The announcement in the Queen’s Speech of a proposed Full Employment and Welfare Benefits Bill might suggest that the Conservative Workers’ Party had listened to the Archbishop of York’s call for a return to the values of Temple and Beveridge (see this blog , On Rock or Sand?, 17 February 2015). ‘Full employment and welfare’ suggests a concern for the dignity of work and a preferential option for the poor.
Beveridge defined full employment as a seller’s market in labour, meaning that every willing worker enjoys competition among employers for his or her services. Mr Osborne has redefined full employment to mean something completely different: the highest proportion of the working-age population in employment in the G7. Full employment in Mr Osborne’s sense is to be achieved partly by making unemployment as unpleasant as possible. So cuts in working-age benefits are to be justified as promoting full employment: hence the linking of ‘full employment’ and ‘welfare’ in the same sentence. The Bill is intended ‘to ensure that it pays to work rather than to rely on benefits’.
Yet, ironically, the neoclassical economic theory necessary to make this connection between employment and welfare assumes Beveridge’s definition of full employment. In a neoclassical world, people only choose to work for any of their eager would-be employers because, on balance, they derive more pleasure from the extra goods they can earn by working than from enjoying extra time off. The corollary is that if people are drawing benefits rather than working, they are too pampered to accept one of the many offers of work arriving on their doormat. Reduce their benefits and they will go to work.
The policy is no more in touch with reality than the neoclassical theory. In March 2013, a number of churches published Truth and Lies about Poverty, calling on politicians and journalists to stop promoting harmful myths about the poor, contrary to the published evidence. Going further back, a DSS report in 2000 evaluated the natural experiment – rare in Economics – provided by the introduction of Jobseeker’s Allowance in 1996 to replace Unemployment Benefit. JSA, which introduced a job search contract with sanctions, resulted in a reduction of the claimant rate by 0.8%, compared with 6.9% immediately prior to its introduction. This means that 9 out of 10 claimants had been actively seeking work, even before the introduction of what now seem very mild sanctions. Today’s jobseekers claim simply because they cannot find immediate work, let alone decent work, despite looking for it under considerable duress.
Freezing JSA will not reduce unemployment, it will simply reduce the incomes of the unemployed. Furthermore, JSA represents only 8% of the total spend on working-age benefits – the other 92% receivable by low income households, whether or not unemployed, will also be cut in real terms (source). For all the rhetoric, the real agenda here is to reduce the incomes of the poorest in our society rather than raise taxation – an emphatic option against the poor. It is disingenuous to suggest that cutting welfare has anything to do with the achievement of full employment.
Mark Hayes holds the St Hilda Chair in Catholic Social Thought and Practice and lectures on macroeconomics in the University of Cambridge. More information can be found on the contributors page or the Department website.