Scrounging: how big an issue?

George Osborne wants benefit claimants to "do the right thing" and move into work. This, though, might not make very much difference to the economy.

The first question is: how many claimants don't want to work? As a rough pass, let's assume it is the number of unemployed who report very high subjective well-being; 9 or 10 on the ONS's 0-10 scale. 16.3% of the unemployed do so, which equates to 411,000 people.

Now, this could be an over-estimate, as it includes people who naturally have a sunny disposition, and folk who are happy because they expect to get work soon. But let's run with this.

Let's assume that all these could find full-time work at the national minimum wage. Let's assume too that employers are just waiting to hire so many (humour me). These folk would then earn £11885 a year; £6.19 for 40 hours a week and 48 weeks a year. £11885 multiplied by 411,000 gives us £4885m. Of course, employers would make a profit by employing these people. Let's assume that the ratio of profits to wages for these folk is the same as it is in the whole economy, at 37% (table D of this pdf); I'm ignoring diminishing returns here. This gives us £1807m of profits.

Add the two together and we have £6.69bn. This is 0.43% of annual GDP.

Of course, this is worth having. But it's not a massive sum. It's less than one quarter's of ordinary GDP growth.

Let's put this is context. If non-oil GDP had grown by just 1.5% a year since 2007Q4, the economy would be 9.6% bigger than it actually is. Scroungers and layabouts, then, cost the economy about one-twentieth as much as the recession has.

Of course, this is just the back of a beermat estimate and not a hard fact. You could get it higher if you assume there are more "scroungers" or if you assume that they could get higher wage work. Personally, I find these improbable - though I'll concede that Mick Philpott's intelligence and honesty would have equipped him well for a successful banking career.

You could increase my estimate in some other ways. You could claim that there would be powerful multiplier effects from "scroungers" moving into work. But it would be odd for defenders of fiscal austerity to suddenly discover big multipliers.

Or you could argue that low-wage workers are complements to higher-wage ones, so that the latter's earnings would rise as the former increase in numbers. But it would also be odd for supporters of immigration controls to suddenly adopt one of the economic arguments for open borders.

However, you cut it, then, the cost to the economy of layabouts - in terms of GDP foregone - is small.

There's a message here for left and right.

For the right, it's just plain wrong to think that "scrounging" is a serious macroeconomic issue. You might think it a moral failing. But don't confuse macroeconomics and morals.

For the left, you don't need to pretend that all benefit claimants are saintly victims in order to deny that scrounging is a serious economic issue. Even if we concede that there are tens of thousands of such scroungers, we can still maintain that getting them into work is not a top priority. A much bigger priority should be creating jobs for those who do want to work. 

Comments

[hopkin]

Brilliant.

[Neil]

And here's another one for both sides: Stop talking about work as though it's punishment.

[Francis Sedgemore]

Chris accuses the Tories and their coalition partners of confusing macroeconomics and morals. I'm not convinced that they are. What evidence is there that right really sees scrounging as a serious macroeconomic issue? It certainly doesn't come across in the more substantive statements made by government ministers.

To my mind it is dog whistle politics: a manipulation designed to distract the politically trademarked demographic known as Ordinaryhardworkingfamilies™ from the grim reality of their financial plight and prognosis. In marxian terms it is the deliberate instilling of false consciousness.

As a political tactic it appears to be working well for the government, with a constant stream of ordinaryhardworking men and women of all political persuasions and none popping up on evening news bulletins expressing sympathy for the government's difficult position, and stating as a fact which they are in no position to back up with hard data that the welfare state is being crippled by benefits claimants who do not deserve the money. We is all economic pundits now.

One may despise Bullingdon Club Toryism and the horse it rode in on, but you have to hand it to these people when it comes to their political skill. Quite brilliant.

[Keith]

No I don't think THe Bullingdon Bullies are brilliant. I think they have a complicit set of Newspapers THE FREE PRESS as they like to style them selves to pump out propaganda worthy of Goebbels. A opposition handicapped by Blarism and unable to break free of its paradigm of triangulation; and lots of innumerate voters motivated by narrow minded Jealousy.

[Jim]

The point is this: which is better for all concerned - a man and woman and 4 or 5 kids living entirely paid for by the State and neither working, or one or both going out to work and the State making up their income to the former income? Which is better for those involved (including the children, in terms of giving them an example for future behaviour) and also for the rest of society (in terms of social cohesiveness)?

I would argue that allowing people to live entirely at the State's expense, with zero input from them, for long periods of time is wrong. It creates bad examples for the children, and it creates resentment among those who are paying their own way, but still have to contribute taxes to support others. Its no good saying 'These cases are very rare, and not representative of the average welfare claimant'. The point is that the system should not allow such extreme cases to arise, and bring the entire system into disrepute. By not clamping down on such blatant gaming of the system, it allows the entire welfare state to be attacked. Why do you not see that by defending the Phillpotts of this world you are imperilling the good work the rest of the system does?

