Jobcentre Plus has gradually been moving people from benefits to jobs, showing that structural labour market reform can make a difference
With unemployment at its highest level in 15 years, the immediate problem is that there are not enough jobs to go round. Reforms aimed at improving the basic functioning of the labour market can help to mitigate the impact of weak growth on jobs and the scarring effects of unemployment that goes with this (on individuals and, ultimately, on the supply capacity of the economy).
In particular, in an economic downturn, the operational role of the public employment service – Jobcentre Plus – is even more important. After all, it is there to match people who need work to employers who need workers. When this is not possible, it is there to ensure that people out of work do not become detached from the labour market. It acts as a gateway to a range of welfare-to-work programmes (for example, the new Work Programme) and underpins the work-first ethic emphasised by both the current government and its predecessor.
But Jobcentre Plus is a relatively recent invention, involving a major overhaul of the infrastructure used to provide public employment and benefit services in Britain. It brought the Employment Service and Benefits Agency under one roof – the idea being that efficiency gains could be made and that, for all people of working age, a work-first ethic should be attached to benefit receipt.
This organisational restructuring was accompanied by significant modernisation, including office refurbishments, modernised IT systems, performance targets prioritising those furthest away from the labour market, and enhanced job-brokering, as well as mandatory work-focused interviews for people claiming disability related benefits.
These reforms, starting in 2001 and taking six years to implement at a cost of over £1.9bn, were implemented in a very different economic environment from the one we face today. At that time unemployment was falling and economic growth was strong. But there was a sense that more benefit recipients should be moving into jobs.
Despite sustained falls in unemployment, the number claiming inactive benefits, in particular disability related benefits, continued to rise. Indeed, between 1995 and 2002, while the number of people claiming Jobseeker’s Allowance had fallen from 2.2 million to 0.9 million, the number claiming Incapacity Benefit had risen from 2.4 million to 2.6 million.
It was against this background that new welfare-to-work initiatives, focusing on the inactive, were introduced. It was also recognised that change was needed in the way core elements of labour market policy were delivered.
The purpose of the Jobcentre Plus reforms was essentially to raise the effective labour supply – that is, the number of economically active people and/or their ability to work and compete for jobs. This was to happen both by improving the public employment service and making better use of existing welfare-to-work initiatives. So, did this work?
Research carried out by the National Institute of Economic & Social Research for the Department for Work and Pensions suggests that the answer is broadly yes. By looking at the timing differences resulting from the staged rollout of Jobcentre Plus across Britain, it is possible to estimate the effects of the reforms on the labour market.
Our research found that, following a period of initial disruption to the public employment service, the introduction of Jobcentre Plus appears to have increased the rate of job-matching for benefit claimants of working age. For example, the probability of people on Jobseeker’s Allowance leaving benefit and finding work has risen every quarter by just under one percentage point. Similar increases have been found for lone parents claiming Income Support and people claiming disability related benefits.
These effects are not large, but they are significant in the longer term. If sustained, they would reduce the number of people claiming benefit by around 65,000 between 2001 to 2015. Matched by an equivalent rise in employment, this could result in a cumulative net saving to the Exchequer of about £5.5bn.
These numbers are not huge in macroeconomic terms; but they are not insignificant either. We would draw two conclusions. First, public sector reform projects can succeed. Although Jobcentre Plus required substantial physical investment, policy change, and complex changes at the same time, it was achieved on time and appears to have yielded greater benefits than those set out in the original business case. Second, although successful structural reforms to the labour market do not transform our economic prospects overnight, they can yield significant long-term benefits.
Rebecca Riley and Jonathan Portes are respectively senior research fellow and director at the National Institute of Economic and Social Research. The analysis, Research Report 781: The introduction of Jobcentre Plus: An evaluation of labour market impacts is available on the Department for Work and Pensions website
