you are right it’s absolute crazy talk to blame unemployment on the welfare system. As you say, the welfare system will account for some fraction of unemployment, probably a small one. I’d love to see some good research into what proportion of the long-term unemployed are effectively there voluntarily.

small quibble on whether people are “better off” out of work – of course they are not in financial terms, but as you know the relevant measure of how well off one is in or out of work is utility of income plus utility of work. Some of those for whom work is a disutility (who don’t like their jobs) will be better off out of work – still a small number I’d guess (most people are unhappy unemployed and happier working) but once you look beyond financial income, the idea of being better off on welfare is not such an extreme fiction. But I don’t need to tell you this because you have sometimes written about how choosing to be unemployed is rational if the jobs on offer are miserable.

Chris hits several nails on the head here.

Chris has also missed two rather large points;

1. If your marginal tax rate for going from the dole to employement is approx 90%, working looks pretty unnattractive.

2. Of the 2.5m new jobs created under Labour 70% went to immigrants. Which would depress wages and reduce the opportunities for locally born workers. It stands to reason that if you create jobs, yet import a large amount of the needed workforce your unemployement numbers won’t drop as fast as in a more closed off Labour market.

Cameron once again blames benefits recipients to further secure private company contracts.. He and Tory central care nothing for the pain they’re causing.

It’s not so small as people are now use to living on small benefits they struggle by, yet if they went back to work they get the same shit wages and would be in fact worse off if they had to travel to work, the min wage is way to low.

“If your marginal tax rate for going from the dole to employement is approx 90%, working looks pretty unnattractive. ”

I think Chris’s article was pointing out that for most people, this is nowhere near the case.

Reading fail.

“If your marginal tax rate for going from the dole to employement is approx 90%, working looks pretty unnattractive. ”

I know the answer to this one: Citizen’s basic income!

@ 3 Tyler

“1. If your marginal tax rate for going from the dole to employement is approx 90%, working looks pretty unnattractive.

2. Of the 2.5m new jobs created under Labour 70% went to immigrants.”

Could you back those claims up, please? I’m not saying they’re untrue, but there’s no point discussing them if they’re unfounded. I had a quick look for the second one and only found a Mail article, other articles citing the Mail article, and a broken link to an OECD report.

@ Planeshift

Sorry buddy, read the whole pdf. it actually shows that effective tax rates are very high to start with. Especially when you consider that a large % of people coming off JSA move into part time work at first.

@ 8 Chaise

1. the pdf linked to in the article discusses marginal tax rates etc. It can actually be as high as 100% EMTR. Obviously, there are lots of variables….hence “can be as high as”. Long/short is though that for many people entering the jobs market from JSA, the EMTR can be a major barrier.

2. ONS, rehashed by the mail. If i can dig out the original link i will.

“The notion that people are better off not working is – except in extreme cases – just a fiction.”

Though note that it certainly wasn’t pre-Tax Credits. I started work in 1996, and because my net income of £769 a month was considered enough for my family of four to live on, we were simply no longer entitled to any benefits. By the time I’d paid for a train ticket to work, we were worse off than we’d been on the dole.

I don’t see how that sort of thing could happen now, because the main top-up benefits for low-income families (Tax Credits) are withdrawn so gradually. (I think their predecessor, Family Credit, was simply withdrawn at a rate of £1 for every £1 earned once your income was above dole level, which is why we weren’t entitled to it.)

@ 10 Tyler

“the pdf linked to in the article discusses marginal tax rates etc. It can actually be as high as 100% EMTR.”

The table the OP sources from goes as high as 70%, and that one seems to be something of an anomaly. I’m sure it’s possible to get higher than 100%, but shouldn’t we be worrying about overall trends rather a few dramatic but statisically fairly negligable examples?

“Obviously, there are lots of variables….hence “can be as high as”. Long/short is though that for many people entering the jobs market from JSA, the EMTR can be a major barrier. ”

I’m sure that’s true. But how would you go about fixing this without doing more harm than good?

The welfare system isn’t to blame for unemployment – the state of the economy is – but the welfare system *does* penalise people in part time work (under 16 hours) or attempting to get back into work gradually after a period of illness or long-term unemployment by deducting almost everything they earn from their benefits. If you work 15 hours, for instance, you will only be getting the same as if you worked 10 hours, once you deduct extra wages from your benefits. Once you hit 16 hours you get fuck all.

