A new research report by the Resolution Foundation suggests that if the economy is to grow we need workers to take more risks in finding better job opportunities. The report proposes a new ‘unemployment insurance’ scheme to make this easier.
Unemployment often leads to a substantial drop in income as the value of unemployment benefit is now only 14% of the average weekly earnings. This discourages unemployed workers from exploring new career options or waiting for the right opportunity. The loss of income during unemployment drives many to settle for the first available job. This can hinder their career progression. Addressing this concern is crucial for a more dynamic labour market and enhanced economic growth.
Analysing job mobility trends
“From Safety Net to Springboard” highlights that the labour market is not as dynamic as people think, and job mobility is declining. Between 2002 and the start of the Covid-19 pandemic, job-to-job movements dropped by 15%. Workers are missing pay and career growth opportunities and this contributes to economic stagnation. The study argues that we need more job mobility to drive economic prosperity.
To ease the problems of income insecurity during job transitions, the report proposes a new unemployment insurance scheme. This would provide time-limited unemployment support linked to an individual’s previous salary, giving job seekers confidence to pursue better job opportunities without the fear of significant income loss.
Key features and benefits
Under the proposed scheme, workers losing their jobs would receive unemployment support at 65% of their previous salary, up to a cap set at the level of national median earnings (£2,260 a month). This would raise the weekly entitlement from its current level of £84.80 a week to a maximum of £339.
This would ensure a more secure financial transition to new employment. The time-limits would encourage job search, prevent long-term unemployment, and control scheme costs. The scheme could be adapted to provide extended support during economic downturns, helping to stabilise the economy.
Inclusivity and economic impact
The scheme is designed to benefit workers across all levels of income, providing support based on previous wages. The proposal is to set the scheme outside of Universal Credit (UC), as if it were earned income. This means instead of the pound for pound reductions workers currently experience with contributory Jobseeker’s Allowance, their UC would be subject to the government’s taper rate of 55%. So, for every £1 received through the unemployment insurance scheme that is over their UC work salary allowance, their UC is reduced by 55p.
This would ensure greater support for families, with around two thirds of those in the lower half of the income distribution benefiting. Having that safety net, particularly for low earners, would give them more confidence to move jobs.
The Foundation estimates that the scheme might cost £0.4 billion in today’s buoyant labour market. During downturns, like the financial crisis, the scheme would have cost at least £1.1 billion, reflecting the need to provide more support during recessions.
Greater resilience and productivity
Louise Murphy, Economist at the Resolution Foundation, underscores the significance of the proposed unemployment insurance scheme in empowering workers to pursue better job opportunities.
“Too many workers across Britain are having their careers held back by a fear of moving jobs and the new job not working out,” she says. She points out that many who are unemployed end up taking the first job they’re offered, rather than holding out for one that matches their skills. This, she believes, isn’t just bad for individuals, but it makes the economy less productive, and Britain poorer as a result.
“At a cost of £450 million, it would foster a more dynamic labour market delivering higher pay and productivity.”
The positive impact on both individual workers and the broader economy would represent a win for both.
Based on a press release from the Resolution Foundation