How can we overcome decades of stagnant living standards?

Challenge
Improving work and incomes
The issues
Resources

What has Covid-19 revealed about our labour market and social security?

The disruption caused by the pandemic has both shone a light on undesirable aspects of our labour market and welfare arrangements and opened up space for thinking about how we might change these in future.

First, as more people have had to rely on the social safety net, Covid-19 has brought more attention to its shortfalls - particularly with relation to Universal Credit and sick pay. Second, the unequal impact of the pandemic has alerted us to sharp inequalities within the labour market, not just in terms of income, but in terms of precarity, flexibility, and exposure to risk too. Third, the necessarily radical nature of the pandemic response - unprecedented income support measures, large-scale restriction of economic activity for public health, a sea change in ways of working - has made other ‘radical’ economic policy measures seem more feasible,

The content below focusses on how the quality of work and social security can be improved as we recover from Covid-19. For information on job/income protection and job creation during and after the pandemic, see our “Stimulating economic recovery” page. For more on inequality, see our “Reducing inequalities'' page.

The future of Universal Credit

There was originally a degree of cross-party support around the introduction of Universal Credit in 2013 because it 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 come under fire, both before and during the pandemic. Targets of criticism include its lack of generosity, the delay in receiving the first payment, its bureaucracy (including 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 that address these issues within the present system, others call for Universal Credit to be scrapped altogether - either because of the system’s chequered history, or because of objection to its core principles (e.g. conditionality and means-testing). One far reaching reform within 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.

Social security for children

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 issued for all children, although there is a reduced effective rate for all children after the eldest and 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. As of July, this “two child limit” affected 911,000 children. This aspect of government child support has faced particular scrutiny for increasing financial pressures on larger families, in which the rise in child poverty over the last decade has been concentrated. It has also been criticised for the pressure it places on survivors of abuse under the “non-consensual sex exemption”.

The backdrop to this is a sharp uptick in the cost of childcare and the financial fragility of the childcare sector. Before the pandemic, childcare costs had increased 3x as quickly as wages since 2008 and a number of providers faced closure. This has been exacerbated by Covid-19; now 25% of providers fear closure in the next year.

Universal Basic Income

Universal Basic Income (UBI) is a regular cash payment made to all (universal) without means-testing or work-requirements (unconditional). UBI has received increased attention during the pandemic as a means of supporting incomes through the economic crisis - avoiding the problems of gaps in coverage highlighted by ExcludedUK and others - but some propose that UBI could form a central part of our social security system in the long-run.

Supporters of UBI argue it would make our social security system easier to understand and reduce the bureaucracy, intrusiveness and stigma associated with claiming conditional benefits. They also claim the security it offers would support workers in making better long-term choices, recognise valuable unpaid work (e.g. care work) and be robust to the threat of ‘technological unemployment’. Critics of UBI question its cost and benefits relative to more targeted social security. Progressive criticism points to potential negative implications for the wider social security system and provision of public services, while conservative criticism tends to emphasise the danger of reducing incentives to work.

There are significant differences between various UBI proposals, concerning e.g. the size of the payment (would it be below or above subsistence level?) and to what extent it would either replace existing social security. There are no examples of UBI being implemented at a state-level, though there have been a number of trials and experiments, especially in recent years.

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.

Media

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 into 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 working Mondays to Fridays – indeed ‘normal’ work hours have changed considerably over time, with the ‘weekend’ as we know it one of many successful union- and worker-led demands for less time at work. The shorter working week has been a longstanding proposal for helping reduce work-associated pollution, increase the wellbeing of workers and reclaiming time for leisure and important unpaid activity such as care.

It is increasingly central to proposals for economic rebuilding after Covid, with its advocates – including a growing number of governments and companies – seeing it as a way to ‘build back better’ after the virus by better sharing available work and improving work-life balance. Its supporters also claim it would address the UK’s poor labour productivity relative to international peers.

Advocates of the shorter working week emphasise that a reduction in working time is not a silver bullet, and that supporting reforms are needed to ensure it doesn’t exacerbate wider injustices. For instance, a key feature of most proposals is that a reduction in working time should not be accompanied by a reduction in pay, especially for low earners.

Automation

Automation and artificial intelligence both promise to raise living standards, both through improved goods and services (e.g. more accurate medical diagnoses, for a non-consumerist example) and through improving the productivity and reducing the toil of workers.

Some fear, however, that technological advancement in these areas will have negative ramifications for the labour market. At the extreme end of these concerns is that much of human labour will be rendered obsolete, leading to technological “mass” unemployment. Sceptics highlight that similar arguments have been made in the past and that new technologies could create as many jobs as they destroy, but that nonetheless these developments threaten to exacerbate inequality and alienation in the labour market.

Proposals for how we should respond to these threats vary according to the analysis. Most speak to the need to manage automation to mitigate its impact on inequality, both between workers and between workers and capital owners. Those who believe that the majority of labour could be fully automated further propose the development of institutions that either better share available work (through shorter working time, for instance) or support humans in its absence (e.g. UBI).

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