Today's labour market is very different to the one in which the Beveridge Report was conceived. Commissioned in 1941 at the height of the Second World War, it was written as part of the efforts of the wartime government to “plan the peace” but drew on prewar experiences. Almost the entirety of the 1920s and 1930s had seen very high rates of unemployment in the UK. The years after the First World War saw a prolonged slump that was exacerbated by the fallout from the Wall Street Crash of 1929.

As shown in Figure 1.1, it was only at the very end of the 1930s, shortly before the onset of the Second World War, that unemployment had returned to more typical levels. Beveridge addressed, therefore, what the government should do to support those looking for work – to avoid “Want” – and what the government could do to help people back into work – to avoid “Idleness”.

These questions are still part of our policy conversation today, but perhaps with insufficient recognition of how the UK labour market has changed over the past few decades. Contrary to the comments of Iain Duncan Smith that opened this chapter, the UK is not facing a situation in which “idleness is institutionalized”. In fact, we have the highest employment rates ever seen and the key issue facing the UK is that too many people are trapped in low-paid insecure work.

It is important, therefore, to start with a clear idea of what has actually happened in the UK labour market over the past few decades and how much has changed since Beveridge's time.

First and foremost, recent years have seen historically high levels of employment. Figure 1.2 shows that, before the pandemic, January 2020 saw the highest proportion of people in work ever recorded. Even in the depths of the Covid-19 recession, the employment rate was higher than ever seen before 2016.

In this chapter, we discuss the importance of the UK's productivity problem to low pay and poor job quality. Pay rates arise from an interaction between productivity and worker power and both can contribute to improving wages. However, productivity debates have been bedevilled by a series of assumptions that have led policymakers astray. Firstly, for too long, economists have used a simplified “human capital” model of productivity that assumes that, in the short term, very little can be done about the productivity of an individual worker. What follows from this is the idea expressed by Lord Freud opening this chapter: that the challenge is to set wages at a level low enough that it is still economic to employ that worker. The second error is the obsession with the shiny and new. New inventions can improve national productivity, but often only after their usage is spread across the economy. If this was better understood, perhaps ministers would spend less time posing for photos in front of the National Graphene Institute and more time pounding the high streets of the UK's everyday economy where much of the country's productivity problem actually lies. Finally, for too long, the UK’s poor management skills have been an open secret and ignored in economic conversation, having been shut away in the “too difficult” box.

THE UK'S PRODUCTIVITY PROBLEM

Productivity is the amount of output for any given level of input and it can be measured at the level of an individual business or a country as a whole. At the national level, it is normally measured by looking at total economic activity (GDP) per hour worked.

Today's workforce is much more diverse than 80 years ago. However, there is still much further to go. Ethnicity, disability and gender employment gaps are endemic in the UK labour market. The gap between the employment rates of lone parents and the general population, for example, is amongst the largest in Europe (Romei & Conboye 2019). Analysis from the Trades Union Congress (TUC 2020) shows that disabled people had an employment rate of 54 per cent, compared to 82 per cent for non-disabled people. High levels of “hidden unemployment” among those with disabilities and long-term health conditions represent the exclusion of many disabled people from work (Beatty & Fothergill 2005). Women, young people and other disadvantaged groups are being hardest hit by the economic fall-out induced by the Covid-19 pandemic (Evans & Dromey 2020).

Certain demographic groups including women and disabled people are also over-represented in poor quality, low-paid work. In 2020 disabled workers earned £2.10 an hour (19.6 per cent) less than non-disabled workers (TUC 2020). This is due in part to the greater likelihood of both lone parents and disabled people to work part-time, in the case of mothers typically due to the need to balance work with caring responsibilities (Ray et al. 2014).

