When social policy experts create a new intervention to solve some social problem or make people’s lives better, there’s two possible outcomes they’re expecting: either the intervention works, or it doesn’t. But what we forget is that there’s a third option – that our well-meaning intervention actually makes people’s lives worse.
This isn’t just an idle fear. Shockingly, this seems to be true of the biggest randomised controlled trial of an intervention that has ever been conducted in the UK (and with legs in the US) – the Employment Retention and Advancement (ERA) project.
The ERA project
The findings come from new research by Richard Dorsett & Andrew Oswald at a NatCen/NIESR event (so come with the caveat that they’re not fully published in a peer-reviewed journal yet). I’ve blogged about the ERA project before when summarising its final results - the key features of the interventions are:
- Extra help and guidance from personal advisers to encourage both retention and advancement;
- Extra financial support like a training budget and an emergency fund to cover anything that might help them stay in work;
- Cash bonuses: £400 three times a year for 2yrs for staying infull-time work, plus £1k for completing training.
The idea was to get provide both help and incentives to get people to progress at work, breaking out of the low-pay no-pay cycle. And prima facie, it’s difficult to see how such help could be a bad thing. But…
The effects of ERA on wellbeing & financial security
Dorsett & Oswald’s study focuses on single mothers – the group whose earnings were raised while the programme was running, but who went back to the same situation as the control group after the programme stopped (see the summary on the blog) . They look at the situation 2 years after ERA started (when the programme was still running), and 5 years afterwards (at least 2 years after the programme had stopped). It’s worth pointing out that they find slightly more positive results on earnings than Gregg and Riccio in my previous summary, so that even after 5 years, single mothers who’d been randomly assigned to ERA had slightly higher earnings than those who weren’t (but bear in mind the difficulty of looking at earnings on a changing group of people in work).
The really striking findings are in the table below:
- If you look at the row in pink, you can see that people in ERA had lower life satisfaction five years later than those who weren’t on ERA. It’s only a small effect (0.07 points on a 1-5 scale), but it’s statistically significant. When the programme was actually running, there was no effect on life satisfaction.
- If you look at the section in red, you can see that people in ERA had more money struggles five years later than those who weren’t on ERA. Again, these effects are generally small but statistically significant – but in the case of running out of money, are slightly larger (0.2 points on a 1-6 scale).
What the hell is going on here?
To me, this was an incredibly surprising finding – it simply hadn’t occurred to me that such a well-motivated intervention could backfire in the long-term. But on reflection, there are a few things that could explain this:
- Loss aversion – Dorsett & Oswald point out that people are often more sensitive to losses than gains. So if they receive extra money and have this taken away, they feel less satisfied than if they’d never had the money at all. Another version of this is that these single mothers wanted to work, but struggled to make work pay (e.g. due to childcare problems). During the programme they were significantly more likely to work full-time, but after the programme finished they were no more likely to work than mothers who hadn’t participated in ERA. So perhaps their lower life satisfaction was partly because they were no longer able to work the hours they wanted to. This could explain the life satisfaction results, but not the negative impact on financial struggles.
- Sticky consumption – if people started spending more money when they were given the bonus payments, then they may have struggled to adjust their consumption patterns back when this money later disappears. This is Dorsett & Oswald’s main explanation for the financial struggles findings, and it fits the fact that the biggest negative effect of ERA is on whether people ‘run out of money’ at the end of the month.
- Frustrated ambitions – a final possibility is that these single mothers went into the programme hopeful that they could really progress at work if they tried hard and got additional skills/qualifications, ending up in much better jobs down the line. These ambitions don’t seem to have been realised for this group of participants – perhaps leaving them disappointed with both their career advancement and the associated financial rewards.
Learning from ERA
Overall, I think the ‘sticky consumption’ explanation is the most convincing (although like Dorsett & Oswald, I think we need more work on this). And this has crucial implications for the design of social security policies. Historically, the welfare state has been about income-smoothing – particularly from working life to retirement, but also in the face of risks like disability or unemployment. To the extent that it achieves income-smoothing, then it’s likely to increase people’s wellbeing. BUT when policies increase income fluctuations rather than smooth them – e.g. through time-limited interventions, or by trying to claim back tax credit overpayments – then they can actually create problems for people’s ability to match their spending to their income, with knock-on impacts on financial strains and wellbeing.
So the lesson I take from this is that benefit payments are not just about moving money from one group of people to another; they’re about helping people create stability in the face of all the other changes in their lives. And this also suggests that leaving people with the perpetual threat of having their benefits taken away may counteract any positive impacts of the money itself on their financial security. As Dorsett & Oswald say, more research is really needed here, but it’s striking and essential stuff.