[chris]

@ Jim - I'm not defending the Philpotts, nor even claiming that scrounging is very rare. My point is simply that, in macroeconomic terms, the cost of scrounging is low - sufficiently so that it's not a macroeconomic priority.
It might be a priority on moral grounds, but I doubt that too, for entirely different reasons:
http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/10/in-defence-of-idleness.html

[Bruce]

We have a welfare system to ensure we are not troubled by people starving and/or rioting on the streets. Giving people benefits - whether 'deserving' or scroungers - is the price we may to feel civilised and safe.

[Jim]

You are defending the scroungers by saying 'Well the cost isn't that much'. That's giving a reason not to do anything about it. One has to decide whether such behaviour should be allowed to continue or it shouldn't, irrespective of the cost. I would argue that even ignoring the moral issue of whether such behaviour is 'right' or 'wrong' per se, to ensure that children are not given such an example as a reasonable way of living their lives, and to ensure that social cohesiveness is maintained, such behaviour should not be allowed.

Where do you stand?

[Neil]

"One has to decide whether such behaviour should be allowed to continue or it shouldn't, irrespective of the cost."

You're getting dangerously close to 'pay people to dig holes then filling them in again' territory there, Jim, and you know how economists frown upon that...

Even when it is clearly the right thing to do.

[Francis Sedgemore]

"The point is that the system should not allow such extreme cases to arise, and bring the entire system into disrepute."

But it doesn't bring the entire system into disrepute, a point that even Ann "Get a job!" Widdecombe made yesterday when questioned about the Philpott case. It was left to AN Wilson to fly the flag for the neanderthal-right.

Talking of knuckle-draggers, Wilson made one comment worthy of consideration, and that has to do with the way in which Scandinavian welfare systems deal with the problem. I'm not sure that Wilson has a clue what the Scandinavians do in practice, but I do, having first-hand knowledge of Denmark, and a pretty thorough understanding of the situation across the water in Sweden.

What is common to all welfare states is a wide social and economic risk assessment, and that will necessarily factor in abuse. Whether it is easier to sponge of the state in the UK than it is in Denmark is doubtful, but whatever the flaws in the respective welfare regimes, and there surely are many, one has to accept that abuse cannot be eradicated without doing serious if not fatal damage to the system as a whole. We can discuss specific measures to minimise abuse, and what social services and other state agencies can and cannot do in response to named abusers, but that is as far as it goes.

As Bruce says above, the welfare state keeps us civilised and safe. We pay a price for that, but it is a price worth paying

It is grossly defamatory to accuse Chris of defending the Philpotts of this world. He is doing nothing of the kind.

[Bill]

Mostly, the attack on "benefits scroungers" is based on moral, not economic, grounds. So I think the logic of the case presented in the blog is no doubt correct (i.e. the economic impact is pretty low. It's just not very relevant.

But rightly or wrongly, the majority of people do think that it's "unfair" that some people appear to be better off on benefits than in work.

Of course, the "solution" to this would be to provide enough well-paid jobs so people wouldn't be better off on benefits; and to provide enough affordable housing so that people could afford the rent or mortgage payments out of their income. To cut benefits, in my view, helps no one. It's a return to the Dickensian Poor Law.

[Anthony Turtle]

Work is good, I'd love to, if my body wasn't against it. I give up time to help a Youth Organisation, so it's not as if I don't want to work. But I'm tarred with the "Oh, you're disabled, you don't want to work, you're a drain on the economy!" brush.

The problem is we had 20 years of Thatcherism, ten of her and ten of the Labour version, Blair. Work, do your best, you only succeed if you make money.

Let's praise MDs with bonuses, let's give bankers bonuses, why? Purely and simply because they have done their jobs. Now, let's give them a tax cut and to do that, let's take money from those that cannot afford it.

[LG]

Haven't you forgotten about the savings to the taxpayer in not having to pay the welfare these people were receiving? I don't see that in your calculations. That would nearly double your total figure.
Then there is the multiplier effect of that reduced tax take being put to useful purposes in the economy. Once its all added in, your argument that this should all be ignored is baseless.
Quite apart from the moral hazard of creating a system of welfare dependency where welfare is a career option not a last resort. It's social heroin addiction, mandated by the state.

[Robert Taggart]

This life-long scrounger has no wish to work.
All one asks for be a quiet comfortable life.
All one had before the last Liebore Government started messing us around was just that.
That was at their operatives (lame-brain 'civil' servants) suggestion !