In this SPA blog, Daniel Clegg explores how French and British policymakers have treated the role of social security in the post-Covid labour market.
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As elsewhere, labour shortages have emerged as a significant problem in France and the UK in recent months. And in both countries governments are responding with moves to tighten access to out-of-work social security benefits. Critics on both sides of the Channel have been quick to point to the limits of trying to address labour shortages through restrictions to benefits. But in France an alternative perspective on the labour supply effects of social security has also been articulated, raising a question that is equally relevant to the UK; might easier access to decent unemployment benefits actually encourage more people to take ‘bad’ jobs?
Current labour shortages are partly an after-shock of the Covid-19 pandemic. Although the idea of a post-Covid great resignation received considerable attention, national circumstances vary widely. While the UK still has a lower rate of labour force participation than before the pandemic, in part due to rising long-term sickness, in France economic activity rates are at their highest level on record. But in both countries the pandemic seems to have made workers more conscious of their health and wellbeing, and more reluctant to take jobs in sectors with unpredictable and/or antisocial hours, low pay and limited job security. Data shows that the biggest increases from pre- to post-pandemic vacancy rates are in hospitality.
Before the recent announcement of the extension of in-work conditionality, the UK government’s main response has been the Way to Work campaign, launched in January this year. While it featured some welcome commitments to enhance support through Jobcentre Plus, its centrepiece was the limitation – from 13 weeks to only 4 – of the so-called permitted period in which jobseekers claiming benefits can restrict their job search to positions that match their experience and previous pay. The policy theory is that threatening reduction or withdrawal of benefits earlier will make jobseekers less choosy and see vacancies filled more quickly.
Though details differ, reforms underway in France – where at 7.5% unemployment is around double the UK rate – are very much in the same spirit. In his annual Bastille Day interview, President Macron referred back provocatively to his 2018 exchange with a young unemployed man he told could find work in a hotel, café or restaurant “just by crossing the road”. And he criticised those who won’t take available jobs in sectors with difficult working conditions when their alternative was to “take advantage of national solidarity to ponder life”. Legislation has recently come before Parliament that empowers the executive to modify the unemployment insurance system by decree. Its plan is to introduce a formula for adjusting qualification requirements or benefit entitlements to changes in the unemployment rate, a variant of the Canadian system. A scheduled reform of public employment services will meanwhile go before the National Assembly only in summer 2023.
Experts in both the UK and France have already argued that turning the screw on unemployment benefits will not be very helpful in tackling labour shortages, and may actually aggravate other problems in the labour market – to say nothing of the negative impact on public support for working-age social security at a time when it is badly needed. In both countries, it has also been objected that it is firms with recruitment difficulties that must do more to improve both pay and working conditions. But only in France – where ‘bad’ jobs are already ‘better’ – have some made the point that providing workers with rights to decent protection against future unemployment should be part of this job quality agenda, and that accessible benefits can help make risky forms of employment more attractive.
This is the implication of some reactions to the last significant changes to unemployment insurance in France, adopted in 2019 but only fully implemented in December last year due to the pandemic. This reform is yet to be officially evaluated – another criticism levelled at the government’s moves to introduce further changes so early in the current Parliamentary session. Its main thrust was to make unemployment insurance less accessible and generous for some of the most precariously employed, notably seasonal workers and others who work intermittently. Unsurprisingly, many opposition parties and the trade unions fiercely opposed it. More interestingly, the reform has also drawn criticism from some parts of the business community. In sectors with tourist-driven demand, many firms believe their acute difficulties in recruiting seasonal staff this summer were aggravated by restrictions to unemployment insurance. The conjecture is that because under the new rules many workers would no longer be eligible for decent unemployment benefits at the end of the season, this was another reason that they instead opted to hold out for other, more stable, forms of work.
Note the rather different underlying policy theory that is at work here. Rather than emphasising a trade-off between (current) benefit entitlements and earnings in work, the focus is instead on the security that comes from (future) entitlements to benefits as a key dimension of the returns to – and thus incentive for – working. This fits particularly well with a Bismarckian understanding of social security benefits as a deferred component of wages. But the so-called entitlement effects of unemployment benefits are just as well-grounded as more frequently discussed disincentive effects in the orthodox economic literature on the labour supply effects of social insurance.
There is an obvious reason why similar arguments have not featured in the UK debate on labour shortages and the benefit system. The UK has now almost entirely moved to a non-contributory, means tested system of benefit support for the unemployed. Unlike with social insurance worthy of the name, most of those who lose a job are no better protected in unemployment than people who have never worked. And people who keep looking for a job are no better protected than those who withdraw from the labour market altogether. But just because it has been out of favour with governments for the last four decades doesn’t mean that social insurance against labour market risks is innately un-British. Shouldn’t a context of labour shortages and rising economic inactivity be an opportunity to put a model of working-age social security that positively incentivises labour market participation back on the agenda?
And what of bad jobs? We might reason that because these are bad they should not be encouraged by an implicit subsidy from the benefit system. Combating precarious employment was in fact the aim – the stated one, at least – of the 2019 cuts to unemployment insurance in France. But as the exemption of many sectors from new financial penalties for heavy use of fixed-term contracts attests, the Macron administration evidently recognises that flexible scheduling is intrinsic to the business models of many firms in our service-dominated economies. If firms in such sectors cannot afford to compensate workers for the additional risks their employment practices entail, the options are to coerce the workers themselves into shouldering all the risks or to organise some collective form of compensation. The former approach appears to have the favour of incumbent governments in both France and the UK. But isn’t the latter preferable in a civilised society?
Daniel Clegg is Senior Lecturer in Social Policy at the University of Edinburgh and a member of the SPA Employment and Social Security Policy Group @SpaEmploySocSec