Also, because benefit weeks are based on your signing day, this creates anomalies. If you get two days temp work for a Thursday and a Friday and you sign on on that Thursday each day’s wage will be deducted from a seperate benefit week so if you earn £60 a day you’ll lose £120 that fortnight but if you sign on the following Monday you’ll only have money deducted from one week leaving your second week’s benefit untouched.

Sorry, you’d lose £110 that fortnight as the State generously allows you to keep £5 per week.

As usual, we need to take a quick run through chapter one of Labour Market Statistics for Dummies for Tyler’s benefit.

So…

In the town of Widgetville in the country of Widgetland, there are two widget makers, Joe and Bob, both of whom employ 100 experienced widget makers in their widget factories.

Both companies have been competing for a large export contract with Acme Widget Distribution, and when the tenders are assessed, Joe wins the contract.

Because Bob lost out on the contract, he now only has enough work for 90 widdget makers, so he makes ten of his staff redundant.

Joe, on the other hand, now needs to employ 120 widget makers in order to deliver on his export contract to the schedule set by Acme, so he hires the 10 widge makets who;ve just left Bob’s factory and advertises for another 10 experienced widget makers.

Unfortunately, Joe can only find another three experienced widget makers in Widgetland, forcing him to hire the other seven widget makers he needs from nearby Sprocketland.

A couple of month later, Joe sees an article in the Daily Widget in which Nick Widget, the leader of the Widget National Party is complaining that of the ten new widget making jobs created in the last three months, 70% went to migrants from Sprocketland.

Joe writes a letter to the Daily Widget pointing out that Nick Widget has got his figures completely wrong.

Although its true that there’s been a net increase in widget making jobs of 10 jobs, on paper, seven of which were taken up by migrant widget makers from Sprocketland, this is not the same as the number of new widget making jobs that were created, because Joe actually created 20 new jobs when he won the export order, 10 of which went to the local widget makers that Bob had to lay off when he missed out on the same contract.

So, in reality, there were 20 new widget making jobs creates, of which only 7 (35%) went to migrant widget makers from Sprocketland…

…all of which goes to prove to Nick Widget is a racist scumbag who’ll say anything if he thinks it’ll get him a few votes at the next election.

Unfortunately for Joe, Paul Widget, the editor of the Daily Widget, decides that this isn’t what his readers want to here, so instead of publishing Joe’s letter he publishes an op-ed column by Richard Littlewidget (who actually lives in a gated community on the holiday coast of Sprocketland) which claims that migrants from Sprocketland have not only been taking all the widget making jobs but getting free mobile phones and cheap housing off the government as well.

This, according to Richard Littlewidget, is all due to ‘political correctness’ and the evil machinations of the Widgetland ‘Elf n Safety’ Executive.

@ 12 Chaise

I’d raise the lowest income tax band or similar. Tilt the balance back towards a better return for extra effort.

Chart 2.1b shows EMTR against hours worked….

As G.O. and Shatterface mention, the EMTR is often a barrier to employment, especially part time work. I’m sure there are lots of people out there who would love to work, can find some form of work, but not enough to drag them over the barrier created by their subsequent loss of benefits. So they make the rational decision and stay on benefits.

@ Unity

Um, ONS just take net change in size of workforce.

So, in your example, net change was +10, and foreigners did indeed take 70% of “new” jobs. It’s the “new” bit newspapers are a bit lazy in reporting – they should really be calling it the increase in total workforce.

By your logic, we could create millions of new jobs (and a totally meaningless statistc) by simply firing everyone then hiring them back.

@ 16 Tyler

“I’d raise the lowest income tax band or similar. Tilt the balance back towards a better return for extra effort. ”

No objections there.

@ 17 Chaise

Thinking about it, you could even probably *increase* benefits slightly in some sort of tapered way for those working a bit, to incentivise people into work.

It would probably save money in the long term (as you claw some money back through taxes paid and get people of benefits) not to mention the positive outcomes for the individuals themselves. Try and reinforce a work culture rather than a benefits one.

All this coming from a right (ish) winger. Moment for the history tapes….

OK I get £480 a week in disability benefits, child credits, and DLA.

