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Welfare is an engine of mobility

September 22, 2010 1 comment

Sarah Smith

Nick Clegg declared earlier this week that “welfare needs to become an engine of mobility, changing people’s lives for the better, rather than a giant cheque written by the state to compensate the poor for their predicament.” Few would disagree that welfare should bring about real, positive changes in people’s lives but let’s hope that Nick Clegg and his advisers are aware of the evidence that – at least some of – the welfare reforms introduced by the last government seem to have done just that.

In October 1999, a package of reforms was introduced to help low income families with children. These included the Working Families Tax Credit which boosted incomes for working families as well as increases in payments to non-working families with children. The scale of the rise in government support going to families with children was unprecedented over more than thirty years. Per-child spending increased by 50 per cent in real terms between 1999 and 2003, most of it targeted at the poorest one-quarter of families.

There is now a substantial body of evidence that these reforms brought about real improvements in the lives of tens of thousands of people. A number of studies have looked at whether the reforms raised levels of employment – and using different datasets and different methodologies there is a consensus (a fairly rare thing in applied work) that the reforms succeeded in getting 60-85,000 lone parents into work and encouraged a further 40,000 to increase their hours of employment.1

Going beyond the immediate employment effects, a CMPO study has looked at the effect of the reforms on measures of well-being among lone parents and on the outcomes of their children (including self-esteem, (un)happiness, relationships with their mother, risk taking behaviour and aspirations) and found that the reforms have had significant positive effects2. At least in part, these effects come through the positive impact of the reforms on mother’s employment, but this is not the whole story. Another important channel is that increasing the money available to lone parents softened the harsh financial blow of separation – and did so without any obvious effect on the probability of becoming a lone parent. Sometimes, compensating people for their predicament (separation and divorce) is exactly what the welfare state should do – and with good reason.

This is not to say that the current welfare system cannot be improved. But in the search for a welfare system that can deliver real improvements in people’s lives, the current government should not wipe the slate clean and could learn some useful lessons from what has worked in the past.

References

1. See for example, Francesconi, M and van Der Klaauw, W. (2007) “The socioeconomic consequences of in-work benefit reform for British lone mothers”, Journal of Human Resources, Gregg, P. and Harkness, S. (2003) “Welfare Reform and Lone Parents Employment in the UK.” CMPO Working Paper Series 03/072, Brewer, Mike, Alan Duncan, Andrew Shephard, and Maria J. Suarez. (2006). “Did working families’ tax credit work? The impact of in-work support on labour supply in Great Britain.” Labour Economics, 13(6): 699-720.

2. Gregg, P., Harkness, S. and Smith, S. (2009) “Welfare reform and lone parents in the UK”, Economic Journal


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