UK enjoys an employment lead over the US worth two million jobs

Dramatic reversal of positions on employment and welfare reliance over last two decades

The common perception that the US outperforms the UK in terms of employment and low worklessness is completely wide of the mark, according to a new report published today (Thursday) by the Resolution Foundation.

An ocean apart, authored by Paul Gregg and Adam Corlett, examines the big shifts in employment, economic participation and welfare reliance that have taken place in the UK and US over the last 20 years, and considers what they might mean for future policy making in the UK.

The report finds that the UK, having had the equivalent of a million fewer jobs than the US in the mid-90s due to its employment rate being three percentage points lower, overtook the US in 2001 and now enjoys a higher employment rate (equivalent to two million jobs in the UK). Alternatively, if the US managed to increase its employment rate to UK levels this would be the equivalent of a gain of 10 million jobs.

This pattern is just as dramatic when looking at participation in the labour market, especially for women. The proportion of women aged 25-54 in the UK either in, or actively seeking, work is now over six percentage points higher than the US, having been lower as recently as 2002.

Over the same period the two countries have also experienced very different shifts in welfare reliance. The proportion of people on out-of-work benefits has fallen steadily in the UK, while increasing in the US. Having peaked in 1993, the share of the working-age population in the UK receiving a major out-of-work benefit has fallen to its lowest level since 1980.

The Foundation notes that the recent downturn and recovery – which has been jobs-rich and pay-poor in the UK – has accentuated the divide between the two countries. However, the report highlights that the contrasting performances of the two countries can be traced back to the turn of the millennium. It suggests that their different approaches to welfare reform have played a key role.

In contrast to the US system – which combines a contributory system with few conditions attached with a highly restrictive social assistance safety net, using time limits to curb reliance – the report identifies features of the UK’s pattern of welfare reform over the last twenty years that are likely to have helped boost its performance. These include:

• Increasing support for childcare, maternity rights and flexible working over this period;
• Maintaining a universal safety net, backed up active job search requirements and support; and
• Increasing the availability and generosity of in-work support, in order to boost work incentives.

Despite the relatively good performance of the UK, An ocean apart argues that there is still plenty of room for further improvement as well as risks to avoid. It notes that while the problem of families in which no one works has largely been solved – with fewer than 100,000 non-disabled workless couples with children left in the UK – other ongoing challenges, such as the high proportion of people on disability benefit, remain. Helping more people into work among groups such as the disabled and long-term ill, the young and those with the lowest qualifications will be essential in meeting any ‘full employment’ target.

With most poor children living in families where someone is in work, the report also argues that tackling in-work poverty is now the UK’s biggest welfare challenge. A review of Universal Credit overseen by the Resolution Foundation, to be published on Monday, will outline the reforms needed to meet this challenge.

The Foundation notes that tackling in-work poverty has become both tougher and more important against a backdrop of planned cuts to working-age household benefits of £12bn over the next two years.

Paul Gregg, Professor of Economic and Social Policy at the University of Bath and Resolution Foundation Associate Fellow said:
“There was a time when some looked to the US welfare model for answers to extensive worklessness in the UK. The perception was that the US outperforms the UK in terms of employment and low welfare reliance. But this situation has now has been so comprehensively reversed it is time to assess the origins of the Britain’s success.

“The UK has made great strides in improving its employment record in recent decades, particularly among families with children. But we must go much further – and avoid the pitfalls of the American model ¬– if we’re to reach the goal of full employment. The UK still lags behind many leading economies when it comes to supporting mothers back into work, and for decades we’ve made very little progress in helping disabled people into the labour market.”

Adam Corlett, Economic Analyst at the Resolution Foundation said:
“Successive governments have managed to reduce out-of-work benefit reliance in the UK – a remarkable feat that has been almost completely overlooked in the ongoing debate about welfare, which sometimes feels like it’s stuck in a time-warp.

“But public policy needs to catch up with this progress, otherwise we risk trying to tackle the welfare problems of the mid-90s, while ignoring the real challenges of today. Successive reforms appear to have helped many more people into work, but the welfare system now needs to do much more to bear down on in-work poverty and help people progress in work.”

Ends

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Rob Holdsworth (Director of Communications) on 020 3372 2959 or 07921 236 972

Natalie Cox (Communications Officer) on 020 3372 2955 or 07983 550 337