Long-term unemployment and social exclusion threaten to dominate the forthcoming G8 summit. Emma Haughton reports

The rise of persistent unemployment has long been a bug-bear of Western governments, and never more so than today. From around two per cent in the 1960s, the average unemployment rate for the European Union is now running at ten per cent, with Britain only slightly better off at eight per cent.

Tackling the problems of the long-term jobless and the way they are excluded from society is likely to dominate debate at the forthcoming G8 economic summit in Birmingham. At a conference at the London School of Economics this week, the problems were given an airing. What does cause unemployment and how should governments help society's poorest - the under-class, as they are sometimes labelled?

According to Richard Layard, director of the LSE's Centre for Economic Performance and adviser to the Treasury, we are caught in a vicious circle. The longer someone is without a job, the less interested employers are in considering them. This cycle is compounded by the fact that Britain has seen a steady decline in basic skills. "Unemployment rates are much higher for the unskilled," says Layard, "and the situation is likely to worsen with globalisation and the growing competition for low-skilled jobs between advanced and third world countries. Although in the last 20 years we've had rather successful skill development for the academic half of the population, it has been a disaster for the rest."

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Layard believes governments need to raise skill levels among the less academic: one of Britain's biggest mistakes has been to allow the apprenticeship system to decay. "Although higher and full-time further education have been success stories, they haven't catered for the less academic half of the population. A crucial feature of the strategy for national recovery is offering something to the less academic - ideally, everyone should get an apprenticeship if they're not in a job or full-time education," he says. In parallel, employers should be offered recruitment rebates to encourage them to give long-term unemployed people a chance.

For all this to work, we need to ensure that benefit payments don't encourage dependency. "We've been too willing to assume that millions of people are no-hopers. Benefit money is better used to actively help people back into work - essentially what's embodied in the New Deal for the young unemployed." As in Labour's New Deal programme, everyone should be effectively guaranteed work after a certain period. "It's not a natural right to live for ever on benefit payments, and there should be a time when that option ends. It's not harassment but should be something positive."

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But when it comes to the question of people being excluded from the services and activities most enjoy, we should consider those at the top as well as at the bottom of the heap, says Anthony Giddens, director of the LSE. At the bottom, there's involuntary exclusion by people who can't get in, but at the top there are plenty of people who opt out of sharing in state services by moving into private health and education. "We focus on the underprivileged, but those at the top are just as dangerous," says Giddens. "Without integration at both ends, there is a danger that society won't have enough solidarity to hold it together."

Jonathan Gershuny, director of the Economic and Social Research Council research centre on micro-social change at Essex University, agrees with Giddens that we need to be careful how we define unemployment and social exclusion. People who hold temporary jobs may still be effectively excluded from taking part in normal life, while those who are currently unemployed may not be permanently excluded, because their skills make it likely that they will soon find well-paid work.

One feature of a healthy economy is actually a reasonable rate of unemployment. Some jobs stop being viable and new ones emerge, and there will always be people who are in training or simply moving from one job to another. "Exclusion is qualitatively different from unemployment," says Gershuny. "Exclusion means an extended period out of employment without a reliable hope of acquiring a job, or extended periods in which you get bad jobs and are repeatedly made unemployed," he says. "You might even include people at the margins who have secure, but very low-paid jobs, that don't actually allow them to participate in normal life."

Gershuny recently analysed new figures collected from the Europanel, which surveys 120,000 people across Europe each year, including 10,000 in the UK, to construct a long-term picture of their job patterns. He found a clear relationship between unemployment and labour market exclusion which is consistent across Europe, with the number of people excluded running at about twice the rate of unemployment.

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In some countries, those who are consistently marginal to the labour market are much worse off than the currently unemployed who've been relatively securely employed in the past. "In Denmark and Belgium, for example, there's very little difference between the two groups, whereas in Britain and Ireland, there's very big differences which relate to differences in benefits and length of entitlement to unemployment pay."

Essentially we punish our unemployed for being unemployed, he believes. "We have a benefit regime that treats those marginally unemployed much worse than those unemployed who previously had secure jobs, so that the worse off get treated utterly worst. Their incomes are much lower and they have to go without things like a hot meal every day. In terms of real material deprivation, the socially excluded in Britain are markedly worse off than those unemployed who are likely to reenter the labour market and get secure jobs."

Nor does he think this harsh treatment acts as an incentive to make them try harder to find jobs. "I understand why economists think you need to treat people this way to get them off benefits, but the evidence that it works is lacking. It only has some logic if you ignore all the stigmatising characteristics of unemployment, such as the accompanying loss of confidence." And even if there were a marginal incentive effect, he argues, as long as there is a strong involuntary aspect to unemployment, there's a moral question: "To what extent are we entitled to increase the suffering of those who are already suffering in order to make a marginal difference to the performance of the economy as a whole?" Welfare to work is the solution, he believes, using carrots rather than sticks. "I can see no evidence to suggest that people don't want to work, and even if the carrot fails, you have to go a very long way towards blaming the beast before the stick becomes morally acceptable. During the years of Tory misrule we went far, far too far down that road."

He points to research showing that children brought up in extended periods of poverty do badly, have low expectations and greater rates of ill health. "The consequences (of social exclusion) extend from the narrowest of material concerns, like what happens to our children, to the broadest moral concerns of what happens to us and the way we view our fellow man. If we accept bums in gutters we become a hard and uncaring people. Under the last government we hit moral rock bottom - the question is do we step back now from that moral abyss?"

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