: The impact of in-work conditionality of Universal Credit on benefit take-up and employment

Universal Credit (UC) is the main means-tested benefit in the UK welfare system, supporting low-income individuals and families. UC replaced multiple benefits with a single payment, while introducing strict job search requirements and in-work conditionality. Individuals who are not working and are deemed capable of work are usually required, among other things, to actively look for a job, while claimants who are working but earning below a threshold are required to take steps to increase their earnings, including looking for alternative jobs and increasing work hours. Failure to comply can result in benefit sanctions. Research shows that UC conditionality can have detrimental effects on individual well-being and mental health, while evidence of its employment effects is mixed. In this study, we jointly model the take-up behaviour and labour supply decisions through the lens of a structural random utility model. Individuals anticipate that receiving UC negatively affects their well-being, and job search requirements may reduce the utility they derive from income and leisure. As a result, they might choose not to take up UC even if they are eligible and modify their labour supply accordingly. In this paper, we compare baseline simulations with estimated parameters with counterfactual simulations where the effects of conditionality are muted/removed. This allows us to quantify the impact of conditionality on a number of outcomes of interest, including benefit take-up and employment.