Capping welfare payments for workless families increases employment and economic inactivity: evidence from the UK's benefit cap

Reeves, Aaron ORCID: 0000-0001-9114-965X, Fransham, Mark ORCID: 0000-0002-9284-2517, Stewart, Kitty ORCID: 0000-0001-7744-8741, Reader, Mary ORCID: 0000-0002-2154-1813 and Patrick, Ruth (2024) Capping welfare payments for workless families increases employment and economic inactivity: evidence from the UK's benefit cap. International Journal of Social Welfare. ISSN 1369-6866

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Abstract

In this paper, we examine the labour market effects of lowering the UK's benefit cap in 2016. This policy limits the total amount a working-age non-disabled household with no-one in employment can receive in social security. We treat the sharp reduction in this benefit cap as a natural experiment, comparing those at risk of being capped and those who were not before and after the cap was lowered. Drawing on data from ~500,000 individuals, we find that this reform reduced unemployment compared to those not at risk of being capped. The reform also increased economic inactivity, partly because the cap harmed mental health but also because those at risk of being capped were eligible to claim disability-related welfare payments that made them exempt. Limiting total monthly welfare payments of low-income families may increase employment for some but it can also push others out of the labour market altogether.

Item Type:	Article
Official URL:	https://onlinelibrary.wiley.com/journal/14682397
Additional Information:	© 2024 The Authors
Divisions:	International Inequalities Institute Social Policy STICERD
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HV Social pathology. Social and public welfare. Criminology
Date Deposited:	12 Mar 2024 11:00
Last Modified:	15 Nov 2024 04:33
URI:	http://eprints.lse.ac.uk/id/eprint/122338

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