In the UK there is a significant part-time pay penalty that is not observed to the same extent everywhere. Here, part-time workers are concentrated in lower paid manual, elementary and service occupations, whereas in countries such as Germany and the Netherlands, part-time work is more available across the occupational structure, with a higher proportion of better paying part-time roles (Warren 2008). This has been argued to result from relatively weak regulation in the UK, which does not have as much protection for short-time workers compared to other countries (Ray et al. 2014). Tackling gender pay gaps has moved up the agenda in recent years, with the introduction of mandatory reporting. The TUC and others are now calling for ethnicity pay gap reporting.

Universal Credit transforms the way the state interacts with workers on a low income. Alongside more stringent requirements for out-of-work claimants to engage in job-seeking activity, it may – controversially – involve the introduction of “in-work conditionality” to claimants on a low income, placing responsibilities on individual workers to increase their earnings.

The traditional distinctions drawn by policymakers between strivers and skivers, workers or shirkers, are now blurred as both unemployed people and low-income workers come under the DWP's remit. But the big question is how will this change the way the state interacts with people in work? In this chapter, we focus on how the government might support this group. After briefly outlining this policy shift, we review recent developments in this new, experimental, policy area and consider whether or not we are on the right track not only to support people into, but also to progress in work.

IN-WORK BENEFITS: FROM TAX CREDITS TO UNIVERSAL CREDIT

Alongside conditionality for people who are out of work, many countries also seek to incentivize employment via in-work benefits. As with active labour market policies (ALMPs) for the unemployed, in-work benefits also vary in design. They are also typically combined with other “make work pay” measures including minimum wages, and have the twin aims of incentivizing employment and reducing in-work poverty (Clegg 2015). Particularly since the 1990s, and against a backdrop of “deindustrialization and labour market flexibilization”, in-work benefits saw considerable expansion across advanced welfare states – as the carrots to the sticks of conditionality (Clasen 2020: 2).

In-work benefits have made a significant difference to the incomes of low-income working households (Ray et al. 2014). They have also been historically popular across political divides. However, while they are “a response to … the growth of low-wage jobs and atypical types of employment”, they may also support it (Clasen 2020: 10). Policymakers express concerns about both the sustainability of growing in-work benefit expenditure, and the extent to which it subsidizes part-time and/or poor quality work (Clegg 2015).

The UK has been a keen innovator of policymaking in this area as it explores the possibility of extending behavioural conditionality to working social security claimants. The Social Security Advisory Committee (SSAC 2017) described this as a “ground-breaking” move with “no comparable precedents”, and marks a fundamental shift in the reach of conditionality to those in work.

If we accept that productivity plays an important role in creating the potential for higher wage growth for low-paid workers, and that better management is key to improving this, the next question has to be how might we achieve this?

It turns out that there is already an answer to this question ready and waiting in the form of “Good Work”. Gaining momentum in recent years as a response to growing insecurity in the labour market, the Good Work movement offers both a view on the practices that are necessary to improve workplaces, and examples of practical action having been taken to increase standards across the economy. In this chapter, we chart the progress of the Good Work movement and consider what else needs to be done to get the UK out of its low-pay, low-productivity rut.

Policy interest in “good” or “decent” work is not new and indeed pre-dates the Beveridge Report. Established in 1919, the International Labour Organization (ILO) brought together governments, employers and workers in order to set labour standards, develop policies and devise programmes that promote decent work for all. In 1944, the ILO's Declaration of Philadelphia set out the key principles for the ILO's work after the end of the Second World War. The Declaration states clearly that “poverty anywhere constitutes a danger to prosperity everywhere”, and includes commitments to promote programmes that willachieve living wages and “ensure a just share of the fruits of progress to all”. It also highlighted the importance of job satisfaction, well-being, and “the cooperation of management and labour in the continuous improvement of productive efficiency” (ILO 1944).

But although the notion of good or decent work has been with us for a while, its profile in policy debates has grown more recently in the UK context and internationally as job opportunities have polarized, working conditions have worsened and work has become increasingly precarious (Osterman 2013). In addition to low pay, poor quality insecure work (including zero-hours contracts and bogus self-employment1), a lack of progression opportunities for low-paid workers and low productivity are all now high-profile issues on the UK policy agenda.

