Labour market policy with a small and shrinking state: the case of the UK

Damian Grimshaw

Paris seminar: ‘LABOUR MARKET POLICY IN EUROPE: FACING THE ECONOMIC CRISIS’ May 2011

UK LABOUR MARKET REVIEW

UK rise in unemployment is in line with G7 average

0

2

4

6

8

10

12

14

16

18

20

22

Q1-2008 Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009 Q3-2009 Q4-2009 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011

Harmonised unemployment rate (OECD)

UK

Denmark

Spain

France

G7

EU27

Relatively early recovery of employment levels in the UK

-10

-9

-8

-7

-6

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-4

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-1

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UK Denmark Spain G7 EU27

Perc

enta

ge d

iffer

ence

Total employment by quarter relative to pre-recession peak (OECD)

Q1-2008

Q2-2008

Q3-2008

Q4-2008

Q1-2009

Q2-2009

Q3-2009

Q4-2009

Q1-2010

Q2-2010

Q3-2010

Q4-2010

64

66

68

70

72

74

76

78

80

Jul-S

ep

2006

Sep-N

ov 2

006

No

v-Jan 2

007

Jan-M

ar

2007

Mar-M

ay 2

007

May-J

ul 2007

Jul-S

ep

2007

Sep-N

ov 2

007

No

v-Jan 2

008

Jan-M

ar

2008

Mar-M

ay 2

008

May-J

ul 2008

Jul-S

ep

2008

Sep-N

ov 2

008

No

v-Jan 2

009

Jan-M

ar

2009

Mar-M

ay 2

009

May-J

ul 2009

Jul-S

ep

2009

Sep-N

ov 2

009

No

v-Jan 2

010

Jan-M

ar

2010

Mar-M

ay 2

010

May-J

ul 2010

July-

Sep

2010

Sep-N

ov 2

010

No

v-Jan 2

011

All Male Female

Stronger fall and quicker recovery of male employment rate compared to women

GDP recession

Flexible adjustments:Quarterly change in full-time and part-time employment

80

85

90

95

100

105

110

115

120

125

130

135

140

145

150 Male full-time Male part-time Female full-time Female part-time

Young people hit hard by unemployment

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

1 20

072

2007

3 20

074

2007

5 20

076

2007

7 20

078

2007

9 20

0710

200

711

200

712

200

71

2008

2 20

083

2008

4 20

085

2008

6 20

087

2008

8 20

089

2008

10 2

008

11 2

008

12 2

008

1 20

092

2009

3 20

094

2009

5 20

096

2009

7 20

098

2009

9 20

0910

200

911

200

912

200

91

2010

2 20

103

2010

4 20

105

2010

6 20

107

2010

8 20

109

2010

10 2

010

11 2

010

12 2

010

16 - 17 18 - 24

25-49 50+

RADICAL SHIFT IN POLITICAL CONTEXT

Centre-left government

• 1997-2010• General goal of attaining a

European level of public services provision

• March 2010 budget included planned spending cuts of approximately 13% over 10 years

Right-wing coalition

• Since May 2010• Rolling back the state to the

level of the USA

• October 2010 budget includes spending cuts of approx 20% over 5 years

Spending cuts data from Taylor-Gooby and Stoker (2011)

Large and rapid cut in UK public spending (% of GDP) – projected lower than the US by 2015

(IMF data, www.imf.org/external/pubs/ft/weo/2010/02/weodata)

35

40

45

50

55

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Denmark

France

Germany

Spain

United Kingdom

United States

General character of UK labour market policy during and after recession

Blair/Brown governments (up to May 2010):• Neoliberalism combined with progressive interventions• Increased state spending (although increased outsourced spending to private

sector also) but consistently low spend on policies that assist the unemployed (Clegg 2010)

• Stronger social safety nets (new tax credits, child poverty reduction) and childcare provision, but also investment in ‘liberal’/’defensive’ activation policies (Bonoli 2010)

• Improved worker rights (new minimum wage, more holidays, maximum working time, maternity/paternity leave, flexible working, pro-rata conditions for part-time and fixed-term temporary workers)

Cameron/Clegg government• Neoliberalism• Withdrawal of state activity in labour market assistance• Cuts to real value of social safety nets, ending of focus on poverty targets, halt to

past policies that improved childcare• Proposals that will collectively worsen job quality

Despite 13 years of a Labour government, the UK sustained its low level of spending on assistance for the unemployed

0

0.5

1

1.5

2

2.5

3

Denmark France Germany Spain United Kingdom

United States

Public spending on labour market policy as % GDP (OECD 2008)

