How do income-support systems in the UK affect labour force participation?

This paper reviews how income-support systems affect labour force participation in the UK. The UK’s approach to social insurance is “basic security”, with modest, typically flat-rate, benefits; insurance-based benefits are relatively unimportant. Compared with the EU, the UK has high employment rates, but a high proportion of non-workers say that they are not working through disability. In general, the low generosity of out-of-work benefits means that positive incentives to work exist for almost all benefit recipi­ents, but weak work incentives exist for those receive Housing Benefit, and for primary earners in couples who have low earnings. Recent reforms to strengthen work incentives have altered the in-work tax credits, rather than the benefit system, and recent reforms to the out-of-work benefits have involved toughening and extending job-search re­quirements. The two main political parties seem to agree that future reforms will in­volve more conditionality, a greater use of the private sector, and a unification of the different labour market programmes.

Keywords: Institutions, incentives, reforms, labour supply, disability
JEL-codes: H53, H55, I38, J08, J21, J22, J68