Now if I worked a forty hour week I get about £220 a week take home pay, if lucky, one is taxed the other is not which is best for a 40 hour week.

And yes I’m Paraplegic dead from the waist down.

Spot on ! Artical

I really don’t get this. Much of Unity’s ”Widgetville” example went over my head.
What’s going to incentivise a person on the dole to go into a minimum wage crap job?
If, by going to do that rubbish job, they lose their housing benifit and dole money, and after working 40 hours a week in a warehouse loading lorries – they are only fifty quid a week better off? That means going to work for ten pounds a day. Minus travel fares.

Who would like to spend their days taking cages of cardboard boxes returned from shops, and putting that cardboard onto a conveyor belt that then bound the cardboard into bails?
Then the cages were to be collapsed and stacked and pushed back into the warehouse.
For ten quid a day? That’s a job someone had when I was a truck driver for Superdrug.
It nearly always seemed to be an African guy from and agency doing that job. Out in the open, all day, rain or shine.
I think you’d have a hard job to get some young unemployed person who spends their days free to hang out watching Jeremy Kyle, to go and do that for ten quid a week.

In the Republic of Ireland, the dole for a single person was 197 euros a week untill they reduced it by 10% recently. I knew loads of people who were getting that and couldn’t be bothered with a job like the one I just described.
Why would you bother? It would take you till friday morning till you ”broke even”.

“effective tax rates are very high to start with. ”

In some circumstances. In other circumstances they are not. From the OP:

“In April 2005, for example, the typical worker had a replacement ratio of 48.5% – implying that he was twice as well of in work as out. (table 2.4 of this pdf) Work incentives were higher for single people, but less for lone parents or second workers. The notion that people are better off not working is – except in extreme cases – just a fiction.”

In many ways, the right wing notion that the welfare system is more generous than being in work has itself perpetuated the problem. Over the last 5 years the DWP has spent millions on leaflets, work placement advisors (no doubt non jobs according to the TPA) etc precisely to demonstrate to people that are better off in work – and created schemes for those who wouldn’t have been under previous rules be that allow them to keep 40-50 a week of benefits for the first year. Yet some claimants still wrongly think they are better off at home because of what they’ve heard/read in the media.

For those who generally do face no financial benefit, this is usually down to external factors such as the cost of childcare, transport to and from a job etc. Not something to do with the benefits rules.

It is of course a massive problem that the system became so complex and regulated that often people couldn’t work out what they were entitled to, and how much the real wage for work would be (real wage = wages minus lost benefits). Which is why the proposals for a universal benefit with clear taper rates are a step in the right direction (not to mention a sizable efficiency saving), and something grass roots left wing organisations have been calling for for years now.

But it isn’t the only factor behind worklessness and long term unemployment. You tories treat the entire problem of long term unemployment and concentrations of worklessness as entirely due to a stupid welfare system, and some form of moral failing on behalf of groups of people you don’t like. Hence currently you have no problem in making tens of thousands of people homeless, or in making people turn to crime to survive (which you will no doubt then use to prove that unemployed people are undeserving).

Because to fully tackle the issues you’ll have to recognise that isn’t just a welfare system thats been designed and run by idiots that is the problem. You have a whole problem around areas that used to rely on working class occupations and industries for employment that have suffered decades of neglect, an education system that has failed people in those areas, employers that won’t give people a chance, lack of jobs in the first place in those areas, lack of skills, and a whole host of other issues that others can add to.

And there just isn’t the efforts made to revive those areas, and existing schemes that only begun to scratch the surface (future jobs fund) have been scrapped to make way for IDS’s compulsory 1 month manual labour. And ironically even that is less than the new deal used to force people to do (and at least new deal placed people with actual employers).

Putting tories in charge of welfare reform is like putting Richard Dawkins in charge of the church of england’s marketing strategy. Neither is going to be motivated to do a good job.

Yes it’s strange that no-one from a free market perspective ever thinks that one solution to the benefits/earnings gap is to increase wages. Funny that! Big business is hell-bent on a race to the bottom in the name of global competitiveness – a race which merely confirms that those at the bottom will remain at the bottom. It’s hardly surprising that faced with the choice of next-to-no money for getting up early every day performing some mind-numbing mechanical chore in some heartless workplace and next-to-no money for sitting around doing nothing – they choose to do nothing. It’s a perfectly economically rational choice which should please any market economist. But their solution is just to reduce benefits even further!

23
Spot on.
And while tax credits are an incentive for people to take low paid jobs there is no incentive for employers to increase pay. That’s why the supporters of the free-market tend to stay silent about increasing pay to attract workers into low-paid jobs.

Damn, looks like the only solution is a £10 minimum wage.

Tyler @ 16, Chaise @ 17

Why do we keep getting this bullshit? Why is it that people like you are totally fucking blind to the fact that income tax and National insurance are not the issues here? What is it with you people and income tax?

Try and understand this, in the name of God, try and get this through your heads, please, just try, just once.

Income tax is a tax on income. People on low incomes pay low income tax. The income tax thresholds are simply not really all that important. People who we are talking about move from being unemployed to low paid jobs. Even before the Tory/Lib Dems raising the thresholds, people on low incomes paid on a modest amount of their incomes on income tax.

The REAL problem(s) lie with COUNCIL TAX, RENT, PERSCRIPTIONS, OPTITIONS, and DENTISTS etc. You go from paying zero Council tax to paying the full whack regardless of your income. You go from paying zero rent to paying a lot of rent. You pay for your dental costs, glasses etc.

So, even if you get say, an extra fifty quid a week than your giro, you lose more than that on your rent. You lose more than that on your Council tax, you lose more than this when buying glasses etc. If you go from receiving 65 quid on benefits to £150, you will lose at least £50-80 quid a week minimum on rent and Council tax. Even if you get a rent rebate, even a modest increase in wages will mean you disposable income will plummet.

Taking this guy ‘completely out of tax’[sic] will ‘save’ him about a tenner (at the cost of a couple of billion), all of which and a couple of score will immediately be removed from his pocket in other ‘taxes’.

If you seriously want to ‘take low paid people out of tax’ then start with Council tax, reasonable rents etc.

Why the fuck does this simple concept appear to go over so many people’s heads?

Is there a reason why we can’t continue to give people on low-incomes free social housing rent, dental and optician services even after they move into employment? There is no additional cost if the capital has already been spent building the house. Just abolish council tax and let councils raise revenue through LVT and property taxes and you will take most of those on low-incomes out of the equation.

It ignores a bigger problem – that even if people had even sharper incentives to work, many would not be able to not just because there is weak aggregate demand for labour, but because they have low skills

Funnily enough, many if not most of the immigrants who took the jobs that were created faced an even greater hurdle than the poor unemployed Swansea council worker who can’t get it together to jump on a bus to the fruit-picking job in Lincolnshire. Specifically, embarking on international travel and learning to speak a foreign language. The real reason so many people in the UK are unemployed is so many of them are unemployable — in large part because they have a crappy attitude that the rest of the world owes them a living that they shouldn’t have to seriously lift a finger to attain.

@15 Unity: “As usual, we need to take a quick run through chapter one of Labour Market Statistics for Dummies for Tyler’s benefit.”

You beat me to delivering the answer and saved me a shed load of typing…

Chris Dillow also addressed the topic of aggregates (human potential, not building material) the other day. Talking about aggregates (eg total unemployed versus total vacancies) makes some people assume that UK workers are relocatable and that work is unskilled (their own jobs excepted). Alas, new vacancies for 100 skilled bio lab technicians does not mean 100 opportunities for 100 equally talented machine shop workers.

Norman Tebbit was correct to observe that his dad got on his bike to go to work. He failed to understand that his father was a lucky man — to own a bike and to have useful skills within cycling distance of a job.

Migrants with useful skills get on the bus nowadays. They are relocatable, which is a bloody convincing argument when applying for a job.

The UK unemployed are less relocatable; this is a UK problem and not about desire for welfare dependency. Complex rules determining the income of long term dependents and short termers discourage stepping on the ladder to employment. It can be argued that the rules have changed so that failed attempts do not diminish household income. That techno argument does not suffice; people have to believe that they will win if they try and will not be penalised if they fail. And the message must be true: get the job, get paid and back on the same payment scheme if it does not work out.

Now that the agricultural industry is wide open to the movement of migrant labour from across the EU, I do wonder what impact that will have had on the traditional local workforce. Where once it had been common for people from towns like Wisbech Cambs to do the seasonal jobs on the land – perhaps signing on and off the dole as the demand for their labour came and went – to perhaps today being passed over for agency workers bused in for periods, living in caravans on site, and so with fewer overheads, being willing to work for less money – or at least keeping the hourly rate down.

As this is an EU issue, it can’t really come under the immigration label any more, but it would be interesting to know the unemployment rates in such towns when there were thousands of migrant workers in the area doing the jobs that had been traditional for locals to do.

I was surprised to see quite a few east Asian people in the Northern Ireland town of Portadown last week. Not Chinese as is quite common, and I wondered who they were and how come there seemed to be so many of them in this Catholic working class area of the town. I have later found out that they are from East Timor, and qualify as Portuguese, and have been brought over to work in a couple of big food processing plants in the area.

Given the high unemployment rates in Northern Ireland, I wonder why this is done.

@26 Jim: “Why do we keep getting this bullshit? Why is it that people like you are totally fucking blind to the fact that income tax and National insurance are not the issues here? What is it with you people and income tax?”

The whack ball libertarians and fruity classical liberals suggest that we should place the tax/benefits system (sic) into a blender. You should be provided with a basic income, enough on which to survive. You would be taxed on income above the basic level; money from investment, wage or pension. You would not have to work but you would be richer if you do so.

As Richard W suggests, land value would be taxed; unlike current property taxes (council tax, business rate) tax is only paid when land is exchanged.

I do not know whether the financial numbers add up. To some degree, it matters little; everything that we are doing now is so complicated that we will tie ourselves in so many knots that we will not be able to present a fair welfare service, and it will inevitably fall over.

We need to listen to the crazy people too.

“Is there a reason why we can’t continue to give people on low-incomes free social housing rent, dental and optician services even after they move into employment? ”

Of course we should. Worth bearing in mind though that cameron has been making noises about ending life time tenancies for social housing. One of the most stupid economically and sociologically illiterate policies ever proposed by a government.

“but it would be interesting to know the unemployment rates in such towns when there were thousands of migrant workers in the area doing the jobs that had been traditional for locals to do.”

In Wales, I did this a few years ago. Unemployment rates were lower in areas where migrants were living compared with areas where they were not.

Of course this is explained by the fact Migrant workers only went to areas where there were opportunities in the first place.

Carliman @ 31, Planeshift @ 32

Well, if my memory serves me right and so far, I have not been put straight on this, though I will happily stand correct if the true figures it cost 3.5 Billion quid to raise the income tax threshold at the last budget, most of that money went to people other than ‘taking the poorest workers out of tax’. I wonder what that would do to Council tax bills if it diverted to that instead. Surely we could use that money to target the poor via rebates or even eliminating a couple of bands? Thus really taking the low paid out of the tax system? If only that was the real goal of the zealots.

@ 26 Jim

“Why do we keep getting this bullshit? Why is it that people like you are totally fucking blind to the fact that income tax and National insurance are not the issues here? What is it with you people and income tax?

Try and understand this, in the name of God, try and get this through your heads, please, just try, just once.”

I said I liked the idea of raising the lower tax band because it would help people on low incomes out. Which it would. I never said that I think that would be a perfect or complete solution. Apparently when I said that, you decided to add the words “and therefore not bother looking at council tax or anything like that” so you could go into your bizarre little rant.

“Why the fuck does this simple concept appear to go over so many people’s heads?”

Possibly because the person trying to explain it to people is being a total arse and thinks “people like you are totally fucking blind” is a good way to start the conversation? I don’t know what you find so offensive about trying to help out the poor (which was ALL that I said), but you’re not exactly going the right way about convincing anyone. Go to hell.

Chaise @ 35

I don’t know what you find so offensive about trying to help out the poor

There is nothing offensive about ‘trying to help the poor’, but cutting income tax (or raising thresholds) does little to help the poor. Can you explain why you think raising the tax threshold will actually ‘help the poor’? If you really wanted to advocate policies designed to help the poor and make low paid jobs worthwhile, why not actually do a smidgeon of research on the subject? You surely do not need me to explain this to you, you are more than capable of reading the same information that I can, I don’t have a secret stash of data that only I am privy to. The data is in the public domain.