Active measures

Passive measures

Total

LABOUR MARKET POLICY: ‘INCENTIVE REINFORCEMENT’ WITH NO ACTIVATION

Focus on five dimensions (adapting Bonoli 2010)

INCENTIVES:• Labour supply

– Benefit levels– Time limits on receipt– Benefit conditionality– Tax credits

• Labour demand (job quality)– Minimum wage– Employment protection– Flexible hours– Maternity leave

INTEGRATION:• Employment assistance

– Childcare– Placement services/ subsidies– Counselling/ job search

• Education & training– Further education– Vocational training

• Public sector employment– Pay– Jobs

1. Labour supply incentives:

UK unemployment benefits very low by international standards

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90

Denmark France Germany Spain UK US

Net replacement rates of average wage, no children

Single person

One-earner married couple

Two-earner married couple

OECD data, 2009, different family types

Policy responses reinforce the pressure of ‘negative incentives’ on the supply-side

Policy changes:• New index reduces value of benefits

– Switch in April 2011 from RPI (includes housing costs) to CPI.

– Estimated savings £5.8 billion by 2014-15. Affects 5 million people on out-of-work benefits

• 3-year freeze in working tax credit and child benefits (April 2011-14) and reduced help with childcare costs (from 80% to 70%)

• Planned reforms to ‘simplify’ system (universal credit)- ‘no losers’ claim but only after cuts

• Reinforced means-testing alongside minor reduction in claw back rate (disability benefits means tested after one year/ end in 2013 to child benefits for higher rate tax-paying families)

• Reinforced welfare-to-work pressure for all, including disabled and lone parents with very young children

• Capping of benefits- housing benefits plus total support- impact on poor in London and large families

Significance:• Huge cuts in welfare spending hurt the poorest (presented by gov’t as a sensible trade-off for smaller cuts in

public services)

• Changed inflation indexation represents one third of total £18 billion cut in welfare spending

• Towards withdrawal of unconditional support for incapacitated

• End to universal child benefits- in place since Beveridge

• End to universal housing support for those on benefits

Example of incapacity benefits

Reforms since 2003 have increased obligations on people on incapacity benefits to move into the labour market (to enter paid work or to be seeking paid work)

Culminated in 2008 with a new means-tested benefit, ‘Employment and Support Allowance’, which requires a new work assessment test (previous benefits and income support gradually being abolished during 2010-14)

2010 budget abolished mobility allowance for people in care- Concerns that new health test does not identify mental health problems

(mind.org.uk), is not sensitive to the needs of cancer patients (citizensadvice.org.uk) and is largely designed to push ‘tens of thousands more people onto job-seekers allowance’ (benefitsandwork.co.uk)

- Historic protest of thousands of disabled people in London, May 2011

2. Labour demand incentives:

UK minimum wage value is close to the average international level

CZ EE LU ES LT PO RO SK UK NL HU GR SI BE IE LV PT FR EU-18

Series1 0.360 0.413 0.430 0.441 0.442 0.449 0.453 0.454 0.461 0.472 0.478 0.482 0.490 0.508 0.511 0.519 0.537 0.601 0.472

0.25

0.30

0.35

0.40

0.45

0.50

0.55

0.60

OECD minimum wage database. Minimum to median earnings 2009. EU-18 unweighted country average.

It has lost real value since early 2010 (relative to RPI) but has kept up with average and median earnings

(increases of 1-2% since October 2009)

30%

35%

40%

45%

50%

55%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Relative to median pay

Relative to average pay

Reduced employee security measures

Ongoing changes as part of Employment Law Review (summer 2010):

Worsening of job quality:• Abolished two-tier code that protected pensions and employment conditions of

staff transfers (mostly low paid) in local authority and health services outsourcing• Weakened rights to claim unfair dismissal - Proposal to increase the qualifying

period from 12 months to 24 months– Largest impact on youth, ethnic minorities and female part-time workers (TUC data)

• Proposal to reduce the minimum 90-day period consultation period for collective redundancies

• Plans to reduce protections under TUPE legislation• Reversed previous government’s promise to introduce ‘dual discrimination’

provision in the Equality Act

Improvements:• Proposal to consult over pre-2010 promises to extend the right to request

flexible working and introduce more generous and shared parental leave, but only from 2015

3. Integration through employment assistance:

-- Positive (limited) response during the recession

Pre-2010 policy measures:• Free part-time (15 hours per week)

childcare, 3-5 years old; special funds for SureStart centres

• 2009 budget increased funding of £1.7 billion to Job Centre Plus

• Young Persons’ Guarantee – all youth unemployed 6 months guaranteed the offer of a job, training or work experience

