Making Work Pay?

Are people in work really better off?

According to its advocates, the key principle underpinning welfare reform is to ensure that people are always better in work than out of work. In other words ‘making work pay’. The justifications put forward for this are both moral (people should be rewarded for work rather than leisure) and practical (to incentivise people to take up work).

There are two main ways to make work pay. One is to reduce the value of benefits. This is what welfare reform focuses on.

The other approach is to increase the value of work. As this article in The Economist shows, the matter of ‘unrewarding work’ is a problem in many parts of the world. It is certainly a problem in Northern Ireland where a recent report by KPMG found that 24% of employees are paid less than the Living Wage (the wage deemed necessary to provide a reasonable standard of living).

Interestingly, the government and other advocates of welfare reform have shown much less enthusiasm for this plank of making work pay. For example, they tend to oppose the idea of raising the Minimum Wage in line with the Living Wage. They are averse to trade unions strengthening the bargaining power of employees. They are also content with the use of zero-hour contracts which mean that someone could be officially ‘in work’ without actually receiving a salary.

There are of course legitimate arguments to be had in relation to all of these issues. But there seems to be a mismatch between the comfort shown towards low wages, and the zealous endorsement of welfare reform.

But perhaps the most glaring contradiction is that many people who are in work will be disadvantaged by welfare reform. This includes people in work who receive child benefit and housing benefit. It also includes recipients of Working Tax Credit, which was introduced to top up the income of people working on a low wage.

A focus on reducing the safety net of welfare, without attention to tackling low wages, is a highly selective approach to making work pay. Indeed it could result in a situation in which for many people, it pays neither to be in nor out of employment.

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The opinions, views or comments in this blog do not necessarily reflect any views or policies of NICVA.

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