Welfare-to-Work: Which Policies Work and Why

Abstract: Alongside the growth in overall employment and the steady rise in average real incomes over the 1990s, the UK experienced a concentration of worklessness and low pay among certain groups in society. This was particularly acute for low-income families with children, but was also reflected in the frequency of spells out of work by the young and by the falling attachment to the labour market of older men. In response, the focus of welfare policy shifted towards “making work pay”. The Working Families Tax Credit and the New Deal were central among the policy options that were implemented. This lecture considers the validity of the arguments underlying this shift in welfare policy and, drawing on evidence from the UK and abroad, asks: which policies work and why? It examines two broad classes of policy options that are motivated by the make work pay objective: active labour market programmes that involve wage subsidies together with improved job matching; and earned income tax credits that supplement wages for working low-income families. These programmes have many features in common. They are also similar to many policy reforms in Europe and North America. Using the evaluation of the UK reforms this lecture brings empirical evidence into the debate on the effectiveness of these programmes and assesses which aspects of the design of welfare to work programmes work well and which aspects could be improved