• £1 billion Future Jobs Fund provided job subsidies up to £6500 to employers to create FT jobs of 6+months duration (employer bids published on internet)

• Return-to-work/ in-work credits for low earners coming off benefits

Workers/firms/households affected:

• All; families in deprived localities

• All

• Young people (16-24)

• Funded 100,000 new job starts (mainly 16-24 age) 2009-11 and planned 50,000 long-term unemployed

• Disabled, lone parents, older workers (50+)

Young Persons’ Guarantee – evidence suggests it had a very significant effect in fostering job creation

Results Oct 2009 - Jan 2011: (http://research.dwp.gov.uk)

– 91,890 job starts to Future Jobs Fund vacancies– 37,330 job starts to Community Task Force placements (3-months

work experience, 25 hours work plus 5 hours job search)– 22,980 starts to Routes into Work – government funds pre-

employment training (up to 8 weeks) for access to existing jobs– 12,200 starts to Work Focused Training (up to 24 weeks training,

funded by government, up to NVQ levels 2 and 3)

Integration through employment assistance:

-- but a near complete withdrawal during the recovery

Post-2010 policy measures:• Expected closure of 250 childcare centres• 2011 budget will cut funding of Job

Centre Plus – expected 20% job losses• Young Persons’ Guarantee abolished• Future Jobs Fund abolished and replaced

with a much smaller £60m ‘youth initiative’ – pilots due to begin

• Return-to-work and in-work credits retained

Signals a new non-interventionist approach --- government ‘can not wave a magic wand to

create jobs’ (Deputy PM, 11 May 2011)

Workers/firms/households affected:

• Families in poor localities• All job seekers

• Young people• Young people

• Disabled, lone parents, older workers (50+)

4. Integration through education & training

-- Reducing the already weak commitment to learning• 2006 ‘Train to Gain’ provided government subsidies to employers to

support training to NVQ Level 2 – judged relatively effective– But new government abolishes train to gain and related subsidies (from July 2011

no entitlement to free training to level 2 for people aged 25+)– 25% reduction over 4 years in budgets for further education colleges that provide

much of the Level 2 and 3 training

• April 2010 – new employee right to request time to train in firms with 250+ employees– But new government has scrapped previous plans to extend the new right to all

firms

• Means-tested education maintenance allowance (up to £30 per week) to support 16-19 year olds in further education– abolished in England from Jan 2011

Continued problems of ‘negative set of mutually reinforcing factors’ shaping low skill employment (Keep and James 2010; see also Pring et al. 2009)

Evidence of positive impact of ‘train to gain’ policy (LSC 2009)

Integration through public sector employment

-- Unprecedented downsizing of public sector jobs

• Public sector provided employment shelter during the recession

• 2010 budget projected 490,000 job cuts by 2014-15 – already 132,000 jobs lost (2009 Q4 to 2010 Q4)

• Half million people protested in March 2011• Pay freeze 2011-13 for all public sector (small annual

supplement of up to £250 for lowest paid, equivalent to 2% for lowest paid Heather Wakefield PFblog) (local government pay already frozen from April 2010)

Job cuts have started and will continue

Loss of public sector jobs:

5800

5900

6000

6100

6200

6300

6400

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 Q1

2008 Q2

2008 Q3

2008 Q4

2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

Spread across all areas:

Inclusion of nationalised banks in 2008 Q4 onwardsSource: statistics.gov.uk

-70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 60 70

Construction

HM Forces1

Police

Public administration

Of which: Civil Service2

Education

NHS

Other health and social work

Other (incl. Banks)

2009 Q4 -- 2010 Q4

2008 Q4 -- 2009 Q$

SUMMARY

• Up to 2010 the UK witnessed positive activation measures and improvements in worker rights, albeit limited by international standards

• Radical strengthening of neoliberal policy orientation in all 5 dimensions of labour market policy:– Labour supply – reduced benefits and stronger welfare-to-work incentives,

especially targeted on disabled and lone parents– Labour demand/job quality – no improvement in minimum wage, proposed

weakening of employee security– Employment assistance – cancellation of several job subsidy programmes

puts young people at greater risk when unemployment still high– Education&training – abolished flagship ‘train-to-gain’ programme and

means-tested payment to 16-18 year olds in education– Public sector employment – at the start of a period of large job cuts with a

pay freeze and proposed reductions in protection of outsourced workers