Source: Deloitte’s Economic Bulletin 15/06/15

Labour is a nation’s greatest resource. Getting more people into work increases the pace of growth and raises living standards.

Faced with an ageing population, Japan is trying to bolster its growth rate by attracting more women back into jobs. Greece’s growth prospects could be transformed by raising its workforce participation rate from just 50% to Northern European rates of over 70%.

No wonder that policymakers around the world expend so much time and effort dreaming up ways of raising workforce participation.

In the 1990s, under Chancellor Schroeder, Germany set out to raise kick start growth with a set of reforms, including a carrot and stick approach to getting the unemployed to find work. The reforms contributed to a marked rise in German workforce participation and an enviably low jobless rate.

America introduced sweeping welfare reforms in 1996 which limited the time claimants can spend on unemployment benefits. Again, the reforms contributed to a sharp decline in welfare reliance and higher employment rates, notably among lone parents.

The US labour force has long been seen as a model of flexibility. The popular view is of a tough, pro-work welfare system. The result is a system which fuels innovation and job creation (and, it must be said, inequality), and delivers, by European standards, enviably low unemployment rates.

But according to a recent report this picture is out of date. The UK think tank, the Resolution Foundation, reports that in the last 15 years welfare reliance has been rising in America, while in supposedly cossetted Britain, it has been falling.

20 years ago roughly 72% of Americans aged 16-64 were in employment or looking for work, well above the UK rate of 69%. Today America’s employment rate has dropped to just under 69%, while the UK’s has risen to 73.5%.

America’s declining workforce participation rate is a cause of considerable concern to US policymakers.

By contrast the UK’s record on jobs and employment has been a standout success in the last 10 years. Good policy choices have played a big role. In the UK people have faced growing pressure to look for work, but in return receive help with their job search and extra benefits once they take a job. At the same time new maternity and childcare arrangements have delivered a particular marked increase in employment among mothers.

The changes in the welfare system in the last 20 years, under both Labour and Conservative-led administrations, have been substantial. And the evidence is that they have propelled growing numbers of people into work. To take one example: the employment rate for single mothers has risen from about 40% to 62% in the last 20 years.

This is not just an economic success. A large body of evidence shows that work, and the sense of purpose and fulfilment that comes with it, is a key determinant of happiness.

The lesson from the UK is a hugely encouraging one – well designed, properly financed policies can make a huge difference to seemingly intractable social and economic problems.

The Resolution Foundation report ends on a cautionary note. Policy has certainly increased job opportunities. But the UK, and, indeed, the US, face a growing problem of poverty for those in work. Indeed, a majority of poor children live in families in which someone has a job. The Resolution Foundation suggests that the focus of policy needs to shift from the availability of work to the quality of work. That would mean a new focus on pay, progression and job stability for those on lower incomes.

We agree. The ever-expanding capacity of technology will both displace and create work, just as it has in the last 200 years. So we are optimistic about the future of work. But we see greater challenges around the distribution of income and of job security within the labour market. We could be heading for a world in which inequality trumps unemployment as a central concern for policymakers.