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Want people back in work? Then don’t cut benefits.

austerity-isnt-workingThe recent focus on capping benefits to satisfy the Tory tabloid blood lust against all social security recipients is not only unfair and unreasonable, but according to recent evidence bad for the economy. Job seeker’s allowance at £71 a week is already almost the lowest level in the EU, and reducing it further would not only be grossly unjust (since with unfilled vacancies currently at 400,000, even if every single one were filled, it would still leave 2,200,000 unable to get a job because there weren’t any available), but also uneconomic.

Unemployment benefit plays the important role of allowing people to get, not just any job, but an appropriate job that fits their skills and experience. The latter also benefits the employer as well as contributing to make the national economy more productive.

The Tory switch from public JobCentres to privatised welfare-to-work agencies like A4E have fed the obsession to get people into work, however unsuitable, at any price. The results are pitiful – the numbers of those placed and who remain in their jobs for at least 3 months range between 3-5%. These figures highlight the folly of pushing people mechanically into slots without any regard for job-matching which is seen as increasingly important for productivity.

In the modern high-skilled economy it takes longer to find the right job. Good matches benefit the economy as well as the individual by lengthening job tenure, which improves the employee’s skills through experience. Poor matches cause an employee’s previous skills to deteriorate, making past training redundant and increasing staff turnover. Economists have regarded these dynamics as playing a big part in growing wage inequality in countries like the UK where financial support is low compared with continental Europe.

Significantly it has been found that unemployed persons who have access to funds, whether savings or redundancy payments, spend more time looking for the right job, clearly because they believe it will eventually yield a better outcome and therefore be a worthwhile investment. By contrast the government has been paring down the welfare sytem into greater conditionality and uniformly ungenerous benefits, in order to minimise public cost irrespective of the economic consequences.

Yet, particularly for skilled and experienced workers, lowering support and tightening sanctions is simply counter-productive. Forcing job-seekers to take the first job that comes available – to get the government bounty and later bonus for the welfare-to-work brigade with their £400m DWP contracts – usually leads to poor job matches, lower wages and higher turnover – and the whole revolving cycle then starts again.

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