Alongside political pressure resulting from the high profile rise of zero-hours contracts and poor working conditions in the gig economy, policymakers have increasingly become interested in promoting “good work” as part of efforts to improve productivity outcomes.

The UK has a skills problem, but it is not a straightforward one. On the one hand, we have an oversupply of skills. According to the 2011 British Workplace Employment Relations Survey (WERS), 19 per cent of respondents felt their skills were “much higher” and 33 per cent “a bit higher” than those required by their job (Sutherland 2013). The absence of good quality part-time jobs we highlighted earlier means that women in particular are often trapped in jobs for which they are overqualified. For example, a survey carried out in 2015 found that 52 per cent of retail workers feel overqualified for the work they do (Ussher 2016).

Recent research from academics at King's College London and Working Families (2021) has shown that a need to compromise on finding work that better aligns with people's skillsets, qualification levels and capabilities in order to access part-time/flexible jobs that allow them to fit around caring and other non-work needs means that many workers are trapped in low pay despite being highly skilled. People working in jobs where their skills are not being used earn less and have fewer opportunities for progression. They also have lower well-being, motivation and job satisfaction compared to workers with skills that are valued and put to use (Boxall et al. 2019).

There is also a problem with undervaluing people's skills. In some low-pay sectors such as social care, it is not the case that skills are being underused – rather, that they are undervalued. UK care workers are amongst the lowest paid in Western Europe, and the scale of underpayment across the sector means that many care workers are denied even minimum entitlements (Gardiner 2015). Recent legal battles for equal pay in retail, where certain roles, more likely to be carried out by women, have been undervalued compared to others, also show that undervaluing of skills is a common experience for many low-paid workers (Butler 2021).

So far we have discussed the importance of productivity to pay rates and the quality of work, demonstrating the need to improve productivity in the everyday economy through better management, and focusing on good work as a means of doing so. Now, we shall look at the other side of the employment relationship: namely, the power that people have over the nature and quality of the work they do. Examining the state's actions across a range of policy areas, we ask whether they empower or disempower the unemployed and low paid.

We start by examining policies to support people into work, and how these have developed over time. Normally, these policies are examined in very simple terms through their effectiveness or otherwise in enabling entries into work. Today, however, with job quality, low pay and limited pay progression being a much more important part of the UK labour market story, it becomes important to examine how policies to support people into work affect the quality of work people move into, and what happens to people after they have entered the workplace. We start by looking at the history of such policies, then examine the realities of today’s offer, and finally look at better ways to approach this crucial area of policy.

BEVERIDGE AND THE 1940S

Since the beginning of the modern National Insurance system on 5 July 1948, the state has provided both unemployment insurance and welfare payments to workless families without other sources of income. Although the purpose of these financial transfers has been to prevent extreme poverty, there was also recognition of the need for recipients to minimize their draw upon the state by looking for work.

Both Beveridge and the wartime government agreed that people who were unemployed should receive support from a placement service to help them find work (Clarke 1944), and that unemployment insurance should not be paid unconditionally and indefinitely. However, there were differences in views about what should happen after the expiry of the initial period. Beveridge said that “Unemployment benefit will continue at the same rate without means test so long as unemployment lasts, but will normally be subject to a condition of attendance at a work or training centre after a certain period” (Beveridge 1942).

When Beveridge was writing about the Giant of “Idleness” in 1942, his concern was primarily about the unemployment that had scarred the economy for two decades prior to the Second World War. Eighty years on, this is no longer the pressing issue. Today, we have historically high rates of employment, but also our highest ever rates of in-work poverty. The UK is stuck in a lowpay, low-productivity rut. We have a two-tier economy in which far too many people are working in poor quality jobs, with barely any training and little chance of getting on. Growth in the gig economy and short-hours work has brought insecurity to the labour market in defiance of employment protections built up steadily since the Second World War.

