How can we make work reduce poverty?

The Employment Retention and Advancement (ERA) scheme was a demonstration project for a new policy to help lone parents and long-term unemployed people improve their labour-market position. ERA can provide some policy lessons in terms of reducing poverty.

The British poverty trap

The Child Poverty Act 2010 commits all future governments to the abolition of child poverty. The current coalition government has confirmed it is committed to the Child Poverty Act and also emphasises the role of work. The latest journal of the National Institute Economic Review (No. 218) gives evidence of the historical developments in earnings inequality and the role of benefits and earnings in poverty. The analysis by Professor Richard Dickens found that historically, while work alone did not push a household out of poverty, combining work plus tax credits and increased out-of-work support to families with children did succeed. But what policies can be implemented to improve the role of work in eliminating poverty? Is there any evidence of specific policies that can help work be successful as a route out of poverty?

A policy solution with impressive results: a major departure from ‘business as usual’

The ERA demonstration gives clear scientific evidence about some policies that can be tried. The programme was carefully evaluated though a large-scale randomised control trial. ERA was aimed at three groups with different views on, and preparation for, work and advancement that faced different challenges to success in the labour market:

  • ‘The NDLP group’: Unemployed lone parents receiving Income Support and volunteering for the New Deal for Lone Parents (NDLP) welfare-to-work programme;
  • ‘The WTC group’: Lone parents working part time and receiving Working Tax Credit (WTC), which supplements the wages of low-paid workers;
  • ‘The ND25+ group’: Long-term unemployed people aged 25 or older receiving Jobseeker’s Allowance and who were required to participate in the New Deal 25 Plus (ND25+) welfare-to-work programme.

Impressive results were achieved for the long-term unemployed participants (mostly men) in the ND25+ target group. For them, ERA produced modest, sustained increases in employment and substantial and sustained increases in earnings. These positive effects emerged after the first year and were still evident at the end of the follow-up period. The earnings gains were accompanied by lasting reductions in benefits receipt over the five-year follow-up period. ERA proved cost-effective for this group.

ERA produced only short-term earnings gains for the two lone-parent target groups, the NDLP and WTC groups, which were made up mostly of women. From a cost-benefit perspective, ERA did not produce encouraging results for the lone-parent groups, with the exception of the NDLP, better-educated subgroup.

An effective ‘next step’ for British welfare-to-work policies

ERA gave access to a distinctive set of ‘post-employment’ job coaching and financial incentives, which were added to the job placement services that unemployed people could normally receive through Jobcentre Plus. Once employed, ERA participants could receive at least two years of advice and assistance from an employment adviser to help them continue working and advance in work. Those who consistently worked full-time could receive substantial cash rewards, called ‘retention bonuses’. Participants could also receive help with tuition costs and cash rewards for completing training courses while employed. The ERA results showed that targeting further advice and financial assistance at the long term unemployed once they obtained jobs gave an effective boost to make work succeed. This is a noteworthy achievement for a group that is widely considered among the most difficult to help.

Read on

Visit the ERA demonstration project research page.