2020 job market projected to push poverty even higher

Tackling poverty means tackling the weak job market

Research we publish today looks at the impact of the projected job market in 2020 on poverty in the UK. Unfortunately, it’s more bad news. The implication is that we should target jobs and training assistance on the basis of household, not just individual, need and focus unerringly on the creation of more and better jobs.

The research uses a forecast of the type of job market we expect to have in 2020 and combines this with a model of household incomes that includes announced tax and benefit changes. The central forecast for 2020 is for many long-term trends to continue, including shifts towards a knowledge- and service-based economy and increases in high- and low-paid jobs. We already know that cuts to benefits and Tax Credits are likely to undermine the beneficial effects of Universal Credit. This will lead to (in combination with demographic and earnings change) rising poverty rates over the rest of the decade. Adding in an estimate of changes in the job market increases inequality further, although it does offset some of the rise in absolute child poverty.

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So, changes to taxes, benefits, demography and earnings (the blue bars) increase absolute child poverty in 2020 by just over 6 per cent but job market changes (the red bar) offset this a tad. Turning to the relative measure, tax and benefit changes raise poverty by around 5 per cent and the projected job market adds another 1 per cent by 2020. All groups except households headed by someone aged over 65 see rising absolute and relative poverty from tax and benefit changes, with lone parents hit particularly hard. Employment change makes things worse for everyone except for absolute poverty among families with children.

We weren’t naive enough to expect the central forecast to eradicate poverty, so the plan was then to try out some different scenarios that JRF, the research team and our advisory group thought might have a positive impact. These variations were all based on changing the distribution (but not increasing the number) of jobs, and we didn’t vary the tax and benefit system. The second chart shows the impact of some of these scenarios on relative child poverty rates (the long bar shows the predicted 2020 rate of 25.7 per cent).

None of the alternative scenarios (the short bars) have any meaningful impact on that central child poverty projection. Keeping the employment structure as it is now would decrease poverty by a tiny 1.2 per cent. This is the biggest difference. A general rise in qualification levels across the workforce and reduced pay for the highest qualified, for example, actually increases child poverty more than in the central forecast (by 1.0 per cent). Most other scenarios have virtually zero effect by 2020.

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There are two core reasons for this disappointing lack of impact. The first is that low paid and poorly qualified workers, along with women and part time workers, are spread across the whole household income distribution. This means targeting these workers is not an especially effective way of targeting poverty. The second is the huge ‘drag’ on poverty rates of the large number of workless households in the UK.

What do we do about these worrying findings? It is clear that interventions such as training and skills development need to be targeted on the basis of household need, not just individual need if we are to have a serious impact on poverty. It is also clear that we need more jobs. A lot more, because the 1.5 million new jobs included in these forecasts is going to be nowhere near enough when 6 million people in the UK are currently seeking more work.

A child in the Gorton estate in Manchester, where 27% of children live under the poverty line. Photograph: Getty Images

Chris Goulden is deputy director of policy and research at the independent Joseph Rowntree Foundation (JRF).

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump