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Baroness O'Cathain: My Lords, I thank the noble Lord for allowing me to intervene. That is the second time that he has made the statement that noble Lords on these Benches would like the casualisation of the whole workforce. I have certainly not heard that from anybody here today. I believe that what he says is wrong. None of us wants that. But at the moment it is the reality of the labour market worldwide.
Lord Desai: My Lords, perhaps I was too provocative in my words. I shall be more sober in my content. If there is labour market flexibility, there lurks the question of non-wage costs. By pointing to the social chapter and so on, it is implied that such things as holidays, maternity leave, paternity leave etc. are basically just frills. If those "frills" are taken away, and if hours and conditions of work are not necessarily regulated, of course flexibility in the labour market is increased. If you want the labour market to be like the market for bananas, then of course you do not want workers to have any rights at all. A good neo-classical economist would more or less not see the difference: anything that treats workers differently from bananas is an interference with the market; that is not a problem. The issue is: does it help efficiency, productivity and long-run growth if workers are treated well? Some of us feel that it would be a great help if the word "flexibility" and the concept itself were not used in relation to universal casualisation. Perhaps it is not true; but the way in which people continue to attack the social chapter as if it were a great burden on the country, when practically every other country in Europe manages to have the social chapter, leads me to think that there is that sort of desire.
The Viscount of Oxfuird: My Lords, will the noble Lord give way again? There is a misconception that Germany is such a wonderful place for production and the structure of its workforce. Its position is such that I now know of a British company that benefits greatly from the German so-called social chapter in that it has just received a very large contract for the entire engine production to be
Lord Desai: My Lords, there are always such episodes, and one cannot comment on every one. I have only eight minutes in a time-limited debate. It is not kind to interrupt me several times. However, I see that I have been effective in eliciting a response from the opposite side. That is very good.
I recognise that production conditions are changing. We live in a post-1940s technology. I am sorry that I have not had time to comment on the very interesting remarks made by the noble Lord, Lord Dahrendorf. The noble Lord asked us to suppose that labour market conditions in the world at large will cause us to move more towards what I call episodic employmentit is in fact the feminisation, rather than the casualisation, of work: men having labour experiences similar to those that women are used to having. If that is the case, can we sustain the welfare state on today's basis? That is a very important question that we have not had time to consider. If you complain a lot about the burden on taxation of providing employment, on the one hand, all that happens is that such costs are not borne by wages, and you end up paying in general taxation, through unemployment, sickness or other adversities. In a sense the Government have admitted as much by expanding the role of family credit. If employers are allowed to pay low wages, the taxpayer is asked to make up the difference. It is a matter of choice.
I am an economist. If you want to have the burden of low pay being borne by general taxpayers rather than by employers, that is one kind of income distribution. We do not like it. To the extent that these forces are worldwide and unavoidable, we have to meet the challenge. Our only request is: please do not add to the burden by further worsening the situation.
Lord Haskel: My Lords, I welcome this debate. I too believe that there are many misunderstandings regarding flexibility and the deregulation of work. As I understand it, the Government argue that more flexibility is required because increasing competitive pressures and accelerating technical change are producing a more uncertain business environment. The Government think that the rational response to such uncertainties is deregulation, increasing the use of part-time labour and placing a greater reliance on short-term contracts, outworkers, home workers and sub-contractors in order to reduce a firm's dependence on full-time labour. Central to this approach are new forms of individualised payments and ways of making hiring and firing easierall done in the name of flexibility. The attitude was summarised by my noble friend Lady Turner as the casualisation of labour. I too am most grateful to her for the opportunity to discuss the matter.
I should like to examine some of these terms and concepts I have mentioned as they apply to manufacturing. I believe that there is confusion between employers and government over what they mean by flexibility in the labour market. Many noble Lords
Faced with international competition, what have the leaders of our manufacturing companies done? They have introduced new products, new equipment and new working methods which have led manufacturing firms towards continuous production. Much of that continuous production increasingly entails shift work. They have committed themselves to continuous improvement and the raising of standards to ever higher levels. They are committed to a programme of quality management. Their customers require them to invest in more and more, and better and better, information technology. They have cut costs by introducing information technology and eliminating layers of management. All this demands more skill, more training, more versatility, more commitment, more education and more initiative from management and from the workforce.
