New research finds no evidence that two-child policy increases employment

Instead, Centre for Analysis of Social Exclusion finds that negative income shocks caused by the policy push people further away from the labour market

New research from the Centre for Analysis of Social Exclusion (CASE) at the London School of Economics has found no evidence that the two-child policy increases employment.

Introduced in April 2017, the two-child policy – which limits support for children in means-tested benefits to a maximum of two children per household (unless limited exceptions apply) – is designed in part to incentivise employment among affected families.

Seeking to investigate whether the policy achieves that aim, CASE undertook both quantitative analysis to isolate the causal effects of the policy on employment, and qualitative longitudinal research with affected families to understand the policy’s dynamic effects on individuals’ attitudes and barriers to paid work.

However, setting out its results in Making work pay? The labour market effects of capping child benefits in larger families, CASE finds that, despite a large sample size in the quantitative data and multiple methodological approaches, there is no evidence – even suggestive – that capping child benefits at two children increases employment.

Turning to the longitudinal research, CASE says that it suggests three possible explanations for the findings –

• larger families are relatively ‘sticky’ in their employment preferences – parents tend to have strong preferences to care for their own children, particularly when their children are young;
• when parents in larger families do want to work, they face significant barriers to entering the labour market, notably childcare costs, logistics, and health conditions within the family; and
• the negative income shocks caused by the policy increase financial strain and harm mental health, which can push parents further away from the labour market.

While acknowledging that there are some limitations to the analysis – no exhaustive or administrative data is available in the UK on labour market activity and benefits receipt, the need to exclude data from 2020 and 2021 due to the pandemic, and a relatively small qualitative sample – CASE highlights three main policy implications emerging from its findings –

• capping child benefits at two children does not yield positive employment effects, and therefore its benefits to social welfare are unclear;
• the income effect for parents in low-income larger families at this stage in their life course is very weak, even when there is a large financial impact; and
• the policy fails to recognise the contribution of unpaid care work to society and to the economy.

As a result, CASE concludes that an alternative policy direction could instead be –

'… to embed an ‘ethics of care’ into public policy, in which social structures are designed to recognise care work and to make it possible.'

For more information, see Making Work Pay? The labour market effects of capping child benefits in larger families from lse.ac.uk