The moral and economic imperative of reducing worklessness

By Jill Kirby of the Centre for Policy Studies.

Outlining the Coalition’s plans for welfare reform in the House of Commons yesterday Iain Duncan Smith alluded to new data on workless households presented in the Centre for Policy Studies’ latest report ‘More Producers Needed’.  At 11.5%, the UK has the highest incidence of adults in workless households of the six largest EU economies. As the report’s author Peter Warburton explains, the social and economic challenges this poses are inextricably linked. Significantly, the 1992-2007 boom did little to improve the prospects of these disconnected households:
 
As more paid employment became available in the UK between 1992 and 2007, far more jobs went to households where there was already someone working than to people in workless households, deepening the divide between the “work-rich” and “work-poor.” The Labour government’s failure to tackle welfare reform meant that dependency became entrenched while the politicians averted their gaze. In Peter’s words “The increasing indebtedness of the UK economy from the early 1990s created an illusion of prosperity and allowed an improvement in living standards beyond that consistent with sustainable growth. At the same time, the apparent health of public finances promoted the false notion that social welfare expenditures could be allowed to expand without adverse economic consequences.”

As another recent report by the Centre for Policy Studies argued, one of the most important factors in encouraging the growth which will pull us out of the current slump must be the expansion and stimulation of our labour market. Peter applies this specifically to the endemic problem of worklessness, showing that a 10% drop in the number of workless households represents a potential 3% increase in the number of working households. Even if these transitional households were initially only half as productive as existing working households, this would add around 1% to GDP.

Our report also shows how male worklessness is at the heart of this problem, a concern highlighted yesterday by EHRC chairman Trevor Phillips, who warns that the failure of men to gain qualifications and hold onto jobs will “stunt UK growth.” As work and earned income have become more concentrated in all-working households, it is clear that the incremental employment in these households has accrued to women rather than to men. The male share of total weekly hours worked peaked in 1973 at 72.3%. In the second quarter of 2010, the share was 61.2%.

Behind this rebalancing lies a sombre reality: total weekly male hours worked have declined by more than 13% since 1973 despite a 19.5% increase in the male population of working age. Male working age economic activity rates fell by 2.8 points between 1992 and 2007, including a 13.6 point drop for those aged 16-17 and a 5.4 point decline for the 18-24s. The 2008-09 Family Resources Survey revealed that the unemployment rate among 16-24 year-old men was 12% on the ILO definition with a further 4% inactive and not in full-time education. Among these unemployed, 42% had never worked, 7% had not worked for more than two years and a further 7% had not worked for more than a year. The decline in male breadwinning and rise in welfare dependency has left too many young men without a role.

As Iain Duncan Smith is well aware, government policies must encourage unproductive and poorly-performing households out to work in the private sector. This is not just about creating incentives, to ensure that work always pays, but also penalties for refusal to participate. Effective labour market programmes in other European countries include sanctions on benefit claimants for non-compliance with training and labour market programmes.

But the government should also look beyond centralised policy solutions. As Conservative council leaders Stephen Greenhalgh, Colin Barrow and Edward Lister argued in ‘A Magna Carta for Localism’, efficient local authorities should be given the chance to tailor labour market programmes to their population. Good local authorities can respond to local needs and opportunities far more effectively than Whitehall. There is also significant scope for reducing the incidence of fraud, and tying job-creation programmes to the prevention of anti-social behaviour. In return, councils must be rewarded for success in moving workless families into work and off benefits. Trials of devolving powers such as these (and potentially local provision of care, crime prevention, and the rehabilitation of criminals) to councils could start right now in a number of sympathetic and well-run councils: these ‘Foundation Councils’ may well hold the key to solutions that are both compassionate and efficient.

We must pull down the barriers between working families and those who are entirely dependent on benefits. Increasing work participation is important not just for the families involved – and in particular the men who have been left high and dry - but also to strengthen the British economy and to aid recovery. There is both a moral and economic imperative.