How do industrial managers release these qualities? Certainly not by fear, and certainly not by casualising work. I disagree totally with the noble Viscount, Lord Oxfuird. A strategy of labour flexibility involving the extensive use of casual part-time labour or sub-contractors is quite irrational in manufacturing. The facts do not support his thesis
Production can be organised efficiently only with the use of full-time permanent shift workers in-house. The cost and managerial effort required to co-ordinate an alternative strategy of casual labour is totally counter-productive. People today recognise that no job is guaranteed for life and that they must continually upgrade their abilities and skills and adapt to new processes and products and the demands of a company. Employers would much rather adapt and train their existing workforce to meet new circumstances than hire a new one. I agree totally with my noble friends Lord Gladwin and Lady Dean that these practices send a positive message to the staff and encourage loyalty so that the best people stay with the company. That is what a business means by "flexibility". It is a kind of internal labour market within the company which adapts to change. What the Government understand as flexibilityeasy hiring and firingis entirely inappropriate and indeed is probably damaging to the ethos of the company. The objective is not to reduce wages to the level of those in China or Indonesia; it is to reduce our unit labour costs to the level of those in Germany and the United States.
An adversarial workforce, cowed by years of deregulation and unemployment and easily hired and fired, is only of value to a company with poor management and low investment. Is that the kind of company the Government are trying to encourage? Such policies may be applicable to service companies like supermarkets, but I am doubtful even of that. Most firms today are committed to a policy of continuous improvement in all sectors of their business. Does one achieve that with a casualised workforce? No. In those circumstances I suspect that flexibility means flexible
My noble friend Lord Houghton reminded us that the main area where casual employment seems to flourish is in the public sector and in the recently contracted-out sector. Zero-hour contracts, 51-week contracts, year-to-year contracts are now on the increase in those sectors. Because they face little international competition the hourly rate of pay is important and many think that insecurity at work makes for a pliant workforce which will work for low wages. That old-fashioned view only helps poor employers and stands in the way of progress and the introduction of new technology. It does nothing to help the introduction of continuous improvement in those sectors.
Perhaps the Minister will say that the Government's policies are vindicated because of our recent export performance. In response I would say that most of our successful exporters would reject those policies. That has certainly been my experience in industry. As to the example given by the noble Viscount, Lord Oxfuird, of the company in Germany, I am sure that devaluation of the pound had a considerable effect on that transaction.
Leadership in a business encourages best practice to drive the organisation towards ever higher standards. That means creating a workforce which is well educated and adaptable to changes in skills and circumstances. It does not mean a casual workforce which is easily replaced when circumstances change. Like most people in industry, we on these Benches believe that success in a modern economy does not come from a casualised workforce but from a confident, secure, well motivated and loyal workforce.
Baroness Seear: My Lords, I join other noble Lords in thanking the noble Baroness, Lady Turner, for introducing this subject. I have a considerable amount of sympathy with many of the points she raised, in particular in relation to insecurity and the low rewards given to many part-time workers. I, for my part, accept that there will continue to be a considerable number of part-time workers. Professor Handy may not be entirely right, but there is a good deal in what he says about a future in which a relatively small proportion of people will have traditional careers and a larger number will have what he called "portfolios" made up of part-time work and other ways in which one's income is earned.
To make the situation for part-time workers tolerable they need to have the same rights pro-rata as full-time workers. They need to be treated in all respects as though they were full-time workers, but working under different conditions. That means the same kind of holiday and pension entitlements; the same kinds of opportunity for training and so forth. They should be on all fours with full-time workers.
However, I fear that that is the point at which I part company, regretfully in many ways, from the noble Baroness. What I felt from her speech and the speeches of nearly everybody else on the Labour Benches until we came to the noble Lord, Lord Haskel, (who greatly cheered me) is that it is all the fault of those wicked people opposite. I go along with a good deal of the criticism of them. It was said that if we went back to how it was in the 1970s, when there was a Labour Government, all would be for the best in the best of all possible worlds.
I remind the noble Baroness, Lady Turner, that there were quite a few flaws in the situation in the 1970s. For instance, 40 per cent. of our school leavers received no training at all. If they had received it, the situation today would be a great deal different than it is at present. It must be remembered that we had a winter of discontent; there was overmanning in industry and a number of other features which were holding us back. Our world trade had fallen to 6 per cent., and if it had gone on further it would have had a devastating effect on this country.
