Intervention in labour markets needed to reduce poverty

The delivery of New Labour’s anti-poverty goals was hampered by an unwillingness to countenance a wider range of labour market interventions to reduce employers’ reliance on low pay, according to a report by the Smith Institute, From the Poor Law to Welfare to Work: What Have We Learned from a Century of Anti-poverty Policies? The authors, led by David Coats, examined a wide range of studies to determine the long-term effectiveness of strategies, both in the UK and internationally, to reduce poverty and inequality. The cornerstone of the report’s analysis is the contention that while redistribution of income through welfare is essential, it can be only one part of the solution to combating poverty:

The evidence from more than a century of reform is that lasting reductions in poverty and inequality also demand pre-distribution policies, notably in the labour market (through work and pay).

The report argues that, while the state has taken on more responsibility for the reduction and elimination of poverty, the evidence from a century of social policy demonstrates that non-state institutions – notably trade unions and labour-market institutions, including corporate governance arrangements – have also played a major role in reducing poverty:

These instruments and agencies of ‘pre-distribution’ (the way in which the market distributes its rewards, before the government gets involved) were particularly effective in reducing both poverty and income inequality in the period between 1945 and 1979. It is much easier for the state to implement effective policies if action has already been taken by others to achieve a more equitable initial distribution of market incomes.

The report concludes that other comparable countries had done significantly better in reducing poverty, especially during the 1980s and 1990s:

Countries with less inequality have less poverty, and countries with less poverty and inequality have stronger welfare states and stronger labour-market institutions. International experience also shows that getting people back into work is the single most effective policy for poverty reduction.

The authors recommend that investing in welfare and work, and supporting non-state institutions that influenced ‘pre-distribution’, should be at the heart of future strategies to reduce poverty and inequality.

The full report, From the Poor Law to Welfare to Work: What Have We Learned from a Century of Anti-poverty Policies?, by David Coats (with Nick Johnson and Paul Hackett), can be read on the Smith Institute website.