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

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.

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

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  1. Labour market policy with a small and shrinking state: the case of the UKDamian Grimshaw Paris seminar: ‘LABOUR MARKET POLICY IN EUROPE: FACING THE ECONOMIC CRISIS’ May 2011

  2. UK Labour market review

  3. UK rise in unemployment is in line with G7 average

  4. Relatively early recovery of employment levels in the UK

  5. Stronger fall and quicker recovery of male employment rate compared to women GDP recession

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

  7. Young people hit hard by unemployment

  8. Radical shift in political context

  9. Centre-left government 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 • 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 Spending cuts data from Taylor-Gooby and Stoker (2011)

  10. 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)

  11. 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

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

  13. labour market policy: ‘incentive reinforcement’ with no activation

  14. Focus on five dimensions (adapting Bonoli 2010) INCENTIVES: INTEGRATION: Employment assistance Childcare Placement services/ subsidies Counselling/ job search Education & training Further education Vocational training Public sector employment Pay Jobs • Labour supply • Benefit levels • Time limits on receipt • Benefit conditionality • Tax credits • Labour demand (job quality) • Minimum wage • Employment protection • Flexible hours • Maternity leave

  15. 1. Labour supply incentives:UK unemployment benefits very low by international standards OECD data, 2009, different family types

  16. 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

  17. 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

  18. 2. Labour demand incentives:UK minimum wage value is close to the average international level OECD minimum wage database. Minimum to median earnings 2009. EU-18 unweighted country average.

  19. 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)

  20. 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

  21. 3. Integration through employment assistance:-- Positive (limited) response during the recession Pre-2010 policy measures: 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+) • 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

  22. Young Persons’ Guarantee – evidence suggests it had a very significant effect in fostering job creationResults 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)

  23. Integration through employment assistance:-- but a near complete withdrawal during the recovery Post-2010 policy measures: Workers/firms/ households affected: Families in poor localities All job seekers Young people Young people Disabled, lone parents, older workers (50+) • 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)

  24. 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)

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

  26. 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)

  27. Job cuts have started and will continue Loss of public sector jobs: Spread across all areas: Inclusion of nationalised banks in 2008 Q4 onwards Source: statistics.gov.uk

  28. 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

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