Our economic and policy debate has failed to keep up with the reality of today's economy. Today, too often Conservative government ministers trumpet high employment rates whilst many in the Labour Party talk about the need to create jobs. The conversation feels like it is stuck in the 1980s or early 1990s and misses the elephant in the room: too many of those jobs don’t enable people to enjoy a decent standard of living and nor do they provide the security, dignity and prospects for progression to which we should all have access. Today's problem with the labour market is not a shortage of work but a shortage of good quality work: inclusive, decently-paid, and secure, with prospects for advancement. If Beveridge were surveying the labour market today, instead of the unemployment of the 1920s and 1930s, poor quality, insecure work and lack of progression would be the giant he would seek to slay.

We have argued throughout this book that underlying this crisis is the question of power and that the balance of power between low-paid workers and employers has shifted decisively towards the latter. People feel trapped: trapped by the lack of progression options but, most of all, trapped by the lack of alternative jobs that offer a better future. If there is no way out of your current workplace, and your employer knows that, what incentive do they have to try harder to keep you?

It seems fairly obvious that the state should have an interest in promoting good work, decent pay, and better progression. Higher tax revenues and a happier population are two of the obvious benefits.

Is the UK's current approach effective in helping people back into work? Or could it be that the focus on “work first” actually gets in the way of achieving a “higher pay, lower welfare” economy? To answer these questions, we need to explore in more detail the focus on moving people into any job, the role of sanctions and low benefit levels and the employment support offered to people looking for work.

Universal Credit is now the primary vehicle for active labour market policy (ALMP) in the UK. It is both an in- and out-of-work benefit – underpinned by conditionality alongside financial sanctions if behavioural expectations are not met, but also employment support from Jobcentres and other employment support providers. Universal Credit extends and intensifies the conditionality for out-of-work social security claimants that has increasingly featured in UK active labour market policy over the past few decades. People claiming out-of-work benefits and subject to conditionality must meet UK government prescribed requirements including: attending appointments at the job centre, completing online jobseeker journals, providing evidence that they are actively seeking work (typically looking for work 35 hours per week), or participating in training or welfare-towork programmes (e.g. the Work Programme).

Failure to meet the conditions attached to their benefit may result in a “benefit sanction” – meaning that a person's benefits are reduced or suspended. In an unprecedented move, and because Universal Credit is also an in-work benefit (see Chapter 2) conditionality may also be applied to working claimants – so people who are working may now face new expectations to increase their hours or pay in exchange for additional income through Universal Credit. In the UK, Jobcentre Plus – the Public Employment Service – and within them work coaches, are the first port of call for those seeking work. However, contracted providers increasingly feature – as non-state organizations deliver various welfare-to-work programmes (e.g. the Work Programme, Work and Health Programme and most recently Restart).

ANY JOB IS BETTER THAN NO JOB: IS WORK FIRST A PRODUCTIVE APPROACH?

Now considered an archetypal work first regime, the UK's approach focuses on moving jobseekers into work quickly. As we showed in the previous chapter, over time, the UK's approach has become increasingly directive, requiring jobseekers to accept any job offer. Those claiming out-of-work benefits must sign a Claimant Commitment, which outlines their responsibilities in relation to finding paid work.

Before the start of the Second World War, the UK had experienced two decades of high unemployment. For Beveridge writing in 1942, the Giant of “Idleness” was primarily about worklessness and a lack of jobs for the male breadwinner. Today's labour market is very different. Far fewer people are unemployed, the number of women in paid work has increased dramatically, but in-work poverty is rising and increasing numbers of people face new forms of insecurity in work. Today's problem is not a lack of work, but a lack of quality work with a good level of pay.

Although the mantra that “work is the best way out of poverty” remains firmly entrenched in parts of the political psyche, the reality is that the UK has become stuck in a low-pay lowproductivity rut. Rising in-work poverty, low productivity levels, falling rates of progression and increasing “precaritization” of the workforce increasingly call this into question. Tackling un- and underemployment in a post-Brexit, post-pandemic UK necessitates a substantial shift in our understanding of the problem and our response to it. This is crucial if ambitions to “build back better” are to be realized. In this book, we show why quality of work is the most pressing labour market issue facing the UK today, and what must be done to solve it.