It is not simply a question of turning back the clock. We must look at what we are encountering and how we can meet it. Listening to the speeches from the Labour Benches I felt that they shrank from facing the horrible difficulties we are facing in the global economy of today. We are meeting heavy competition from around the globe. We are facing in the developing countries, with their vastly increasing populations, difficult challenges. We must face those challenges and work out co-operatively the best ways of doing so.
That is why I welcomed the suggestionI believe it came from the noble Lord, Lord Carrthat we need to deal with what I see as an overwhelmingly difficult problem; that is, how we can maintain and improve our standards in a global economy when we are ill equipped to meet the competition facing us. I wish we could do it on the basis of consensus; that we could have an all-party approach to recognise the dangers and then to work out the changes which need to be made and the way in which they can be brought about.
As many others have said, the real issue is that we can only compete if we have a highly skilled, highly trained labour force which is extremely flexible in the sense that it is capable of turning its hand from one kind of demand to another, meeting the change successfully and confidently. That will be difficult because other industrial countries do not stand still while we are catching up on all that we failed to do in the past. They are advancing at the same time and that increases the competition.
In terms of the way of which we allocate resources in this country, I would put education and training way ahead of everything else because I think everything else depends on them. All the other services that we want depend on our being able to earn our living, and being able to earn our living depends on having the kind of labour force which we simply do not have at present. That is why putting back the clock is no good at all.
On my next point I am not speaking for my party, but, as the noble Lord, Lord Dahrendorf, indicated, he and I are very much at one. The noble Lord, Lord Carr, suggestedwe had not in any way discussed this with himthat his mind was moving somewhat in the same direction. Part of the changes we need to face are changes in the whole way in which we run our welfare society or welfare state"welfare society", as Beveridge once said he preferred to call it. Although I believe that the term has been somewhat besmirched of late, it would indeed be a much better way of expressing what we really want to do. The changes we now encounter mean looking at our system of employment and our system of welfare and social benefits. The two things are tied up very closely, as we saw when we discussed the Pensions Bill which recently passed through your Lordships' House.
I am a strong supporter of introducing something along the lines of a citizen's income, even if it is quite a small one, which gives people some basic fallback on which they can rely absolutely and which does not have the effect of discouraging them from getting into the labour market. I believe that the noble Lord, Lord Desai, would agree with me on that point. Do noble Lords realise how ridiculous our social benefits system is? If a man and wife are both unemployed and they have two children of school age, if they want to increase their family income by £20 they have to earn £170. Which of us in this House would go out and work to get £170 if we would get only £20? People are driven into the black economy. I do not blame them. That is where I would be under those circumstances. But that is what our ridiculous system is undoubtedly doing.
We all know that the income of the bottom 10 per cent.the money they are supposed to havehas fallen in relation to what they had previously. But, according to figures which have recently been produced their expenditure has gone up. That can only mean one of two things. If their income has fallen but their expenditure has gone up, something very odd has happened. Either they have used their savingsbut it is not really to be expected that people in the bottom 10 per cent. have a lot of savingsor else they are earning money somewhere else. That falsifies all the figures that we are quoting. We need a radical change, based on a citizen's income, and we need a radical change in the tax system. The noble Lord, Lord Carr, was surely right in saying that we should take the lower earners right out of taxation.
I would also say that the burdenhere I am with the Government: no, I am not, because they are going back on what they themselves have saidof social benefits should not be put onto employers. We as taxpayers should be prepared to pay through taxation for the decent society we want. We are not doing it at the present time. It is ridiculous to lay charges for maternity onto employers. How many employers are responsible for maternity? I suggest a very small percentage. We have to review the whole thing. We have to review our attitude towards training. We have to review our attitude towards employment. We have to review our attitude towards our whole welfare society. And we need to do it on a co-operative, all-party basis.
Lord Inglewood: My Lords, I very much welcome today's debate and thank the noble Baroness, Lady Turner, for initiating this wide-ranging discussion and all other noble Lords who have made such a noteworthy contribution. They will, I am sure, appreciate that I may not be able to cover every detailed point made but I shall endeavour to touch in very general terms on all ground covered and I shall concentrate, perhaps inevitably but not exclusively, on labour market matters.
