Evaluating labour market policies aimed at reducing the number of benefit recipients

In this paper we construct a framework for evaluating the macroeconomic impact on the UK economy of policies that are aimed at reducing the number of people receiving social security benefits and getting them into employment. By means of model simulations we find that a 5 per cent reduction in the number of people claiming disability benefits (lone parents on Income Support) would raise output by 0.15 (0.06) per cent in the long run. Employment in the long run would be 43 (20) thousand higher. The public finances would improve noticeably as a result of the reduction in the number of benefit claimants. Our model simulations suggest a budgetary saving of £3,200 (£4,800) per person leaving benefit in the first year. This would rise to £13,200 (£15,500) after 10 years as the economy expands and interest savings cumulate. These gains can be regarded as significant and would have to be offset against the costs of the programme that helped people to move from benefit into employment. We would conclude that it is possible to evaluate the impact of policies to enable benefit claimants to find work using a macro economic model, and that such an evaluation should be included in each programmatic assessment of policy change.