Recent labour market reforms have yet to fulfil their promise, says OECD


15/07/2014 - The UK labour market weathered the recent recession moderately well. After a relatively limited fall, total employment recovered and it recently reached 30 million for the first time, even if a number of the new jobs created are low productivity and low paid. The recent reforms to help more people into work will need full implementation and some fine tuning if they are to meet their ambitious goals, according to a new OECD report.


Connecting People with Jobs: Activation Policies in the United Kingdom says that the UK has been at the forefront of efforts by OECD countries to transform and modernise measures to tackle unemployment and inactivity. This continues with the two major recent initiatives of Universal Credit and the Work Programme.


Around one in six people in work in the UK will claim Universal Credit, which rolls six benefits and tax credits into a single monthly payment to enable smooth transitions between unemployment and work. It will also ensure that work always pays as it will be withdrawn at a constant rate. But Universal Credit introduces new challenges, says the report.


In most cases a reduction in earnings will increase the Universal Credit payment, which may act as an incentive to work less, although job-search requirements and monitoring of job-search activities will mitigate this incentive. However, monitoring will need to be implemented on a large scale and implementation plans are still at an early stage.


The report supports the Work Programme’s innovative payment model to private providers, which places strong emphasis on sustained employment outcomes and gives providers freedom over service delivery. But the OECD sees the need for more active governance by the Department for Work and Pensions (DWP) to improve provider incentives, performance measurement and the market structure.


For Universal Credit the OECD recommends that the UK:


  • Evaluate the responses to the constant benefit withdrawal rate, which could potentially increase incentives to work less.
  • Consider time limits on the possibility of combining part-time work with benefits for groups that are able to work full-time.
  • Encourage employees who earn more than the minimum hourly wage, but who still qualify for a benefit payment, to use their working capacity up to full time.


For the Work Programme the OECD recommends that the UK:


  • Increase Work Programme funding levels to ensure that more claimants who are less-well connected with the labour market are helped into employment.
  • Boost competition by changing the market structure for contracted providers, i.e. reduce the average contract size through geographically smaller contract package areas and in most cases a higher number of providers per area.
  • Develop a meaningful performance measurement system and improve provider incentives through better profiling of customers.


For further information, journalists should contact David Grubb (tel. + 33 1 45 24 91 76) or Kristine Langenbucher (tel. + 33 1 45 24 18 37) of the OECD’s Employment Analysis and Policy Division or Spencer Wilson from OECD’s Media division (tel. + 33 1 45 24 81 18). For a copy of the report, journalists should contact [email protected].


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