What we are discussing matters very much to ordinary people. The need to have a job and to have one which gives satisfaction, security and self-esteem is something to which every Member of this House can subscribe. What is at issue is how that is best achieved.
My right honourable friend the Chancellor of the Exchequer, speaking last week at the Mansion House, acknowledged that there is an unease in Middle England about apparent job insecurity which casts a shadow across the land. The world is changing around us, and changing fast. Change engenders uncertainty and concern. That is not unique to Britain. Across the developed world people feel insecure about their jobs.
The pace of change in technology is rapid and shows no sign of easing. It has created vast new industries which even a few years ago would have been undreamt of. Interestingly, countries like the United States and Japan, which have the fullest use of high-tech, have the highest proportion of their populations in work. With these changes in industry and technology the pattern of world trade is changing too.
This year is the 50th anniversary of the end of the Second World War. Since then there has been a growth in prosperity unparalleled in the history of the worlda prosperity built on trade. We welcome this prosperity, not only at home but abroad as well.
When GATT was formed, tariffs averaged 40 per cent. They are now down to 3 per cent. We are now not just in a European but a world market-place. Trade has grown, prosperity has grown, and it has brought new jobs with it. However, two parallel trends have emerged as trade has grown and the pace of technological change has accelerated. First, there has been a massive upsurge in prosperity. Average real earnings for married male full-time workers, for example, are now 46 per cent. higher than in 1979. Real take-home pay has risen for all earnings deciles since 1979. But, secondly, the rapid pace
These worries are very real. We must not dismiss them, and the Government do not do so. Neither should we play on people's fears. It is quite wrong, as some are inclined to do, to make out that insecurity is worse than it really is. But, above all, we should not actually put jobs at risk through policies which really do destroy thempolicies such as the national minimum wage in force in France, where unemployment among young people has now reached 28 per cent., and in Spain, where more than 40 per cent. of young people are now out of work. We do not want that here, do we?
Any policy which puts jobs at risk adds to insecurity. It is a cruel deception to pretend that policies such as those flowing from the social chapter and the national minimum wage which would raise the cost of employing people and reduce the competitive position of British firms will not put jobs at risk. As my noble friend Lord Oxfuird said, costs of employment have a major bearing on this. We must not have a system of labour relations and a business environment in which, instead of exporting our goods, we export our jobs which are so much wanted by those out of work here in our country.
There is one way, and one way only, to create security of employment and that is to create in Britain enterprises which thrive and prosper in the world as it is. Firms with the skills and knowledge to compete with the best in the world will win. Britain still has some catching up to do. In the 1970s we came close to terminal decline. Productivity was low, industrial relations were the laughing stock of Europe. That was symbolised across the globe in the Winter of Discontent in 1978-79an uncompetitive Britain, with unemployment rising rapidly, inflation heading for 20 per cent. and uncollected rubbish piled in the streets of our cities. How much job security was there then? How could our citizens have top-class education, health and welfare services supported by such a gimcrack economy?
Perhaps the most stimulating part of our debate was that which was initiated by the noble Lord, Lord Dahrendorf, on the future of the welfare state. As we all know, we are now 50 years on from the Beveridge Report. What we have as our welfare state now is perhaps not exactly as he anticipated it would be. It is interesting that right across the political spectrum, and indeed completely outside of politics, there is considerable discussion about this very point. On the side of the Benches opposite has been the report of the Commission on Social Justice. From the perspective of the Benches on which I sit we have seen the Mais Lecture by my right honourable friend the Secretary of State for Social Security. I should like for a moment to touch on one or two of the themes that arise from this.
In the context of the remarks of the noble Lord, Lord Dahrendorf, about education, we welcome the comments of my noble friend Lord Carr. We are already seeing from this Government proposals for career development loans and we are considering that learning credits may have attractions.
Reference was made to poverty and supporting families on low incomes. Over recent years we have seen the development of family credit. I accept many of the problems which the noble Baroness, Lady Seear, mentioned, but I wish to make one particular point. As regards the comment of the noble Lord, Lord Desai, in that regard, it seems to us that he has got the cart and the horse the wrong way round. If there was not family credit there would not be the job. The person concerned would be entirely dependent on the state. Let us not forget that the nature of the system of family credit is to focus on the needs of individual families and to run that in parallel with the working of a flexible job market. It is interesting that the European Union has recently commented that the lack of a job is probably the largest single cause of low living standards and that low pay is a relatively minor cause of poverty.
