Benefit reforms in recent decades have pushed more people into work, but often into part-time, low-paid jobs with little prospect of future high wages, the Institute for Fiscal Studies (IFS) has said.
Benefit policy should look beyond the headline employment number and promote longer-term career progression, which would in turn boost tax revenues, the think tank suggested.
In a study of the UK benefit system, the IFS found that universal credit – the current flagship reform of means-tested benefits – appears to have helped claimants return to work more quickly.
(The study) casts doubt on the value of recent conditionality regimes taking a work first approach— Alex Beer, Nuffield Foundation
Earlier reforms – the tax credit expansions of the early 2000s and the changes in 2008 to 2012 requiring more single parents to seek jobs to receive unemployment benefits – also drove up employment.
But imposing job-search conditions on out-of-work lone parents pushed them into mostly part-time jobs paying on average £8,000 a year, the IFS said.
Almost none earned more than £20,000, putting them in the bottom 40% of the overall earnings distribution.
Some also responded by claiming incapacity benefits instead, where looking for work is not required.
The study found that revamps of the benefit system over the past 25 years strengthened the financial incentive for low earners with children, who are the main recipients of in-work benefits, to move from unemployment to part-time work.
However, the incentive for them to shift from part-time to full-time work has been weakened, as the transition implies losing 58p to taxes or withdrawn benefits for every £1 earned – 6p more than in 1998.
Universal credit has made little difference, even increasing the incentives to do so-called “mini-jobs” at very low hours, the think tank said.
Claimants therefore often linger in low-paid, part-time work while paying little in tax and still receiving in-work benefits.
IFS senior research economist Tom Waters said: “The kind of work they (the reforms) have tended to produce has been part-time and low-paid – which generally does not serve as a stepping stone to higher-paid work further down the line.
“Policymakers would do well to look beyond the headline employment number when setting benefits policy, and consider how the system – and other parts of policy – can be shaped to promote longer-term career progression.”
He said around half of the £100 billion spent each year on working-age benefits goes to families in work.
“We have high employment and chronic low earnings growth, meaning that an increasing share of the lowest-income families contain someone in paid work.”
Alex Beer, welfare programme head at the Nuffield Foundation – which funded the study, said it “casts doubt on the value of recent conditionality regimes taking a work first approach”.
“The findings raise concerning questions about the quality of low-paid jobs and highlight the need to consider childcare, education, skills and labour policies alongside the benefits regime,” he added.
A Department for Work and Pensions spokesperson said: “We have extended intensive support to almost a quarter of a million claimants in work but on low pay and from September we’ll be rolling out our ramped up in-work progression offer – providing dedicated work coach support to a further 500,000 claimants on Universal Credit to help them earn more and advance their careers.
“Our network of Jobcentres offers an extensive skills provision through apprenticeships, skills bootcamps as well as the sector-based Work Academy Programmes (SWAPs) which support claimants to upskill, helping them to enhance their earnings as well as their career prospects.”
