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Clause 2

Part of Education and Skills Bill – in a Public Bill Committee at 4:00 pm on 5th February 2008.

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Photo of Jim Knight Jim Knight Minister of State (Schools and Learners), Department for Children, Schools and Families, Minister of State (Department for Children, Schools and Families) (Schools and Learners) 4:00 pm, 5th February 2008

In the abridged version—he wanted to speak more about this important amendment—the hon. Member for Yeovil discussed the effect on the youth labour market and the works of Alison Wolf. He referred to her pamphlet, “Diminished Returns”, published by Policy Exchange, which I have had a chance to read at my leisure.

I have reminded the Committee of the impact assessment, and the reality of the number of young people in small and medium-sized enterprises who will be displaced. I clarified the fact that, as the impact assessment says, it is not half of all young people in those employment settings who will be replaced. The labour force survey shows that 27 per cent. of the full-time 16 to 17-year-old cohort are in jobs without training, earning below the national minimum wage, and working in SMEs. We estimate that half of that group, which is within the group employed in SMEs, may be displaced in favour of older workers. As ever with impact assessments, that might be a pessimistic interpretation, because we always seek to err on the side of caution. Half of these—not half of all young people in SMEs—may be displaced in favour of older workers; that totals only 1,680 young people.

In her work on the issue, Alison Wolf asked whether we had underestimated the cost impacts on the youth labour market—the hon. Member for Yeovil asked about that, too. Our economists have looked closely at Alison Wolf’s work, and having seen their analysis, I remain confident that the estimates underpinning our impact assessment are sound and considerably more credible than her estimates. First, Alison Wolf assumes that all the 16 and 17-year-olds working in small firms will simply be replaced by older workers, which assumes that no small employer at all will continue to employ 16 and 17-year-olds with day release. As a former director of a small business, I think that that is not a likely scenario at all.

Secondly, she assumes that all the older workers who are employed would otherwise be doing another job, and that there is no way of filling that job. In other words, she assumes that the labour market for 18-year-olds and over is at full employment. Although we know that employment is indeed at record levels, we know we are not quite at the level of full employment. Thirdly, the Department’s analysis compares the costs and benefits of raising the participation age with the previous policy goal of 90 per cent. participation among 17-year-olds. Professor Wolf, in contrast,  assumes that overall participation among 16 and 17-year-olds is 80 per cent. in 2016-17. That is significantly lower than the current participation rate for 16 and 17-year-olds of 86 per cent., so we do not think that that figure is credible. Even if she were right about that, she should significantly increase the benefits of raising the participation age so that costs and benefits are calculated on a consistent basis. If that were done, benefits would exceed costs by an even larger margin.

Fourthly, Professor Wolf takes no account of part-time workers. Some 40 per cent. of those in jobs without training are working part-time. Those workers would be able to participate under the legislation without spending less time at work, so there is no need for a foregone productivity cost for that group. Fifthly and finally, Professor Wolf assumes that all 16 and 17-year-olds would be on the national minimum wage for 18-year-olds. The analysis underpinning the costing by the Department for Children, Schools and Families uses data from the labour force survey showing that 27 per cent. of those in full-time jobs without training earn below the national minimum wage for 18-year-olds.