House of Commons - Work and Pensions

Select Committee on Work and Pensions Third Report

2 The 80% Employment Aspiration

16. The DWP's 80% aim is a challenging one. The DWP has pointed out that if achieved, it would "mean out-performing every other country in the world (bar Iceland)," and would be a higher rate than at any time in the UK's history. To achieve it, the DWP has acknowledged that it will need to focus on "those areas and communities with the highest levels of worklessness."[9]

17. Organisations working with disadvantaged groups have welcomed the employment rate aspiration. SKILL (The National Bureau for Students with Disabilities) described it as "an ambitious target but one which can be achieved" with the right support to people on benefit,[10] and many other groups who gave evidence to us broadly agreed with this assessment.[11] Achieving the aspiration will be demanding, and later chapters will consider in more detail what needs to change in order to meet the challenge. We welcome the setting of an employment rate aspiration and the DWP's commitment to making sure everyone has the opportunity to work.

18. However, there is a lack of clarity about precisely what the 80% aim represents and why it has been set. The DWP explained in its memorandum to this inquiry that the 80% aspiration had been chosen as a "stretching, achievable and relevant long-term aim (both overall and for key disadvantaged groups)", but one which recognised that "a proportion of the working age population will be outside the labour force at any one time - for example because of early retirement, caring responsibilities, 'frictional' unemployment or disability."[12] In the DWP's five-year strategy, the 80% aim is described as "a modern vision of full employment that will eliminate pockets of marginalisation and extend real employment opportunity to all."[13]

19. This suggests that the DWP considers that the 80% aim represents the rate that would be reached if everybody of working age in the UK was in employment, except for those who have a good reason to be outside the labour market. It is our view that, if this is the reasoning behind the 80% aim, the DWP should set out the groups which it considers should not be expected to be in the labour market. It should then set out its estimates for the numbers of people of working age who are within these groups. Its employment rate aspiration should then be based on the number of people remaining once these groups have been subtracted from the UK working age population.

20. Taking the working age population as a starting point, the DWP identifies three groups who should not be expected to be within the labour market; people who have taken early retirement, those with full-time caring responsibilities, and people who are not capable of working due to severe disability or illness. We consider that, in addition, people in full-time education or training should not be expected to work.

21. The 80% aspiration is described by DWP as "long term."[14] With this in mind, we accept that the numbers of people falling into the above groups are likely to change over time. In addition, the groups are not fixed in size, as there is room for disagreement over what level of "caring responsibilities" or disability a person needs to have before they are considered not to be expected to work. Furthermore, while we might not expect a lone parent, for instance, to work if no childcare is available, we might expect them to look for work if high-quality, affordable childcare is offered. However, an estimate can be made, and we consider that such an estimate is the only sound basis for the setting of a long-term employment rate aspiration.

22. We recommend that the DWP produce a clear list of the groups which it thinks should not be expected to work, together with estimates for the percentage of the UK's working age population which fall into each of the groups it has identified. We recommend that it should then take the percentage of the population which remains as its long-term employment rate aspiration.

23. A further point should, in our view, be taken into account in setting the employment rate aspiration. In order to count as "employed," a person only needs to do one hour of paid work a week.[15] This is the definition accepted by the International Labour Organisation (ILO) and the Organisation for Economic Co-Operation and Development (OECD). Whilst we accept that the one-hour measure is useful in making international comparisons, we do not consider it appropriate for tracking progress towards the employment aspiration. Using the one hour measure, it would be possible to meet the employment aspiration by directing the efforts of Jobcentre Plus and other providers towards increasing the number of people working a very small number of hours. However, working for a few hours a week is not enough to lift a person out of poverty or to allow them to stop claiming benefits, and these should be the aims of the DWP's policies. Measuring the proportion of people who are working for sixteen hours a week or more would track progress towards these two aims. We therefore recommend that the DWP publish employment rate measures relating both to the ILO definition and to those who work for 16 hours a week or more.

Measuring the employment rate

24. Once the employment rate aspiration has been set, the question remains of how the rate should be measured. In its submission to this inquiry, the DWP explained to us that "[c]urrently employment is measured using the employment rate, which is the number of employed people aged between 16 and State Pension age (16 to 64 for men and 16-59 for women) as a percentage of the population aged between 16 and State Pension age."[16]

25. The DWP stated that it is "minded" to adopt, in addition, a new measure of employment to track its progress towards the 80% employment aspiration. This measure would be obtained by dividing the total number of employed people in the UK aged over 16 by the working age population, aged 16-State Pension age. This is not a rate, but a ratio, as the DWP acknowledges.[17] Mr Jim Murphy, the Minister of State for Employment and Welfare Reform, told us that the DWP's "intention was to publish both an employment rate and an employment ratio. We have not come to a formal decision as to when we would publish both but we are determined to do so."[18]

26. The DWP told us that the proposed new "employment ratio" was "consistent with the employment/population ratio used by the OECD."[19] The OECD uses a range of different ratios to measure employment.[20]

27. The choice of measure is significant because it is likely to influence spending and policy decisions in the area of employment strategy, particularly if it is incorporated into Public Service Agreement targets. In choosing a measure, the DWP will need to consider the impact of both current policies on the State Pension age, and potential future policy decisions on the school leaving age.

