Unemployment policy is damaging the UK workforce, claims leading economist

17 May 2013

The Government’s approach to reforming unemployment support is harming the UK’s future prosperity and will not equip the country for the global race, a leading economist warns today.

Writing in the New Statesman, Ian Mulheirn, Director of the Social Market Foundation think tank, argues that the Government’s emphasis on cutting already meagre unemployment benefit whilst toughening sanctions on jobseekers is economically damaging because it is preventing skilled and experienced people from finding the jobs that put their skills to productive use.

Citing academic evidence on the economic impact of lower benefits and greater conditionality, Mulheirn, a former Treasury economist, writes:

“Unemployment benefits play a crucial role in allowing people time to search, not just for any job, but for the right job: one that puts their skills and experience to best use… Where jobseekers are pushed hard to take the first job that comes along, the usual result is poor job matches, lower wages, and higher turnover

“In today’s high skilled knowledge economy, finding the right job takes longer and is valuable for both employee and employer… In respect of skilled and experienced workers, cutting support and tightening sanctions is economic folly”

Ian Mulheirn writes in the context of a recently adopted cap on Jobseekers Allowance increases and ever greater sanctions for the jobless. He argues that deficit reduction and the need to reduce the headline rate of unemployment have “spurred the Coalition to intensify the usual policy prescriptions” that have been pursued by successive governments for 30 years.

Mulheirn argues that this approach is driven by a deep crisis of public legitimacy in the welfare state resulting from a perception of a “something for nothing” culture in welfare. He shows that the UK’s flat-rate unemployment benefit scheme is unusual in the developed world, with most other countries offering benefits related to prior contributions. Ian Mulheirn identifies the absence of these earnings related contributions as central to hardening public attitudes to unemployment benefits over a generation:

“…it is perhaps unsurprising that barely a week goes by without a politician of some variety lamenting a ‘something for nothing’ culture of the benefits system. Tabloid hyperbole fuels a general sense that large numbers of people are taking the rest of us for a ride, no matter the detail”.

In the essay, Ian Mulheirn suggests that the current approach is “fast running out of road” and offers “no vision for a welfare system that might once again command popular support”. Its highest ambition, he writes, is “to minimise the public cost of the system, regardless of the economic consequences” and will “never resolve the ‘something for nothing’ problem that stems from the fundamental design of the system”.

The essay points towards the solution of a reinvention of the contributory principle in welfare, something that many commentators have called for. The SMF’s detailed plan for how to achieve this in a way that supports people to find the right work without damaging their incentives to do so will be launched next month.

Notes to Editors

  • Ian Mulheirn’s essay The truth about welfare appears in the 17-23 May edition of the New Statesman
  • The truth about welfare is extracted from a forthcoming report Beveridge Rebooted by the Social Market Foundation on the crisis of legitimacy in welfare and how to resolve it. Beveridge Rebooted is sponsored by the Joseph Rowntree Foundation
  • Chapters 1 and 2 of Beveridge Rebooted explore the origins of the crisis of legitimacy in welfare and the flaws of the orthodox approach.
  • Chapters 3 and 4 of the report will be launched later in the month and will include critique of the Labour Party’s approach  to welfare reform and the policy proposals required to restore public faith in the system without damaging the economy
  • The Social Market Foundation (SMF) is a leading UK think tank, recently named UK Think Tank of The Year and Economic and Financial Think Tank of the Year
  • The SMF develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach.  www.smf.co.uk

Website by: Commotion