit you need to consider the sociological benefits to the individual (which you allude to), but more importantly the long-term sociological benefits to the family. There is at least strong anecdotal evidence to suggest that a culture of benefits dependency and low aspiration is self-perpetuating, so at least partially lifting people out of that trap could have a benefit to the next generation even if they themselves never progress beyond the low paid work. Surely it is better to foster a culture where work is considered normative behaviour than a culture where unemployment and dependency is normative behaviour?

[dearieme]

So what's the Marxist soliution?

[Bob B]

In the news today:

"London firms are increasingly being forced to hire workers from abroad because of a skills shortage, according to a new survey. . . "
http://news.bbc.co.uk/1/hi/england/london/7097760.stm

"Four out of 10 large employers expect to struggle to fill graduate vacancies because of a shortage of applicants with the right skills, a survey says."
http://news.bbc.co.uk/1/hi/education/6311161.stm

The good news is that:

"A record number of school children stayed in full-time education in England after their GCSEs last year."
http://news.bbc.co.uk/1/hi/education/6240456.stm

Recap:

"There is currently wide variation in the gross additional lifetime earnings of different degree subjects. For example, the lifetime earnings premium is £340,000 for medicine and dentistry qualifications compared with £51,549 for the humanities and £34,949 for the arts."
http://bookshop.universitiesuk.ac.uk/downloads/research-gradprem.pdf

Economics graduates do well:
http://www.timesonline.co.uk/tol/life_and_style/education/good_university_guide/article2253011.ece

"Last year [2004], a report from the Organisation for Economic Cooperation and Development (OECD) revealed that Britain came seventh from bottom in a league table of staying-on rates for 19 countries. Only Mexico and Turkey had significantly lower rates of participation for this age group. Italy, New Zealand, Portugal and Slovakia have marginally lower rates."
http://education.guardian.co.uk/gcses/story/0,16086,1555547,00.html

[james c]

I don't think you are looking at this in the right way.

Benefits are transfer payments and irrelevant in a cost-benefit analysis.

The gain to the economy is the value of the newly employed workers output,only part of which the worker will receibve as his wage. This is probably £10 an hour at least.

So the economy will gain £20k if the worker comes off benefits.

[Matthew]

I was going to say the same. 212,000 jobs on minimum wage is about £4.7bn a year in net gain to the economy, most of which (unfortunately perhaps) will go to the taxpayer. And that's if they're only minimum wage jobs.

[Mike Woodhouse]

Blimey. How much does it cost the Govt to skillify an unemployed individual to the level where they can perform a minimum-wage job?

[Cleanthes]

Mike,

Quite. More importantly:

1) WHY does the government still need to train unemployed individuals to the point where they can perform a minimum wage job? Why aren't these skills imparted at primary school?

2) Doesn't the fact that you have had to undergo such training state - in terms that no employer will miss - that you managed to toddle through the education system without touching the sides? Wouldn't that quite likely count against you?

Particularly when there are plenty of arts graduates available to do the same job?

[Bruce]

Another benefit to society is the occupying of "idle hands" one. Employed people are less likely to have the time/inclination for criminal activities.

I wonder if it's as much about attitude as education/training. Most minimum wage jobs require low levels of education or training. What actually gives many foreign workers the edge over local ones with employers is their positive attitude towards work. Once the rot has set in, how do you train people in that?

[william]

The employed also have less time to commit crime. That's surely a benefit.

[Recusant]

Sorry, in this example with only one in work, and with the figures used, the family will be a mere £18.95 better off(118.77 + 220.8 - 320.62 = 18.95).

Are we surprised people can't be arsed to forgo the pleasures of the sofa and Daytime TV?

[Glenn]

its not really lots of training that unemployed or workless people need but skills and confidence that make them job ready.

I think we should help anyone get a job who wants to. But that doesn't necessarily need a lot of specialised training. Its better and more economical to do this in work rather than out of it.

Foreign workers: many of them are well educated. The average polish immigrant worker has a good level of education. One of the few beneficial legacies of communism is that school education was generally good, and many folks left school at 18 with a decent, rounded education. Plus there is the self selection bias of immigrant workers - they come here to work, ergo, they are motivated and want to work....

[Mark Wadsworth]

£4.4bn could be indeed used to cut income tax by1% (say), which'd save the average taxpayer £150 a year.

Or it could be used, possibly more sensibly to increase the personal allowance by £500, which'd particlarly benefit those at the lower end of earnings spectrum, i.e. the 400,000 who've gone back to work.

[Glenn]

years ago the on of the methods of looking at the costs of getting an unemployed person back into work was the "net exchequer benefit" - which took into account money that would be freed up from benefits and healthcare etc. Its useful to bear in mind that an unemployed person will may become a net tax contributer if they enter employment, whereas before they withdrew from the tax pot.

[Geoff103]

The idle moved into work may not save much but it sure as hell improves my morale. No longer am I working to pay for the lazy, indigent and moronic to slope around all day.

