The UK Government published its employment White Paper Get Britain Working on 26th November 2024.
In this blog, Donald Houston and Anne Green reflect on how realistic the White Paper’s target of an 80% employment rate is. They also assess the merits and limitations of the proposals in getting there. They conclude with some constructive suggestions as to what else is needed.
What is the White Paper proposing?
The White Paper promises “a fundamentally different approach” to “tackle the root causes of why people are not working, joining up help and support, based on the needs of local people and local places”. The rhetoric of providing help and support is a shift from coercive activation and benefit sanctions. However, it remains to be seen to what extent this shift in rhetoric is matched by a shift in policy, with a strong statement in the White Paper about the new jobs and careers service being “underpinned by a clear expectation that jobseekers do all they can to look for work”.
Five key reforms are proposed:
- Increased support for the NHS to tackle health conditions closely linked to worklessness and integrate employment and health support services.
- A Youth Guarantee that all 18-21 year olds in England have access to education, training or help to find a job or an apprenticeship.
- Merging Jobcentre Plus with the National Careers Service in England.
- Encouraging employers to promote healthy and inclusive workplaces.
- Empowering local areas to design and implement the above, including additional resources for the local NHS Integrated Care System (ICS) and new Connect to Work funding to provide supported employment for people returning to work.
Do wider Government policies pull in the same direction?
The White Paper is part of a broader strategy to grow the number of good jobs via a new modern Industrial Strategy, and to improve the quality and security of employment through a Plan to Make Work Pay underpinned by the recent Employment Rights Bill.
In theory, a mix and demand and supply side labour market policies, if working in tandem and with the grain of market pressures, can pay dividends. However, the priority sectors in the modern Industrial Strategy are not ones likely to be accessible to many of the economically inactive, a disproportionate number of whom previously worked in manual and lower-skilled occupations.
The Employment Rights Bill proposes a raft of employment rights from day one of starting with a new employer. There are strong arguments to improve the security of employment to combat labour market deregulation and increased precarity. However, employment rights from day one shifts the risks of poor hiring decisions all onto employers.
Other downward pressures on hiring include the recently announced increases in employer National Insurance contributions and substantial rises in the National Minimum Wage (NMW). These reforms may serve to reduce hiring, particularly in the current challenging business environment after a period of substantial cost rises. The proposed removal of age discrimination in the NMW may make delivering on the Youth Guarantee more challenging. Hence, wider employment and fiscal policies may undermine the aim of the Get Britain Working White Paper to grow employment.
Is the 80% employment rate realistic?
The White Paper sets an ambitious target of raising the employment rate to 80% of the population aged 16-64 years. The UK’s employment rate currently stands at 74.8%. The latest ONS figures for July-Sept 2024 indicate that to reach 80% some 2.2 million people currently not working would need to shift into employment. As the White Paper notes, because unemployment is relatively low by historic standards, the majority of that 2.2 million would need to come from those currently economically inactive. This is a tall order, given that the economically inactive are (by definition) currently not searching and/or not available for work.
The big recent rise in economic inactivity has been due mainly to population aging, long-term sickness or disability, including Long Covid, and – early in the pandemic – early retirement. These groups are less likely to return to work compared with students and those looking after family and home, so making the 80% target seem even more challenging. As such, concentrating services on people and places with the greatest levels of poor health among existing workers (rather than those who have already exited the labour market) may be more effective than focusing on areas with the greatest numbers already out of the labour market.
Demographic cohort progression means that in five years, everyone currently aged 60-64 will have moved out of the 16-64 age range. Those aged 60+ have substantially higher economic inactivity than those just five years younger in the 55-59 age range. This means that if people currently aged 55-59 can be supported to stay in work then the employment rate will gradually move upwards. The Government may be dealt a favourable hand by the large tail of the late baby boomers moving out of the normal working age range (16-65 years) over the next few years.
There are currently only three OECD countries with working-age employment rates in excess of 80%: Iceland (83.8%), the Netherlands (82.5%) and Switzerland (80.8%). New Zealand and Japan come close at 79.8% and 79.3%, respectively. The UK is 14th (out of 38 OECD members) at just under 75%, substantially higher than many major economies, including the USA (72.0%) and France (68.4%). The White Paper mentions the three countries with employment rates above 80%, but international comparisons can be misleading. The Netherlands and Switzerland achieve very high employment rates mainly by virtue of being ranked first and second, respectively, for part-time employment. In the Netherlands 34.1% of its working age population works part-time. The UK’s part-time employment rate is 20.4%.
The Government should be aware of possible unintended consequences of targeting an 80% employment rate, in particular inadvertently moving people from economic inactivity to precarious employment. From the point of view of growing the economy, other meaningful targets could include hours worked alongside the employment rate. After all, you only need to work one hour per week to be counted as employed. From an inclusion perspective, reducing the number of workless households and underemployment (employed people who want to work more hours) might also be useful targets.
Conclusions
The White Paper highlights a shift from coercion to support; a focus on health, young people and economic inactivity; local flexibility in design and delivery; and an integration of health, employment and welfare services. There are welcome additional resources for health-related employment interventions. Situating the White Paper as part of a suite of demand- and supply-side interventions is positive.
But different Government policies are pulling in different directions and may undermine the objectives set out in the White Paper. The priority sectors in the modern Industrial Strategy do not match the occupations in which economically inactive people are likely to find employment. The Employment Rights Bill and increased National Insurance and National Minimum Wage costs on employers may limit confidence to hire new staff, particularly young people when lower minimum wage bands for younger groups are removed.
The proposed integration of health and employment services, and the strong focus on devolution and place-based approaches, are new in extent although not in principle. The thrust of the proposals develops and extends existing initiatives. For instance, the previous Government’s Work Well initiative and increased funding for mental health services already brought health and employment support into single services. There already exist considerable locally-based employment services.
There are a number of specific shortcomings that will need to be addressed for the new Government to have a substantial impact on the labour market. Underemployment, self-employment and the gig economy have become entrenched parts of the UK labour market over the last decade or more. Yet the employment White Paper makes no mention of them. The 80% employment rate target is arbitrary and possibly unrealistic. Alongside the employment rate target, there needs to be an emphasis on ‘good work’.
Supply-side activation and support mechanisms in the labour market are needed, roughly as set out in the employment White Paper. Industrial, fiscal and regional policies need to be aligned with employment policy to deliver meaningful results.
This blog was written by Professor Donald Houston, Professor of Regional Economic Development and Anne Green, Professor of Regional Economic Development and Co-Director, City-REDI, University of Birmingham.
Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.