Why is the DWP not worried about disincentivising second earners from work?
Announcing the phasing out of the default retirement age, Ed Davey told this morning’s Today programme that:
I’m afraid those people who seem to think there is a displacement between young and older people here firstly are not reading the evidence and secondly they have a very old fashioned approach to labour supply as though there is a fixed amount of jobs in the economy. That clearly isn’t the case … this will actually boost the number of jobs in the economy.
Great. We agree (as do nearly all economists). The more people there are in work, the more demand in the economy grows and the more jobs are created. But Ed Davey’s view may not be shared across the Government as the DWP appear to be proceeding with the development of Universal Credit on the basis that there needs to be (in the words of the Secretary of State) “better work distribution“. This phrase seems to mean that couple households with lots of work should be enabled to choose for one adult (not both – sharing care doesn’t seem to be the focus) to work fewer hours, thereby freeing up jobs for those who don’t have any.
The Secretary of State’s views rarely feature in the text of his key note speeches, but have a habit of cropping up in public discussions when he moves from his written text – the first time I heard this idea was in response to a question at the launch of the DWP’s ‘state of the nation report‘ last May. His views are also referenced at the end of this recording of comments he recently made to IPPR (from 40 minutes onwards), where he states that:
The key thing is that as someone goes into work in a household, as they go into work, the first person, basically work should pay, that’s the key…I’m saying that right now a lot of the second earners have to work extra hours because the first person’s pay packet doesn’t pay. [With Universal Credit] That [staying at home/working less] then becomes an option which they can tie around their caring responsibiltiies, and working 1, 2, 5 hours suddenly begins to pay then that can be fitted around care
It therefore seems that the DWP is currently influenced by the view that the best families have two parents with one breadwinner and a carer at home and that there is only so much work to go around. This appears to have led to its relaxed attitude about new work disincentives for second earners which will be introduced with Universal Credit: by this world view encouraging women to stay at home, reducing their use of formal childcare and allowing unemployed people to do their old jobs, makes both economic and social sense.
But from my perspective it is extremely worrying. Firstly, it is simply not good labour market policy to introduce measures which may reduce the number of people in work. And as well as economic impacts, disincentivising second earners in couples (more likely to be women) from work brings real risks for households. To start with it will lead to increased risks of in-work poverty. However generous Universal Credit turns out to be it seems extremely unlikely that it will provide households currently relying on two incomes with enough money to replace the lost income of one earner (as Iain Duncan Smith appears to aspire for it to do). So, policy success will mean that household incomes will fall – or at very best remain the same (which, given the extent of working poverty already, would also be a significant concern).
And reducing employment rates in this way would also bring real risks for the second earner, including a lower independent income, a higher chance of work that doesn’t make full use of her skills and training and a higher risk of unemployment and severe poverty should the couple separate with her becoming a lone parent (at which point she would find herself subject to severe welfare conditionality).
Unlike today’s announcement on child maintenance reform, which was far more explicit in its support for couple households over lone parents, this DWP view about how families should work and care has been less clearly stated. Nevertheless, I fear that it is starting to have a significant impact on the direction of policy – and that is a cause for real concern.