In his blog earlier today, Fraser Nelson argues:
‘The UK jobs miracle is happening mainly due to radical welfare reform – the type Labour ducked in office..Under Labour, record numbers of people in work were celebrate as an end in itself – but most of the increase was accounted for by immigration. So more jobs did not mean less poverty – not if a quarter of Glasgow and Liverpool were still languishing on the dole at the peak of a boom. This time, it’s different. The welfare reforms are restoring the see saw link between jobs and dole queues.’
I suppose I should by now get over the fact that intelligent, articulate journalists feel able to write with such certainty about data they simply don’t understand. It cannot be repeated too many times that the explosion in the numbers of people ‘on the dole’ (by which Fraser means the number on ‘out of work benefits’, including lone parents on income support and those on incapacity benefits) occurred in the period from 1979 to the mid 1990s, after which it began to fall:
So the rise occurred despite the low immigration of the 1980s; and the fall continued through the high immigration 2000s, in large part (I would argue) because of the success of welfare reform and of tax credits in improving work incentives.
But that’s by the by – Fraser’s main point here is that the fall should have been even sharper, had policy been even more radical; and that things are very different now. Of course, it’s very difficult to establish the counterfactual. But it’s easy to verify Fraser’s last statement: the link, or lack of it, between jobs and welfare reforms, in the 2000s and now. Here is a chart of the simple ratio between overall employment (from the LFS) and the number of people on out of work benefits (from DWP), between August 1997 and August 2013. This gives you a pretty rough and ready measure of the extent to which the availability of jobs (total employment) relates to the number of people on the dole (out of work benefits).
The ratio rose steadily throughout the 2000s, until the recession, when it fell very sharply. It’s since recovered, so we’re now back to where we were in 2007; that is, there are almost 7 people in work for 1 on out of work benefits, compared to a ratio of 5 to 1 in 1997. That’s good news. But the idea that there wasn’t progress up to 2007, and that there has since been sort of step change is nonsense. What we’ve seen is, abstracting from the macroeconomic environment, continued slow and steady progress, not some sort of miracle. It doesn’t make a good headline, and politicians on all sides (or their journalistic acolytes) don’t particularly like to hear it, but the story of welfare reform over the last two decades is mostly one of continuity.
Jonathan Portes is Director of the National Institute of Economic and Social Research