The debate went further. The noble Lord, Lord Dahrendorf, spoke about what the noble Baroness, Lady Dean, referred to as "employer responsibilities". In the future how should we deal with people's pensions? Should individuals have insurance to cover various problems? These are issues which go wider than the perspective from which the noble Baroness, Lady Dean, approached the subject. She described them as employer responsibilities, and I do not gainsay that. But we ought at least to ask ourselves this question: in the world in which we are moving, how should these matters be dealt with? We should look wider than the employer as the source of everything.
I can assure the Benches opposite that we are quite prepared to take a leaf out of their book. If we find any policies emanating from publications on their side of the spectrum, we shall be delighted to incorporate them into our policies.
I was also very grateful to the noble Baroness, Lady Seear, for speaking about education and training. That was a topic, she may recall, which we debated briefly in the Statement on the White Paper regarding competitiveness. As she said then, there is a great deal of work that the Government have to do to catch up with the problems they inherited in the late 1970s. We have made a start. Fifteen years ago only 24 per cent. of our young people obtained five good GCSEs or better. It is now 43.3 per cent. Nearly 90 per cent. of 16 year-olds are now in full-time education. Britain now graduates more of its young people than any other country in Europe. The Government guarantee a youth training place for every 16 and 17 year-old not in further education or employment.
The Government are spending £1.9 billion in England on training and vocational programmes in 1995-96. In parallel, employers are spending about £20 billion. Caring about young people is not enough. There must be an economic framework capable of paying for the first-class education and training which our young people need and deserve. That will provide a first-rate workforce for the future. We have made a start but there will always be more to do.
Britain is steadily getting rid of the legacy of the 1970s. We now have one of the best industrial relations records in the world. Productivity growth is as good as or better than anywhere else in Europe. Unemployment is already lower than the European average and falling. It is down
We are very well placed to prosper in today's global economy. We export more per head than the Japanese and our exports are rising. Last year Britain exported more than at any other time in our nation's history. Some of our major industries are world playerspharmaceuticals, banking and finance. Sixteen out of the 25 most profitable companies in Europe are British. British Airways is the world's largest international passenger airline; and only yesterday we all read in The Times that British Steel has become the world's most profitable steel company.
We must encourage enterprise and self-employment. In the past 15 years the number of self-employed peopleand in discussing the labour market we must not overlook themhas increased by over 1 million. Between 1979 and 1991, 900,000 new businesses were founded. It is from these new enterprises that most of the jobs of the future will come.
It is successful enterprise in our existing large and small companies throughout the kingdom which is the only real source of job security. Efficient, world-beating firms, large and small, create jobs not just in their own industries but, as the income they generate is spent in Britain's high streets, they also create jobs in other activities. On top of that, they pay the taxes which fund the public sector, in which one job out of five in this country is to be found. We must not forget their place in the labour market. I am sorry to disappoint the noble Lord, Lord Houghton of Sowerby: I was going to mention them.
Equally, the taxpayer is entitled to expect his political leaders to insist on quality in the service delivered with his money. That is in accord with the great traditions of our public service. The noble Lord referred to it. It will, of course, continue, as has been underscored in the recent White Paper Continuity and Change which confirms the Government's commitment to maintain the Civil Service as a good employer.
Two-thirds of the industries once in public ownership are now in the private sector. In 1979, those industries cost the taxpayer billions of pounds in subsidies. Instead of receiving subsidies, the privatised companies now pay taxes (£2.5 billion a year) contributing positively towards the cost of our National Health Service, education and the social services.
Of course, productivity changes have led to some reductions in employment. That is part of the necessary evolution for survival. But that is precisely why the Luddite route followed in the 1970s was so misconceived. Billions of pounds of taxpayers' money was poured into uncompetitive industries in order to save jobs. The jobs went anyway and the taxpayers' money was squandered. Subsidies, protectionism, all the artificial ways of keeping jobs and businesses alive in Jurassic Park simply postpone the evil day, as my noble friend Lady O'Cathain pointed out. Privatisation and competition create jobs and businesses which have a future because they are based on selling goods or services which real people want to buy with real money.