Anyway, to me it is obvious, if you want to amend the tax system to favour the poor then you do so with tackling regressive taxation. Taxes that really punish the poorest people taking on low paying jobs. You should target the money and effort at those taxes that really bite at the bottom of the income scale.

Personally, I cannot see anything controversial there, I mean if you are trying to take the poor ‘out of the tax system’, then isn’t it common sense to remove the tax that hurts the poorest people the most? No one is suggesting that the best tax to cut to help the poor would be inheritance tax, because the poor don’t pay it.

I can fully understand why the ‘Right’ want to cut income tax. They are idealistically against income tax from the start and they favour regressive taxation anyway. That is why they favour VAT rises, but to raise VAT whilst cutting income tax seems to be an idealistic move. They appear to be shifting the tax burden from taxes on income to taxes on consumption which I would argue was a regressive move.

It is difficult to see that Council tax and how it is administered is deeply regressive in nature, espically for someone returning to the labour market, but on low income? I genuinely cannot understand why this is a difficult concept for people to understand, yet for some people on the Left, ‘income tax’ is the target.

Chaise, why?

@ 36 Jim

“Can you explain why you think raising the tax threshold will actually ‘help the poor’? ”

Um… because they’ll have more money? Or more accurately, some of them will.

As for the rest of your post, you seem to be operating under the bizarre idea that because I like the idea of reducing the income tax burdern on poor people, I must be against any other tax reform. This leads you to insult me and to ask me to justify things I have never said, like the idea of income tax being “the target” rather than “a target”.

For the record, I agree that council tax is regressive (so asking me whether that idea was hard to understand was just more patronising twaddle on your behalf) and would like to see it replaced with something based at least partially, if not totally, on income. And if we raised the lowest tax bracket I’d want us to make up the shortfall (and then some) by lowering the cut-off or increasing the percentage tax rate on the highest bracket.

Just because some right-wingers use concerns about the poor as a stalking horse for lowering tax across the board, doesn’t mean I do the same. You’d do well to find out what people think about things like that rather than coming to bizarre conclusions.

@ 26 Jim

Um, Chaise and I were talking about EFFECTIVE tax rates. I.e. the tax rate someone moves into low paid employement pays *after* losing their benefits.

Read what we have to say before shouting your mouth off.

@ 36 Jim

Most essentials are VAT free. Across the board it is indeed a regressive tax, but for the basic necessities it isn’t so much.

Why is it so ahrd to beleive that a “right-wing” idea of lowering taxes and allowing people to keep more of their money, rather than having it handed back to them as benfits by a pseudo-benevolent government is a bad thing, and won’t help the poor? I think it says more about your (and the Left in general’s) mindset about how government should behave and the Left’s need for control.

Tyler @ 38

Why is it so ahrd to beleive that a “right-wing” idea of lowering taxes and allowing people to keep more of their money, rather than having it handed back to them as benfits by a pseudo-benevolent government is a bad thing, and won’t help the poor?

I totally agree with you here. I think we should be cutting Council tax, thus taking ‘the poor’ out of tax! In fact, if you could persuade the Tory part to scrap council tax and move it all onto income tax that would allow the poor to keep their own money and save us the expence of dealing with council tax rebates and means testing as well, thus eliminating a huge chunk of the poverty trap to boot.

A win, win, surely?

You’re absolutely right on every point, but the media loves a good lie, especially if it’s a big one that plays on prejudices. Your point 2 punctures the lie in an instant, of course: the fact is that most unemployed people have recently been in work and will work again when demand returns. Also, the US has a far more punitive welfare system than ours, but a higher rate of unemployment.

The lie is so pernicious that it needs nailing, again and again. Forgive me for pimping my own blog, but I wrote about this at some length in February after the US champion of workfare appeared on Newsnight. This contains reference to my own personal experience of welfare:

http://sodiumchorus.blogspot.com/2011/02/why-workfare-doesnt-work.html

One final point: Mr Cameron seems very keen on the moral and spiritual benefits of working for a living. So why doesn’t he advocate taking money away from the idle rich, who live off the unearned income of rents and other investments, most of which are inherited? Or is it a ‘carrot’ for the rich, and a ‘stick’ for the poor?