The New Deal for Young People: Early Findings from the Pathfinder Areas

The New Deal for Young People began in January 1998 in a number of ‘pathfinder’ areas before going national in April. In this paper we attempt to measure the effect of the New Deal on unemployment outflow rates in the pathfinder areas using a generalised matching function approach. We use two different methods. First, we pool data across the pathfinder areas and estimate the effect of the New Deal by dummy variables. Second, we examine the errors in forecasting outflow rates from equations estimated until the end of 1997. These two methods have different strengths and weaknesses, but produce similar results. As expected, outflow rates were higher than predicted for the NDYP target group. They were also lower than predicted for almost all other groups. The latter result might indicate substitution, but this is not our interpretation since a similar effect is also observed in a set of control areas. Instead, we discuss a number of possible explanations for a general decline in outflow rates relative to our estimated equations that would have occurred in the absence of the New Deal. When this is taken into account, it appears that the New Deal has had no obvious adverse effects on other groups. To the extent that there may be an adverse effect, we find that assistance in job search during the Gateway is more likely to cause substitution than participation in the New Deal options. This pattern is likely to change when the stock of young people on the programme builds up. The deadweight loss of the programme is estimated at about 50 per cent. National Institute of Economic and Social Research 2 Dean Trench Street Smith Square London SW1P 3HE United Kingdom Tel: +44 (0) 20 7222 7665 Fax: +44 (0) 20 7654 1900 Website: http://www.niesr.ac.uk Copyright  1999 National Institute of Economic and Social Research No part of this publication may be reproduced or used in any form by any means – graphic, electronic or mechanical including photocopying, recording, taping or information storage or retrieval systems – without prior permission in writing from the National Institute of Economic and Social Research The views expressed in this report are the authors’ own and do not necessarily reflect those of the Employment Service or Department for Education and Employment.