Let us for a moment turn to the facts about job security. First, as I said a few moments ago, the worst insecurity of all is the fear of losing a job and not being able to find new work fairly quickly. Rightly, government must help people facing the uncertainty of unemployment. Last year, for example, the Employment Service placed getting on for 2 million unemployed people in new jobs, over ½ million of whom had been out of work for more than six months. I am not pretending that being out of work is easy, but it is worth remembering that, with the help of the Employment Service, two out of three people who lose their jobs leave unemployment within six months.
But the fear of unemploymentand it is a real fearaffects every country in the European Union. About 20 million of our fellow European citizens are out of work, which is 11 per cent. of the working population. The United Kingdom, of course, is not exempt. At over 2 million, unemployment remains highfar too highbut at around 8.5 per cent. it is well below the European average and falling.
The main reason for falling unemployment is, of course, that Britain, with its flexible, deregulated labour market, has been far more successful in creating jobs than any other major European country. That is why the European Community, the OECD, the IMF and the G7 all see a flexible labour market as an essential precondition for significantly reducing unemployment. Let us be clear about it: flexibility is not synonymous with Mr. Gradgrind. I hope that that will reassure the noble Lords, Lord Desai and Lord Haskel.
Here in our country 68 per cent. of the population of working age have jobs, which is more than in Germany, where it is 66 per cent., France, with 60 per cent., or Italy with 51 per cent. Of course, I accept that some of these jobs are temporary and that the number is rising. But surely that is what we would expect in the early years of recovery. Employers, as they always have, tend to look to overtime, part-time staff or temporary contracts until they are more confident that sales and output will continue to rise. Around 7 per cent. of Britain's workforce is in temporary worknot much higher than 20 years agoand that is one of the lowest figures in Europe.
The noble Baroness, Lady Dean, commented on the recent claim from the TUC that UK workers worked the longest hours in Europe. However, it has elected to make selective use of the figures. It has concentrated on one particular area of full-time employees to make its case. It also tends to restrict its analysis to regulation-bound Europe rather than extending it to Japan and the United States where long hours are more common.
Equally, it is not the case that there is a great deal of dissatisfaction with part-time working86 per cent. of part-time employees have permanent jobs. Indeed, within the European Union only Belgium and Luxembourg have lower figures. As one would expect, it is the more regulated economies which tend to have the worst figures. After 14 years of Socialist presidency, one French worker in 10 is on a temporary contract, and in Socialist Spain the proportion is nearly one in three, which corroborates the point that my noble friend Lady O'Cathain made. There is an inherent contradiction between the form of excessive rights and the substance of actual well-being.
Choice is important because we are talking in this debate about people, each with his or her own individual personality, ambition and aspirations. It is people who create wealth and achieve things, either as individuals or working together in successful enterprises. It is self-indulgent narcissism to think we can simply give out new rights and forget about the consequences. But excessive regulation and heaping costs on employers deter them from recruiting staff as sales and output rise.
We must get the balance between social protection and job creation right. The Conservative Party has a long and proud tradition of social concern and reform unsurpassed in British politics. We are proud of our history but must not rest on our laurels. No one advocates poor standards of social protection. As my noble friend Lady O'Cathain said, the labour market should not be a slave market.
But where it matters, we have high standards in the United Kingdom. Our health and safety laws are as tough as anywhereand they will stay that way; so will our legislation on sex discrimination and on equal pay; and, unlike many European countries, Britain has tough laws, enforceable laws, on race discrimination.
What we must do, however, is to balance those bedrock rights with the need to preserve individual choice and let businesses grow. It is only by letting businesses grow that we shall create jobs and a sense of security based on real economic foundations and pay for the public services our fellow citizens expect.
We must not follow the kind of policies that mean that we shall rush like the Gadarene swine towards a world in which we have fewer and fewer jobs as we become less and less competitive, creating an ever-contracting industrial and commercial base. It is seductive to some indiscriminately to apply the maxim that it is more blessed to give than to receive, but it does not add upand when it does not add up (as it did not in the 1970s), that destroys lasting prosperity and secure jobs.
The purpose of economic policy is to create prosperity and jobs. The test of those policies is whether they help business people to build up their businesses, expand sales and output and recruit more staff. That is the basis of this Government's policiespolicies which add up to more jobs and more security for those in work and a greater likelihood of finding it for those without.
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