The UK government has announced a new initiative to get 500,000 people into work and help fill the current record 1.2 million job vacancies in the economy. The “Way to Work” campaign promises to offer greater support to jobseekers and more engagement between the Department for Work and Pensions and employers, both welcome developments.
However, it will also use the threat of financial “sanctions” (in effect, fines) to force jobseekers on Universal Credit to look for work outside their chosen sectors more quickly. Previously, people had three months to look for jobs in their sector. Now, they will be forced to widen their search to employment fields where they lack experience or which they do not want, after just four weeks, or face having their benefits cut. This will be damaging and counterproductive not only to jobseekers, but to employers and the economy at large.
The number of unemployed people who are claiming benefits is up by 600,000 compared to before the pandemic. However, the labour force has lost 1.1 million people –- almost twice as many – due to reductions in immigration, early retirements, people off sick, some converting into students and other reasons. There are also unemployed people who do not claim benefits. While this worker shortage is a much bigger problem, Way to Work will not address it, because of its narrow focus on the claimant unemployed.
However, the high turnover of unemployed claimants -– with over 200,000 new claims per month – does mean that the Way to Work policy will affect a lot of people.
Sanctions and jobseekers
Historically, the reason for a time limit on job searching within a preferred sector was the belief (based on anecdotal evidence rather than research) that after three months of unsuccessful trying, people’s chances of getting a job there were small. But four weeks is clearly too short from this point of view. Claimants will not even have received their first Universal Credit payment, and employers will scarcely have had time to complete the recruitment process. The main effect may well be to deter workers with significant skills or experience from claiming benefit at all.
Studies in Britain, Switzerland and Sweden have found that sanctions push people into worse jobs, with lasting ill effects. The most recent official study in the UK, by the National Audit Office, found that while sanctioned unemployed claimants did indeed spend less time on benefits, they were just as likely to stop claiming as to get a job, and getting a job was at the expense of worse earnings prospects. For many people, the mere threat of sanctions will be enough to bring about these effects.
This is before we even consider the damaging effects on claimants who actually experience sanctions. Physical and mental ill health, hunger, homelessness, debt and “survival crime”, have all been extensively documented consequences.
There have been numerous studies on the impact of welfare conditionality and sanctions on different labour markets around the world. A comprehensive review of findings, compiled by a University of Glasgow team, found that overall, sanctions positively impacted employment levels, but negatively impacted job quality and stability long term. They also found that sanctions led to increases in nonemployment and economic inactivity, as well as increased material hardship, health problems and sometimes, poorer child wellbeing.
The policy will also be bad for the economy. Forcing people into less preferred jobs is bound to make for a worse match between applicant and job, in terms of knowledge, skills, experience and motivation: square pegs in round holes. It is obvious that neither employers nor consumers will be happy with this. Neither want workers whose heart is not in the job, and employers don’t want to waste time looking at unsuitable applicants.
There is also solid evidence that it will reduce economic efficiency and productivity. An American study found that if people have greater resources to draw on while unemployed, they take more time to find a job – indicating that choosiness pays off. If a longer job search pays off for the individual, it will also do so for the economy. Other American studies from 2000 and 2021 found that availability of unemployment benefits increases total output and welfare in the economy as a whole.
In a 2018 paper to the Welfare Conditionality Conference, I pointed out that historically, major drives to impose financial penalties on jobseekers occurred during periods of recovery from recession. In a recovery, governments get impatient at the slow pace of unemployed people getting back into work. Higher-than-usual unemployment benefit claims also become an attractive target for cost savings. Sadly, Way to Work fits all too clearly into this pattern. It may save the government some money in the short term, but only at the expense of the longer term wellbeing of jobseekers and the wider economy.