What has Covid-19 revealed about the labour market and social security?
The disruption caused by the pandemic has exposed serious issues in the UK's labour market and social security system.
As more people have had to rely on the social safety net, Covid-19 has drawn attention to its shortfalls - particularly in relation to Universal Credit and statutory sick pay. At the same time the unequal impact of the pandemic has shone a light on sharp inequalities within the labour market, in terms not just of income, but of precarity, flexibility, and exposure to risk. Some people have found new freedoms in being able to work from home; others have been made redundant and then re-hired on worse pay and conditions.
Calls for reform of the welfare system range from proposals to increase the amounts paid by Universal Credit and other benefits to more radical ideas such as a minimum guaranteed income or an unconditional 'Universal Basic Income'. Reform of employment law is often suggested to give self-employed and casual workers more rights, while an increasing number of voices argue that trade unions should be given greater access to workers to organise collective bargaining over wages and conditions.
For information on job and income protection and job creation during and after the pandemic, see our 'Stimulating economic recovery' pages. For more on inequality, see our 'Driving down inequalities' pages.
The future of Universal Credit
The introduction of Universal Credit in 2013 replaced a number of separate working-age benefit schemes. The stated aim was to simplify the system and to avoid a 'cliff edge' whereby recipients would lose money if they found work - 'making work pay' and smoothing moves in and out of the labour market.
Since then, Universal Credit has been widely criticised, both before and during the pandemic. Targets for criticism include its bureaucracy, its low rates, the 'two child' limit for child support, the delay in receiving the first payment, the harsh nature of its sanctions, and the distribution of benefits at a household, not individual, level - which increases the risk of financial abuse, especially for women.
While some argue for reforms to Universal Credit to address these issues, others call for it to be scrapped altogether due to objections to its core principles (e.g. conditionality and means-testing). One far-reaching reform would be the establishment of a 'Minimum Income Guarantee' - which would set a ‘living income’ floor below which no household would fall and could be implemented within the Universal Credit system.
NB Some households are still on the ‘legacy’ system of benefits. The Government expects all households to have ‘migrated’ to Universal Credit by September 2024.
Child support and childcare
The two main provisions for children in the social security system are Child Benefit and the child element of Universal Credit (or child tax credits in the legacy benefits system). Child Benefit is provided for all children, although there is a reduced effective rate for children after the eldest, and for families with one or more higher income earners (over £50,000 p.a.).
Means-tested support for families through Universal Credit or child tax credits is largely limited to two children. This aspect of child support has faced particular criticism for penalising children born into larger families. Nearly half (47%) of children in families with three or more children live in poverty.
Overall there were around 3.4 million children living in poverty in 2019-20. Nearly half (46%) of all children from black and minority ethnic groups are in poverty, compared with a quarter (26%) of children in white British families. 75% of children growing up in poverty live in a household where at least one person works.
Good affordable childcare enables parents to work and provides early years learning. But only a little over half (57%) of local authorities in England have enough childcare places for parents who work full-time, and less than a quarter (22%) have sufficient for those who work atypical hours.
Universal Basic Income
The proposal for a Universal Basic Income (UBI) is that all adults should receive a regular cash payment without means-testing or a requirement to work.
Supporters of UBI argue that it would simplify the social security system, reducing the bureaucracy, intrusiveness and stigma associated with claiming means-tested and conditional benefits. It would recognise and reward valuable unpaid work (such as care work and voluntary work) and would force up the quality and pay of currently low-paid jobs in order to make them attractive enough for people to do. Supporters often argue that automation will make full employment impossible, so a UBI would ensure everyone had at least a subsistence income.
Critics of UBI question the administrative cost of providing payments to every adult citizen. The government revenue needed to provide such payments would be substantial, requiring higher taxes; many recipients would effectively have the entire benefit taxed back. There would still need to be other benefits (possibly means-tested) for children and special needs such as disability. A UBI, critics argue, might also reduce incentives to work.
There are significant differences between various UBI proposals, for example concerning the size of the payment and the extent to which it would replace existing social security benefits. There are no examples of UBI being implemented at a national state level, but a number of trials and experiments are currently under way in different parts of the world.
