Written evidence from Joseph Rowntree Foundation [PCW0042]
About the Joseph Rowntree Foundation
The Joseph Rowntree Foundation (JRF) is an independent social change organisation working to solve poverty in the UK. Through research, policy, collaboration and practical solutions, JRF aims to inspire action and change that will create a prosperous UK without poverty, where:
- More people want to solve poverty, understand it and take action
- More people find a route out of poverty through work
- More people find a route out of poverty through a better system of social security
- More people live in a decent, affordable home
About JRF’s response
Work should provide the best route out of poverty for most people in the UK today. Prior to the pandemic, a combination of low pay, insecure work and not being able to work enough hours, meant that increasing numbers of working people were becoming trapped in poverty. The surge in unemployment and the economic challenges we currently face makes this issue more pressing.
We welcome the Work and Pensions Select Committee inquiry into the Department of Work and Pensions (DWP) preparations for changes in the world of work, the implications of the Fourth Industrial Revolution and the likely extent of the challenges the DWP will face as it navigates these changes. These must now be addressed against the backdrop of Covid-19, which has the potential to increase the risk of insecure, low quality work, diminish progression opportunities and exacerbate regional employment inequalities - whilst also generating new challenges, and likely accelerating the onset of the Fourth Industrial Revolution.
In this submission we make recommendations on how government can overcome these challenges. People with few formal qualifications or working in low paid jobs are at particular risk from the changing world of work, such as increasing automation. If the government is to respond to the anticipated changes as well as achieve its vision of levelling up the economy, it must ensure that people are equipped with the training, skills, and support to progress into this new world of work.
As we outlined in a recently published briefing paper, the economic impact of Covid-19 means that the next stage of support needs to focus on continuing spending power and job creation in our weakest economies and those most likely to see a rise in the unemployment rate as the furlough scheme is wound down.
The scale of investment in basic, digital and vocational skills will be especially important if the government is to achieve its ambitious plans for infrastructure, and the corresponding talent pool required to populate these new industries. It will also help address the UK’s long running productivity problem, and improve productivity in low-wage, low-productivity businesses and sectors.
In particular, the government will need to work across government departments, and in partnership with business and trade unions, to develop training and skills programmes targeted at people and places who are most vulnerable to the Covid-19 economic impacts and the changing world off work, including:
It will also need to ensure that the social security system supports people to progress into better job opportunities, as well as equip Job Centre Plus and work coaches with the resource and know-how to discharge their duties in a changing labour market.
The Committee will be aware of the many issues already facing low-income working families, brought into sharp relief as a result of the Covid-19 outbreak. Without decisive action, these will likely intensify as we move into a recession, with the result that many more individuals and families risk being pulled into poverty.
We are pleased that the Committee is looking at this important issue and would be happy to meet with members of the Committee if they have questions about any of the issues raised in this response.
1) What are the main challenges that DWP faces as a result of the “Fourth Industrial Revolution”?
Much has been written about the “Fourth Industrial Revolution” and its potential to transform the world of work. Whilst it is clear that technological advancement will result in significant changes to jobs and occupations across the economy, it is impossible to predict when and how quickly these changes may occur. The predictions made by Frey and Osborne[1] that 47 per cent of US employment is at risk has caught the attention of many, but their predictions do not necessarily mean that all those jobs will disappear completely, nor do they consider what other types of employment might be created as a result of technological change.
The biggest challenge facing DWP is this uncertainty about how quickly, and how far reaching, the changes to the labour market will be. It is possible that the Covid-19 pandemic may have advanced some of the predicted changes, as well as creating its own labour market challenges. Sectors which might not have been immediately affected by technological change – such as hospitality, leisure, and tourism - are amongst the hardest hit by the pandemic. DWP, and other relevant government departments, need to track these changes carefully and be prepared to develop policy both in response to and ahead of any shifts.
DWP should pay a particular attentions to those who will be least able to adapt to rapid transformations in the world of work – in particular older, low-skilled adults. Evidence shows that they tend to find it more difficult to return to work after a redundancy. Firms are also less willing to retrain older workers and often focus their upskilling efforts on younger workers.
As the labour market changes, some jobs will be lost whilst new ones will be created. Some places – where industries at risk of significant change make up a large proportion of employment – are under greater threat than others. Work by Onward, with support from JRF, found that areas that have previously experienced industrial change were particularly at risk. This makes the government’s ‘levelling up’ agenda ever more relevant, as the places likely to be affected most by technological change are those that could be the focus of levelling up efforts.
There is no guarantee that new jobs will be created in places that have lost them, nor is it clear that people who have lost jobs will have clear routes to accessing newly created jobs in different industries. It is likely that new jobs will favour the same workers and places that may benefit from automation - namely graduates and the cities they live in. In addition to training and skill programmes, DWP should work with government departments to develop programmes which support job creation in places with already weak economies that are at greatest risk of automation.
