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Tackling labour market friction after Covid-19: a time for transformational thinking 

The UK government signalled its intention to intensify benefit sanctions with the recently announced ‘Way to Work’ scheme, which aims to move half a million people into jobs by the end of June 2022. 

Under the scheme, those currently on Universal Credit will be required to apply for jobs outside of their preferred sector after just four weeks of job search, rather than the current period of 12 weeks, or face losing benefit payments.  

But with growing numbers of people claiming unemployment benefits, set against record vacancy rates and widespread resignations in some industries, there are clearly bigger questions about labour market frictions in the UK and how best to balance issues of supply and demand. 

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Addressing labour market shortages 

An individual’s withdrawal from the labour market can be attributed to a multitude of reasons, such as increased caring responsibilities, which disproportionately affect women; returning to education; a failure to find decent work; or a more general rebalancing of work-life priorities. 

From a public policy perspective, simple coercion is largely ineffective at getting people into sustained and well-paid work, and can be damaging for individuals and families, particularly those with disabilities and mental health needs. As a result, it is inefficient for the economy at large.  

Research shows that smaller-scale activation programmes that offer tailored packages of support over a sustained period can help clients deal with mental and physical health conditions, build their confidence, and get help with debt and rent arrears. To be successful, our research has shown such approaches need to involve multiple stakeholders and be adequately resourced, with low case-loads to help key workers build positive relationships with vulnerable clients.

Learning past lessons 

The UK’s welfare-to-work model has been given numerous rebrands over the years, but it has not fundamentally moved far from the dominant supply-side philosophy adopted in the 1980s. This approach ignores the varied individual motivations and barriers to work, and fails to address the broader challenge of how to engage with employers over inclusive hiring processes, flexible job design and progression routes.   

Such approaches require long-term collaborations but could open up existing jobs to a much wider pool of applicants who would be encouraged and supported to build a long-term career.  

Welfare-to-work programmes may help employers to plug short-term recruitment gaps and keep a lid on wage growth, but they do not address longer-term staffing problems in core sectors such as retail, hospitality and social care. 

Adopting innovative approaches 

Alternative approaches include job carving, which sees jobs re-designed around worker needs and aptitudes – effectively promoting task flexibility from day one.

Similarly, subsidised job-rotation schemes allow workers to gain experience of different roles and sectors as part of a structured training programme, while also reducing the risks for employers of hiring those without direct previous experience. 

Tackling the prohibitive cost of childcare in the UK would help promote female participation in the labour market, while also reducing the significant income clip associated with moving from welfare to work.  

In broad terms, rather than cutting welfare, a stronger social safety net that is not contingent on current or previous labour market participation could incentivise labour market activation by ensuring that transitions into work, and between jobs, are less risky for individuals.

A universal entitlement to welfare, coupled with comprehensive retraining programmes, could fundamentally enhance individual choice and job mobility. It could also make highly demanding but low paying jobs more attractive to those just starting out. 

If history has taught us anything, to tackle long-term structural imbalances in the labour market we need innovative and transformational thinking.

Mat Johnson is a senior lecturer in Employment Studies at Alliance Manchester Business School, and Damian Grimshaw is professor of Employment Studies and Associate Dean for Research Impact at King’s College London