That's a MAJOR benefit.

[Roger Thornhill]

How about running the numbers if we had a personal tax allowance of £12k and thus less need for welfare and more money kept by the worker?

It is sad, though, that the State seems to have to chivvy along people to train for minimum wage roles, but if that is a start, then better than nothing for the person (re-)entering the workforce.

Daily Politics had an interesting slot the other day, where kids of 14 were suggesting that instead of using money to keep them in school from 14 to 18, the cash could fund their education/apprentice in more practical areas.

Alas, due to EU rules, it seems such schemes will have to be open to all comers from the EU. Damn them!

[Chris]

There is a far bigger incentive to work if both (man & woman) work.

Still, as others have mentioned - what possible training is required for minimum wage jobs that can't be completed by the employer in a week or two?

[Bob B]

Celebrations are entirely premature. No one has remarked that almost half of the 7.5m training places announced by the government are earmarked for courses in basic literacy and numeracy and that the total of 7.5m evidently includes millions of courses already running:

"The plan to upgrade the skills of England's workforce includes 3.5m basic literacy and numeracy courses. More than seven million training places will be available from 2008, but this includes millions already running."
http://news.bbc.co.uk/1/hi/education/7097125.stm

We have had spluges before on adult courses to boost literacy and numeracy. The trouble is that the successive initiatives don't seem to have had much impact. Successive subsequent evaluations and surveys come up with assessments like:

"An estimated 5.2 million adults have worse literacy than that expected of 11 year olds, while 14.9 million have numeracy skills below this level."
http://news.bbc.co.uk/1/hi/education/4095153.stm

"A £2bn scheme to improve basic skills among adults has been called a 'depressing failure' by education inspectors."
http://news.bbc.co.uk/1/hi/education/4506410.stm

"Up to 12 million working UK adults have the literacy skills expected of a primary school child, the Public Accounts Committee says. . . The report says there are up 12 million people holding down jobs with literacy skills and up to 16 million with numeracy skills at the level expected of children leaving primary school."
http://news.bbc.co.uk/1/hi/education/4642396.stm

[ortega]

One of the best arguments against unemployement benefits I have read in a long time. I completely agree.

[Meh]

The statement that "soft skills" are preventing graduates getting jobs doesn't really help the debate along. Does anyone have links which actually specify the skills that employers claim are lacking?

Press releases and the like from the CBI should always be treated with caution because they are largely lobbying for more subsidies for companies, rather than actually contributing evidence to the policy debate.

As an aside, the know bias of the CBI is:

a) They want to make sure immigration of cheap workers continues uninterrupted.

b) They want to offload ever more training costs from private companies to the state.

As a further aside, training in the UK economy is some kind of "tragedy of the commons" situation. UK companies don't train workers, because other UK companies don't train workers. Whoever trains first will just get the trainees poached. So private training tends to be strictly limited...

[Bob B]

I can see no reason for complacency about the extent of skills deficits in Britain's workforce. In the run-up to the 1997 election, Gordon Brown was hawking around proposals for an initiative to launch a University for Industry (UfI) on the internet to address the problem but nothing seems to have happened in consequence. Blunkett, as education minister, started an e-university but that quickly went phut:
http://news.bbc.co.uk/1/hi/education/4311791.stm

And then we had the Individual Learning Accounts - which also went phut and lost more taxpayers' money:
http://news.bbc.co.uk/1/hi/education/2913987.stm

An accessible piece in The Economist for 26 August 2006 reported on the basis of OECD data that Britain is unusually well-endowed with low-skilled young people compared with other major European economies:
http://www.economist.com/world/britain/displaystory.cfm?story_id=7843638

We also have this recently from a government minister:

"Almost a quarter of secondary schools are failing, with less than 30 per cent of their pupils achieving five good GCSEs including English and maths, the Government admitted last night.

"Lord Adonis, the Schools Minister, said that 800 state secondary schools in Britain were not reaching expected standards. 'The waste of talent and potential this represents simply isn’t acceptable for the future,' he said."
http://www.timesonline.co.uk/tol/news/uk/education/article2577874.ece

[Joe]

I'm late in responding to this but Chris, you're looking at the wrong thing in saying the training budget is £11bn. About £7bn of that is for 16-19 year olds in education, either in schools or college. The adult skills budget is only about £4bn so the training at least pays for itself by your assumptions.

[dmp]

"You might reply that work - even minimum wage work - is a stepping stone to better things, to better-paid jobs. But it ain't."

Stewart argues it ain't as good a stepping stone as a better paid job but does he argue minimum wage jobs result in worse subsequent employment outcomes than having no job?

[viagra online]

There is at least strong anecdotal evidence to suggest that a culture of benefits dependency and low aspiration is self-perpetuating, so at least partially lifting people out of that trap could have a benefit to the next generation even if they themselves never progress beyond the low paid work