Recommendation:
DWP, in partnership with other government departments, industry and trade unions, should develop both people based and place-based support packages, aimed at improving skills and education, helping to prepare people for the future world of work. This should include support to improve basic, digital and vocational skills. These principles should be used to target interventions DWP are developing in response to Covid-19, but will also help prepare people for the future world of work. This should be targeted toward:
2) What do we know about the possible likely impact on the labour market?
Several studies have predicted that low-skilled work is particularly vulnerable to automation in the future. Frey and Osborne’s 2013 study showed that “computerisation [will be] principally confined to low-skill and low-wage occupations”[2]. This group of workers are amongst the most affected by the pandemic. Workers in low paid and insecure work who were already struggling to stay afloat are more likely to lose their job, have their hours reduced, be furloughed and to not be able to work at home[3].
Onward’s Human Capital report, which was supported by JRF, drew on the Office for National Statistics (ONS) automation risk study, and found that workers with low or no skills are in jobs that are more than 1.5 times as susceptible to automation, as workers with degrees. It also found that low-skilled workers are over twice as likely to work in an occupation that is declining over time. Only 4.1% of adults educated to GCSEs or below are working in roles with less than a 20% risk for automation. For degree educated adults, this figure is 47.8%.
There are significant numbers of jobs in caring occupations that are less vulnerable to technological change. Although many are low paid, they are often mischaracterised as low skilled jobs as they have fewer formal education requirements for entry level roles. But this fails to recognise the importance of less formal skills required to provide high quality care, including compassion, kindness and empathy. Many of the roles in the care sector are currently low-paid and insecure. With demographic change only likely to increase demand for care in the future, DWP should focus efforts on improving the quality of work in these sectors to ensure that new jobs are paid at least the living wage and provide improved job security. There is an opportunity, through the upcoming Social Care Green Paper, to consider how this can be achieved across government.
It is too difficult to say whether there will be an overall reduction in the number of jobs that are available because of technological change. Whilst some jobs will, inevitably, change and others will be lost, there will be other roles that will be created. What is also uncertain, is whether the locations where significant numbers of jobs that are lost will see replacement jobs created. This could result in further geographic inequities in the labour market.
The more immediate impact of the Covid-19 pandemic on the labour market, and how this is further impacted by longer term technological change, should be considered by the DWP. There has already been a significant rise in unemployment, with the claimant count rising to 2.8m people. However, in addition to unemployment, we anticipate there is also a large number of workers who have lost hours in their roles – the latest data shows a reduction in weekly hours worked and there are 800,000 additional universal credit claims from people who are in work. Those with the most insecure working arrangements, with weakest attachment to their employer, are more vulnerable to losing hours or jobs and less likely to benefit from the government’s Job Retention Scheme.
Places that already had weaker economies and lower rates of employment (such as inner cities, coastal areas, and former industrial towns) have been hit hardest by the increase in unemployment. It is likely that speed with which different places recover will also vary. There is already a wide variation in the number of unemployed claimants per vacancy in Northern Ireland, Northern England, Wales and Scotland when compared to London and the South East[4].
The lockdown has affected some sectors, such as non-food retail, hospitality, leisure and tourism, more than others. Many of these are high-employment sectors, with a large proportion of women and young people employed in them. Whilst the furlough scheme may have been able to protect many jobs to date, there is potential that those sectors may see high levels of redundancies as the scheme is unwound.
Overall, the economic impact of Covid-19 will exacerbate existing labour market inequalities between groups of people, places and across sectors. Those inequalities have the potential to be intensified by technological change, increasing the urgency with which DWP and other government departments should seek to address them.
4) Are DWP Work Coaches well equipped to advise people who are looking for work on new and emerging sectors and jobs?
DWP work coaches are in a good position to act as the conduit between employers and those who are looking for work, as well as those on Universal Credit seeking to progress in work.
DWP has worked hard to ensure that work coaches are well informed about their local labour markets. However, both the Covid-19 pandemic and technological change are likely to have significant impacts in different parts of the country. DWP should ensure that JCP work in partnership with other actors in local labour markets - such as employers, local and combined authorities, and broader employment support providers – to ensure any shifts are fully understood across the system. This is particularly important in relation to careers advice and guidance.
The increase in remote working as a result of the lock down may open up new opportunities for job seekers beyond their local labour markets. DWP should ensure that work coaches are aware of these opportunities and are able to support job seekers to access them.
The role of work coaches for helping working Universal Credit claimants progress in work.
In 2019, JRF conducted research into the experiences of working Universal Credit claimants and work coaches. This research indicated that work coaches felt that their role particularly revolved around: encouraging claimants to take up additional hours at work; encouraging claimants to ask for pay rises and promotions and encouraging claimants to look and apply for better paid roles.
However, it also found that claimants faced many barriers to progression that work coaches were struggling to help them overcome. Many claimants told us they desperately want to work more or move into higher paying jobs, but they are held back by factors such as a lack of routes to progress to higher paid jobs, low availability or high costs of training, and not enough local jobs of sufficient hours or quality.