28. We asked the DWP whether it had consulted the Office of National Statistics (ONS) for its view of the "employment ratio". The DWP told us that it had approached the ONS informally and that the ONS was "content" with the proposal, and had advised the DWP to make a formal approach. The DWP also said it was "minded" to start a "small" consultation on the use of the proposed measure after the publication of this Report.[21]

People aged 16-18

29. Some witnesses suggested that the proposed measure was flawed because it included people aged between 16 and 18. The DWP would therefore need to promote employment for people in this group in order to achieve its aspiration, whilst the DfES has the aim of increasing the proportion of young people staying in education or training. The Age and Employment Network (TAEN) stated in written evidence that "[t]he public policy objective is to increase the proportion of each succeeding age cohort who stay in education to get qualifications at Level 3 and 4. To have an objective to raise the employment rate of the age cohort as a whole contradicts that. Policy should focus on the number of under-25s who are in neither education nor employment (NEETs)."[22]

30. In response to these concerns, the Minister for Employment and Welfare Reform, Mr Jim Murphy, told the Committee that "[a]t age 16 those folk are able to make their own decision as to whether they should be in education or in the world of work. Obviously, the Government's preference is for folk to avail themselves of maximum academic opportunity, but at that point where someone makes the decision to be in the workplace I think it would be wrong not to measure them within the statistics."[23]

31. Lord Leitch, in his recent report on skills, recommended that the Government should move towards raising the age until which people must remain in "full or part-time education or workplace training"[24] to 18, and recent speeches have indicated that Ministers are considering such a move.[25]

32. In the meantime, Dave Simmonds of Inclusion told us that keeping the 16-18 group in the employment rate was a good thing, as it obliged the DWP to work harder on other groups as the employment rate of the 16-18 group fell:

"the DfES's targets do drag down the contribution that that age group is making to the 80%. We actually do not see that as a problem, we actually see it as a good thing overall because one of the effects […] is, to […] refocus policy makers' attention on to the other age groups […] if we are going to be taking one age group increasingly out of the labour market […] it means we have to put more efforts into the older age groups. So that tension between those policies is actually a productive one as long as people are drawing the right conclusions and redirecting their efforts."[26]

33. People aged 16-18 who are NEET - not in education, employment or training - are an important group, and must not be allowed to become out of touch with education and training opportunities and the labour market. Although this inquiry did not focus on this group, we did hear that the current system failed to monitor them. Professor Paul Gregg told us: "The problem that goes back to the engagement issue with partners is that once 16-17 year olds leave full-time education we have no means of contact with them. They do not receive unemployment benefits - they are not eligible until they reach 18. We do not have any kind of system that picks them up. Clearly, we have seen evidence that Connexions has not been terribly successful at picking them up."[27]

34. As we noted above, Lord Leitch's review of skills, which is discussed in Chapter 5, recommends a rise in the school leaving age in the long term. If implemented, this would help ensure that people in the 16-18 age group did not become NEET:

"Despite recent improvements, the UK's post-16 participation in education and training is below the OECD average. At age 17, 83% are enrolled in education and training, compared to more than 90% in the best performing countries. International evidence suggests that parity of esteem of the vocational route and a smoothing of the current break point at age 16 are needed to achieve world-leading levels of post-16 participation in education and training. The new specialised Diplomas in England are critical to increasing participation in education and training for all young people. […] Once the Government is on track to successfully deliver Diplomas, with rising participation at age 17 and significant improvement in the OECD rankings, it should implement a change in the law, so that all young people must remain in full or part time education or workplace training up to the age of 18."[28]

35. The measure of the working age population should continue to start from the school leaving age, whatever that may be. The issue of NEETs aged 16-18 will remain a crucial one, and we note that DfES publishes a measure of the numbers of people aged 16 to 18 in employment or training.

People over the State Pension age

36. Using the DWP's proposed "employment ratio" would have one main advantage: it would take account of the growing number of people over the State Pension age who are in work. The DWP noted in its submission that excluding people over the State Pension age "is a significant omission - there are already over one million people aged over State Pension age and in work, and the Government has an ambition to extend opportunities and choice to enable older people to stay in, and enter, the labour market. The headline measure of employment therefore currently excludes a significant proportion of one of the hardest to help groups."[29]

37. We also heard evidence suggesting that the measure used to track progress towards the employment rate should include women aged up to 65, in line with the planned increase in the State Pension age (SPA) for women. TAEN told the Committee that we should "support measurement of the 80% employment rate target on the basis of men and women to age 64 from now on, even though the increase in the SPA will take another 14 years to come into effect. Given female life expectancy, pension prospects and patterns of working life there is no case for a lower age ceiling for women."[30] However, for the sake of clarity, we recommend that the DWP retain the link between the employment rate and the SPA. The measure should, of course, change in future in line with planned increases in SPA.

