There are more benefits to full employment than you might think.
There are more benefits to full employment than you might think
Yesterday marked yet another day of good news on the labour market front as figures showed a record 345,000 more people in work in the three months to April compared to the previous three months.
The employment rate has gone from strength to strength over the past year and latest figures confirm that the employment rate is back to pre-recession levels at 73 per cent.
But we shouldn’t dust our hands off just yet of labour market concerns. Despite the return to pre-recession employment rates, there are still many people in the UK who are struggling to find work.
Acknowledging that the job is not yet done, the chancellor announced a commitment to fight for full employment in Britain earlier this year. He argued that the UK should aim to be one of the best places in the world for you to find a job.
This is welcome as more people in work helps to strengthen the economy, and improves the well-being of individuals and families. Full employment can create more inclusive labour markets by helping to support disadvantaged groups to enter what would otherwise be a difficult jobs market and it can help tackle the north/south divide.
What’s more, recent IPPR research shows an economy at full employment generates more tax revenue and spends less on welfare, enabling taxes to be lower, or for more resources to be spent on public services such as health and education.
To illustrate the fiscal benefits of full employment, we modelled the potential savings from boosting employment rates of traditionally underrepresented groups.
Women and older workers are among the groups that face numerous barriers in (re)-entering the jobs market. Many women with young children find themselves juggling care and work responsibilities. For some of these women reconciling these two responsibilities can becomes too great a task and some eventually leave work to care.
This is an unnecessary loss to the economy. If the employment rate of women increased by 10 per cent – the government would raise an extra £1.7bn in income tax and £2.1bn in national insurance contributions, roughly equivalent to half the DFID budget. It would also make substantial savings on the social security budget.
Older workers can equally find it hard to secure meaningful work in today’s labour market. The ageing population has led to a growing sandwich generation – with older workers, particularly older women, juggling multiple caring responsibilities.
As with women with young children this can eventually lead to older workers prematurely exiting the labour market. If the UK increased the employment rate of older workers by 15 per cent (roughly equal to 1.2 million older workers), this would potentially raise £3.3 billion in extra income tax revenues and national insurance contributions, roughly equivalent to half of the Ministry of Justice budget.
IPPR’s analysis shows there are great fiscal benefits associated with boosting the employment rates of other groups too: young people, people with work-limiting disabilities and those with few or no skills.
But to achieve these savings will require lowering the barriers to work facing people on the periphery of the labour market. To maximise people’s chances of finding work we need to tackle the structural problems they face.
So let’s not get too carried away with the good news. There is still more work to be done to hit the chancellor’s target and to have a more inclusive labour market in the UK to ensure that growth benefits the many and not just the few.
But if we can achieve this goal, the benefits are great, not least a reduced need for discretionary public spending cuts and tax increases in the next parliament.
Amna Silim is research fellow at the Institute for Public Policy Research (IPPR)
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