As a result of claimants struggling financially, often working on or just above minimum wage with little job security or stability, the research also found that working claimants were generally risk averse, often focused on just getting by rather than thinking about job progression. Claimants were averse to undertaking activities that could lead to progression or more hours if they were perceived to potentially threaten the stability of their current role. This aversion to risk is likely to be even more pronounced during the current pandemic or in a labour market with higher unemployment.
The risks associated with moving to higher-paid, but less flexible or further-away positions are strong deterrent for parents in particular, who many rely on understanding managers and proximity to home or childcare.
Recommendations:
5) What support, advice and training should DWP offer to people who are looking to progress in work, or take up more hours?
We would like to see DWP collaborating with other government departments to deliver support for workers who want to progress. There are two key functions which DWP and the social security system has to perform to facilitate in-work progression and job transition:
Our research has found that although the broader barriers described in our response to question 4 are crucially important, financial work incentives under Universal Credit are still felt to be weak, particularly for working parents. Some weigh up the extra costs of childcare, transport, loss of Universal Credit, additional risk and stress, and the loss of time with their children and feel that the financial gains from increasing hours or trying to take on more responsibility or move to a better paid job are not enough.
The design of Universal Credit is also not well understood, especially the taper, so does not act as an incentive. Many claimants who do manage to earn more in a particular month (through for instance overtime) perceive that almost all the additional income is eaten up by withdrawal of Universal Credit and additional costs. But even when explained that they should in theory have a higher combined total income following a rise in earnings, most claimants do not feel the gains sufficiently outweigh the extra costs, barriers and risks.
Removing the additional barriers is central to enabling parents to work more, but improvements to Universal Credit’s financial structure would also help significantly by providing the financial support claimants need to do this.
For many parents, childcare costs in particular also felt like a big barrier that cancelled out any potential gains from earning more. Childcare costs have risen much faster than inflation over the past decade, but the maximum childcare support available through the social security system has not changed since 2005. The average cost of a full-time nursery place now exceeds the limit in almost all local areas.[5] Support in Universal Credit is further undermined as childcare fees have to be paid upfront, which many are unable to afford to do.
Our evidence demonstrates that programmes designed to support in-work progression should be:
We welcome the recent announcement of the In-Work Progression Commission chaired by Baroness McGregor-Smith, and its commitment to increasing the evidence base for what works when it comes to progression.
It is important that support for progression is not ended as efforts are ramped up to support job seekers into work. Helping people to progress into better jobs could help to retain labour market mobility and flows, opening up opportunities for those seeking work.
Recommendations:
On specific social security measures:
On in-work progression schemes:
6) What is DWP’s role in ensuring that young people have the skills they need to get into and progress in work?
The DWP has a key role to play in ensuring young people have the skills to get into and progress in work. This is particularly important as we enter a period of rising unemployment, in the context of recent data on the impact of job loss and sector closure on young people, and the scarring effect youth unemployment has on future labour market outcomes.
Government should significantly increase investment in youth employment services to deal with a surge in unemployment in the wake of Covid-19, and the impact on young people’s entry into the labour market. It should also consider introducing job guarantee programmes targeted at younger people.
Employment services targeted at young people must:
DWP should continue to invest in JCP’s Support for Schools programme
We welcome the announcement of an additional £7m in funding for the Job Centre Plus Support for Schools programme, in response to its 2018 evaluation and assessment of increasing demand for its services. Government should continue to invest in building strong relationships between Job Centre Plus and local schools and colleges, supporting more JCP advisers to deliver careers advice and help schools develop their work experience offers. Delivering high quality careers advice for secondary and FE pupils, and giving them a strong understanding of careers options and the labour market, will have benefits for young people and employers in supporting students to make informed choices about skill pathways and job opportunities.
7) How could DWP work more closely with employers to ensure that claimants have the skills they need to find work in the future labour market?
DWP needs to work across government, particularly with BEIS and DfE, to engage with existing employer partnerships and representative bodies and set up new partnerships when appropriate. Most employers are concerned about skills and recruiting the right talent to their business. A wide range of employers have a strong interest in the way that their business contributes to society and there is a movement to see this move out of traditional CSR activities to businesses with ‘purpose’. Some of this activity focuses on those groups furthest away from the labour market such as care leavers and people with experience of the criminal justice system. In establishing and working with existing partnership, government should consider:
[1] https://www.oxfordmartin.ox.ac.uk/publications/the-future-of-employment/
[2] https://www.oxfordmartin.ox.ac.uk/publications/the-future-of-employment/
[3] https://www.resolutionfoundation.org/publications/a-new-settlement-for-the-low-paid/
[4] Institute for Employment Studies, Weekly Vacancy Analysis, 19 June 2020
[5] Joseph Rowntree Foundation (2019) A minimum income standard for the United Kingdom in 2019. York: JRF. Available at https://www.jrf.org.uk/report/minimumincome-standard-uk-2019