The View That Britain Should Be Learning Lessons From the US Labour Market Is Long Past Its Sell-By Date

04/06/2015 21:01 BST | Updated 04/06/2016 10:59 BST

Political debates about key policy challenges often tend to idealise - and bastardise - the experience of other countries. Whether it is Finnish schools, Swedish childcare, German vocational training, Danish 'flexicurity', Israeli entrepreneurship or Dutch pensions, there are places that we are supposed to look to for inspiration.

Usually these views are rooted in some sort of objective success - but often it's a rather faded truth. The myth of national success can long outlive the reality.

There is, perhaps, no better example of this than the US jobs market. America is still the country that most captures the imagination of the typical UK policy-maker, whether they are on the centre-right or centre-left. And for many in British politics, the US labour market would still be a place we should be learning lessons from. The standard view would probably be that the hyper-flexible, lean-welfare, go-getting US offers a guide to what a high-employment (if high-poverty) model looks like.

Yet it's a view that is long past its sell-by date - a point well made by my colleagues Paul Gregg and Adam Corlett in a timely new report. The US employment rate has been falling since the millennium, pre-dating the Great Recession, with some projecting this will continue over the medium-term.

In contrast, the UK's employment rate is in rude health despite the deeper recession we experienced. There are, of course, very real concerns about the nature of some of the jobs we've created; but the raw employment rate matters too. Put simply: if the US's employment rate was as high as ours, 10million more people would be working; equally if ours fell to American levels our workforce would fall by two million. These are very big differences.

Some of the US decline is due to demographic change as baby-boomers retire. But that's only a partial explanation. Participation among prime-age males has been steadily falling since the turn of the century. It has dipped after each of the last two recessions and not bounced-back. Perhaps more striking is what's happened to female participation: the 20th century upward march of employment among prime-age women stalled in the late 1990s and has since gone into reverse. And as worklessness has risen so too has reliance on out of work benefits of one form or another. The proportion of the population receiving means-tested food stamps or disability benefits increased considerably before the crisis, and since then there has been a very large (though partly deliberate) increase in caseloads.

It's a very different story in the UK. Employment rates are at a record high. Older workers are participating like never before - partly no doubt, due to plummeting retirement incomes as interest rates collapsed, but also supported by sensible policy decisions such as the abolition of the Default Retirement Age. Female employment has continued to rise gently in the 21st Century - a trend that hasn't let up since the economic crisis. Indeed, in the pre-crisis years the increase in female employment (and earnings) was one of the main factors that prevented low and middle income families experiencing a decline in their living standards. And the UK's longstanding problem of workless families has been transformed since the late 1990s: once viewed as the biggest social ill facing the country, the rate of worklessness in households in which there are no disabled adults has plummeted.

What possible lessons might we take from this?

First, we should be clear-eyed about where our jobs market underperforms so policy is focussed on the right problems. There are big structural problems in the UK jobs market: low pay, low labour productivity, insecure work for the young, and next to no incentive to earn more for those on tax credits (or indeed Universal Credit). These should all be near the top of our problem list. Falling levels of worklessness needn't be. Welfare policy - and ministerial rhetoric - are yet to catch up with this.

Second, we should consider where policy is likely to have played a supportive role, as well as how long it takes to get things right. Getting the policy infrastructure to help boost maternal employment - across maternity leave and pay, childcare services, flexible working - has taken a generation of toil. And still we're only half way towards having a comprehensive system, lagging leading European countries by some way (employment rates of the top five performers in the OECD are around eight percentage points higher than the UK's for women age 40-44, for example). Similarly, in-work support in the form of tax credits - however unfashionable they may be - have played a key role in sustaining employment levels. Again, they took several decades to develop.

Third, let's be clear about where we've failed to make progress. Overall employment rates for households including a disabled person have been broadly static since the 1990s and the numbers on incapacity benefits have actually increased over the past few years. Though very different in nature, the comparison with the shift on maternal employment is, again, instructive: it took major changes in the legal framework, significant financial support for mothers, a new generation of public services, a major shift towards flexible employment and a significant shift in employer culture to build and maintain momentum. Talk of full-employment in our times will ring hollow until we commit to equally ambitious changes to support those on disability benefits.

Finally, there is the vital question of pay. Limiting ourselves to thinking about how to boost employment solely through the prism of welfare reform is to shrink the debate and miss the bigger point: steadily rising wages are vital. The US experience of a generation of pay stagnation running alongside a falling participation rate should serve as a flashing red light. Labour market flexibility is nowhere near enough. Sympathetic macro-policy, a rising minimum wage and sustained investment are all vital.

When it comes to employment rates the UK is in a strong position. It must now use that strength to tackle some of our underlying labour market weaknesses. The real question is not whether we have much to learn from the US. It's whether our government will take heed of those things that have actually worked in our own country over the last few decades.

Gavin Kelly is the chief executive of the Resolution Foundation