Underlying all of these issues is the question of power in the labour market. In the past, this discussion has focused on unionization and collective bargaining, which undoubtedly improves outcomes for workers. But there is a more subtle way in which worker power needs to be considered. By and large, for people who are unemployed or on a low income, power is in short supply. The way the state engages with people out of work, through coercive active labour market policies, a lack of concern for skills and career progression and a one-size-fits-all approach to out-of-work support that ignores the needs of lone parents, disabled people and others, exacerbates this problem.

The degradation of social infrastructure – declining local bus services, childcare services that don't meet the shift patterns of low-paid workers – conspire to create barriers to work, especially for women. If you need to be at the school gate by 3.15pm, the pool of potential jobs shrinks very quickly. As we show, childcare and transport are not only social policy issues but fundamental to tackling low-pay low-productivity Britain.

This final chapter considers regulation of the labour market. The starting point for such discussions is usually that there is a tradeoff between protecting workers and strengthening the economy, and the political process decides where on the spectrum policy will end up. We show that in fact a reluctance to protect working conditions exacerbates the imbalance of power between workers and employers and contributes to the low-pay low-productivity equilibrium that locks too many people into low-paid work, and slows down the UK's economic performance.

CONTESTED POLICY

Labour market regulation has been a contested area of economic policy for centuries. When the first Factory Acts started limiting children's hours of work, there were voices that protested at the economic damage such restrictions would cause. Lord Lauderdale said in the House of Lords that he opposed the Cotton Mills and Factory Act of 1819 because it violated “the great principle of Political Economy that labour ought to be free” (Walker 1941). This Act prohibited employing children under the age of nine in the cotton industry and limited work for those aged nine to 16 to 12 hours a day (UK Parliament, n.d.). Over the course of the nineteenth century, legislation limited further children's and later women's hours of work, introduced factory inspectors and the first new rules for managing dangerous machinery (Bloy, n.d.).

Today, we take for granted a much wider range of protections. The Contracts of Employment Act 1963 brought with it a right to a written specification of hours of work, pay rates and notice periods. The 1960s and 1970s saw the first protections against discrimination at work, covering race and sex. Recent years have seen these protections extended to cover disability, sexual orientation, age, religion and belief. For two decades, there has been a national minimum wage, limits on hours of work for all workers – not just those in factories – and rights to a minimum amount of paid holiday leave each year.

So far, we have focused on how state policies aimed at low-paid workers – on welfare and skills – have the effect of undermining bargaining power in the workplace. However, the state's effects on low-paid workers have much broader scope. In the final chapters of this book we turn our attention to wider factors that influence the labour market, exploring the role of social infrastructure and state regulation in supporting good work and overcoming labour market exclusion.

Starting with the former, we show how degradation of social infrastructure – from declining local bus services to childcare services that don't meet the shift patterns of low-paid workers – conspire to create barriers to work, especially for women. As we show, childcare and transport are not only social policy issues but fundamental to tackling low-pay low-productivity Britain. Childcare Self-evidently, childcare is essential to parents being able to work: no parent can go out to work unless someone is looking after their children. The responsibility normally falls on mothers: employment rates in mixed-sex couples with children under 12 are 20 percentage points lower for women than for men; average hours of work are more than 40 per cent lower; nine out of ten lone parents are women. Time-use data shows that women spend twice as much time as fathers looking after children (Wishart et al. 2019). Seven out of ten mothers of children aged below four say that having reliable childcare helps them to go out to work (DfE 2019).

Childcare in the UK is more expensive than most other highincome countries. Support for childcare is a mix of free and subsidized provision, support through the welfare system, and tax reliefs on childcare expenditure. Taking these into account, the net expenditure on childcare for couples with two children aged two and three using formal childcare is likely to be around one third of the average wage. For lone parents, net expenditure is lower. However, at 10 per cent of the average wage, there are still only four countries in the OECD with higher rates (see Figure 9.1).