38. We recognise the DWP's concerns about measuring the employment rate of people aged over the SPA. We agree that continuing to work over the SPA is a choice many people are making, and one that will probably become more common if life expectancies continue to rise.[31] It would be desirable, therefore, for the DWP to have a target for the number of people over SPA in work.

39. TAEN/Help the Aged suggested that one way of doing this would be to have an extra target for people over the SPA. The DWP already has an aim of getting 1 million extra people over 50 into work. TAEN suggest that "increases in 65+ workers should not be part of the +1m target for over-50s."[32] Instead, they suggested the DWP should set a supplementary target. This would be a good way of reflecting the aim of increasing opportunities for people over the SPA to work, without creating a confusing measure of employment rate. We recommend that the DWP agree a PSA target of increasing the proportion of people over State Pension age who work.

Sustainable Employment

40. Organisations giving evidence stressed that the goal of an 80% employment rate should not be allowed to obscure the importance of promoting decent, sustainable employment and a good work-life balance. The Child Poverty Action Group, a charity which campaigns for an end to child poverty, told us that "[a]n employment rate of 80% which leaves children without adequate time with their parents, and those parents overly stressed by the pressure of paid work is not in the interests of children or society."[33]

41. In a recent speech, the Secretary of State for Trade and Industry indicated Government support for work-life balance: "There is more and more demand for the "work-life" balance our reforms are driving. It makes sense for businesss and families […] For a great many, work-life balance practices and flexible working policies [have] become embedded as key elements of good business practice."[34] We support initiatives to secure a good work-life balance, and agree that helping people find sustainable work is important. This should be given as much attention as immediate job entry. A later section of the report examines job retention and advancement.

Conclusion

42. We heard evidence against using the suggested "employment ratio" from Mr Dave Simmonds of the Centre for Economic and Social Inclusion. He said: "First of all, we believe that a rate should be a rate […] [it] should be expressed as a percentage of all of those people who at present are deemed to be within the labour market and available to work."[35] This point is a persuasive one. We conclude that an employment statistic expressed in terms of a percentage, but which does not actually represent the proportion of any single group which is in employment, would be misleading. The measure used by the DWP to track progress towards the employment rate aspiration should be a rate and not a ratio.

43. At present, the 80% employment rate is defined as an aspiration for the DWP, and not a target. It does not appear in the DWP's PSA targets and there is no timeframe associated with it. However, the Secretary of State recently said "Today the achievement of an 80 % employment rate and the eradication of child poverty are not seen as merely rallying calls for change - but real targets that people expect to be delivered. And rightly so - for that is what they are." As we have explained above, we think that the figure of 80% needs to be more firmly grounded by an explanation of who is expected to be within the remaining 20%. If the DWP is going to take the employment aspiration seriously, then it ought to include it within its PSA targets arising from the next Comprehensive Spending Review. This could be done by agreeing more ambitious targets for raising the employment rate than the current PSA target.

44. The DWP's relevant PSA target is, over the three years to Spring 2008, and taking account of the economic cycle, to:

"demonstrate progress on increasing the employment rate;
increase the employment rate of disadvantaged groups ; and
significantly reduce the difference between the employment rates of the disadvantaged groups and the overall rate."[36]

45. The DWP PSA and Technical Note explains that:

"For lone parents, an increase in the employment rate of at least 2 percentage points and a reduction in the gap of at least 2 percentage points is required for the sub-targets to be met. For the other groups the sub-targets will be considered to be met if an increase in the employment rate of at least 1 percentage point, and a reduction in the gap of at least 1 percentage point, is achieved. These target levels are set on the basis that changes in data of approximately these proportions can be regarded as significant."[37]

46. We have recommended above the way in which we think the employment rate aspiration should be calculated. In setting a new PSA target for the employment of disadvantaged groups, we recommend the DWP make clear how far achieving the sub-targets will take it towards its employment rate aspiration. The DWP should specify the timeframe within which it wants to achieve the targets which it has set for the employment rates of disadvantaged groups, and, based on this, the timeframe within which it hopes to achieve the employment rate aspiration.

9 Ev 243, Ev 242 Back

10 Ev 156 Back

11 See for example Ev 157, Ev 223, Ev 264 Back

12 Ev 244 Back

13 Department for Work and Pensions, Employment Opportunity for All: Five Year Strategy, Cm 6447, February 2005, p 6 Back

14 Ev 242 Back

15 "People aged 16 or over are classed as employed by the Labour Force Survey (LFS) if they have done at least one hour of work in the reference week or are temporarily away from a job (for example, if they are on holiday)." www.statistics.gov.uk, "What is employment". Back

16 Ev 330 Back

17 Ev 245 Back

18 Q 439 Back

19 Ev 330 Back

20 See, for example, "The employment-to-population ratio is defined as the proportion of an economy's working-age population that is employed," http://stats.oecd.org, and "The employment/population ratio refers to the persons employed aged 15 and over divided by the population aged 15-64," from OECD, Boosting Jobs and Incomes: Policy lessons from reassessing the OECD jobs strategy, 2006, www.oecd.org, p 7. Back