Western economies urged tackle soaring benefits bill

Jun 14 2006 by Nic Paton Print This Article

The world's leading economies risk economic harm unless they tackle the number of people who are out of work and living on disability benefit, governments have been warned.

The annual Employment Outlook research from the Organisation for Economic Co-operation and Development has suggested that getting more people into paid employment is something countries need to be looking at "urgently".

"They can do this by moving away from policies that discourage people from working and companies from hiring and by doing more to raise workers' skills," it said.

At the moment, the OECD said, too many people on welfare found little financial advantage in taking a job.

Even those who did seek work often found their chances of getting a job hampered by poorly designed regulations, lack of job-search support or their own lack of skills, so holding down economic growth and putting a brake on increased prosperity.

"Getting people who want to work into jobs is one of the biggest challenges facing many OECD governments," explained OECD secretary-general Angel Gurría.

"Systems that exclude people from employment are unfair and need to be changed."

Added Gurría: "The key is to ensure that all economic policies are in line with and supportive of measures to boost employment and incomes. We believe that countries that take action along the lines we are recommending will be rewarded by a stronger labour market and, most importantly, improved living standards."

The research is the outcome of a two-year assessment of employment policies in the OECD's 30 member countries and of the effectiveness of the OECD's Jobs Strategy, launched in 1994.

What it makes clear is that there is no "magic bullet" or single set of economic policies that can solve a given country's employment problems.

Some countries, it argued, achieve good employment results by maintaining relatively low welfare benefits and implementing light regulations, but at the expense of relatively wide inequality in earnings.

Others obtain similar success with generous welfare benefits and strong activation of job seekers, but at a high cost in terms of public spending on labour market policies.

This means that liberalist policies, such strong trade unions and employment protection laws can – but do not necessarily – go hand-in-hand with low levels of unemployment.

Countries that had succeeded in boosting employment shared an emphasis on macroeconomic stability and strong product market competition, the OECD said.

In addition, most of them provided strong job-search support combined with strict requirements on the unemployed to accept job offers.

Some countries, the OECD noted, have introduced reforms that boost employment without cutting welfare benefits, for example by accompanying welfare benefits with measures to ensure that recipients look for work and have a financial incentive to take a job.

Family-friendly policies such as support for child-care could also help in boosting employment, especially among mothers.

The OECD has recommended governments set macroeconomic policies that aim to achieve price stability and sustainable public finances, ensure that recessions do not lead to permanent falls in employment and make it more attractive for people to work than to stay on welfare benefits.

It also urged politicians to make sure that benefit recipients receive high-quality services, particularly in relation to their quest for jobs, and that this is monitored closely, backed up by the threat of benefit sanctions.

It called for more adaptable regulations and tax policies to encourage companies to take on staff rather than to shun new hires, stronger competition in product markets, legislation to protect job security but which did not undermine the dynamism of the labour market or lead to discrimination in hiring and firing.

Finally, it urged government and businesses to promote the notion of providing people of working age with the education and training opportunities they needed to get jobs and raise their incomes.

Dr John Philpott. chief economist at the Chartered Institute for Personnel and Development said the report showed Britain still had a lot to do to reduce core joblessness, increase labour productivity and stem growing income inequality.

"Britain has succeeded in adopting the OECD's prescription for macroeconomic stability, flexible labour markets and a 'rights and responsibilities' approach to welfare reform.

"This broad approach has, under both Conservative and Labour governments, helped reduce structural unemployment since the late 1980s. But deficient education and training and still high levels of inactive jobless people means that more must be done to both boost labour productivity and raise the incomes of the poorest in society," he added.