Universal Basic Services
Proposals for Universal Basic Services take the principles underlying the NHS - the universal provision of healthcare, free at the point of need - and argue these should be applied to a wider range of public services, such as transport, shelter, food and information (e.g. Internet access).
UBS is often contrasted to UBI (above). While the two proposals are not diametrically opposed, the difference in focus leaves room for disagreement. Some UBS supporters argue, for instance, that the best way to spend our resources and political capital in ensuring people’s core needs are met is in the radical expansion of public services, and that unconditional cash transfers would not achieve the same uplift in living standards.
Conversely, while many progressive proponents of UBI support wider and improved provision of public services - e.g. health, social care, education, information - they take issue with some proposed universal basic services (e.g. food provision) and argue that cash transfers are a more efficient, less paternalistic route to ensuring some basic needs are met.
Insecure work and the gig economy
Trade unions and collective bargaining
Since the 1970s, in common with many other countries, the UK has seen a declining share of national income go to wages and salaries and a rising proportion returned to the owners of capital and assets. This period has coincided with a dramatic fall in trade union membership.
Many economists argue that the two are closely connected. Through collective bargaining, trade unions are able to raise workers’ wages and to improve their working conditions. Where unions are absent, employers have greater relative power.
This recognition has led to calls for a revival of trade unionism and of collective bargaining. In a more fragmented workforce where many workers are now self-employed or on precarious contracts this is difficult, but many trade unions have been finding ways to organise insecure workers.
Reducing working time
There is nothing inherently fixed about the standard working week of 9-5 Mondays to Fridays. ‘Normal’ work hours have changed over time, with the weekend and bank holidays as we know them today being the products of campaigning by workers and trade unions in the past.
Reducing working hours has been a longstanding proposal to improve working life and the balance between work, leisure and important unpaid activity such as care.
Supporters note that as productivity rises it is possible to take the gains as increased leisure time rather than income. This would have the additional benefit of spreading the available work more widely. Some advocates argue that it could even help increase productivity, as employees may work harder in their reduced hours.
Some supporters of reduced working time today are proposing a four-day standard working week. Others argue for a reduction in hours per day, which might suit working parents better. Others propose an increase in the number of bank and public holidays.
Critics of working time reductions argue that they would be expensive - even when productivity is rising in some sectors, it is not in all.
A key issue for proponents of reduced working hours is whether this would be accompanied by a proportionate reduction in pay. Workers in many countries (including the UK) already have the right to ask for shorter and more flexible hours, but this is very difficult for those on low wages. A key feature of many shorter working time proposals is therefore that this should not be accompanied by a reduction in pay, especially for low earners. This would increase its cost.
Automation is the process by which human work is substituted by machines or software programmes of different kinds. Automation has been occurring continuously since the beginning of the industrial revolution, and in general has been responsible for the overall rise in living standards in that time.
Automation is often associated with job loss, but economists point to the difference between its immediate impact on the jobs of those whose labour is substituted, and its effect in the wider economy. Historically, the increase in productivity brought by automation has tended to lead to higher income and employment in the economy as a whole. Some jobs of certain kinds are lost, but more are created.
Today there are widespread fears that a new wave of technologies, particularly those associated with artificial intelligence (AI), may lead to mass unemployment over the coming years.
Sceptics argue that jobs will certainly change with AI, and are already doing so, but there is no reason to believe that the historical pattern of higher overall employment will not continue. Some do however argue that new technologies could worsen job quality for many people and could exacerbate overall inequality, both between highly-skilled groups of workers and others, and between workers and the owners of the capital.
Proposals for policy responses to automation and AI vary according to the analysis of their impacts. Most speak to the need to 'manage' the process of automation to ensure that its benefits are better shared. This could be through workplace bargaining, higher taxation, or widening the ownership of firms. Those who believe that automation may lead to large-scale unemployment propose the development of institutions that either better share available work (such as through shorter working time) or provide non-work-based income such as a Universal Basic Income (see above).