Nice Work if You Can Get It: Achieving a sustainable solution to low pay and in-work poverty

8/14/2019 Nice Work if You Can Get It: Achieving a sustainable solution to low pay and in-work poverty

1/71


2/71

ippr|NiceWorkIfYouCanGetIt:Achievingasustainablesolutiontolowpayandin-workpoverty2

Aboutippr ........................................................................................................................................... 3

Abouttheauthors............................................................................................................................... 3

Acknowledgements............................................................................................................................. 3

Executivesummary .............................................................................................................................. 4

1.Introduction .................................................................................................................................. 9

2.In-workpoverty,lowpayandprogression .................................................................................. 11

Summary........................................................................................................................................ 11

In-workpovertyintheUK ............................................................................................................ 12

LowpayintheUK..........................................................................................................................14

Retentionandprogressioninthelow-wagelabourmarket.......................................................... 20

3.Trendsinjobsandskills ............................................................................................................... 27

Summary........................................................................................................................................ 27Labourmarkettrends .................................................................................................................... 28

Trendsinworkforceskills ............................................................................................................... 30

4.Policyimplicationsandrecommendations .................................................................................. 36

Raisingskilldemandandutilisation .............................................................................................. 36

Improvingworkplaceperformance ................................................................................................ 43

Amorestrategicapproachtoskills................................................................................................ 46

Increasingretentionandprogression ............................................................................................ 49

Awholefamilyapproachtotacklingin-workpoverty ................................................................ 57

References.......................................................................................................................................... 60

Annex1:Datasources,methodsanddetailedresults....................................................................... 65

Annex2:TheNationalQualificationsFramework ............................................................................. 71

Contents


3/71


TheInstituteforPublicPolicyResearch(ippr)istheUKsleadingprogressivethinktank,producing

cutting-edgeresearchandinnovativepolicyideasforajust,democraticandsustainableworld.

Since1988,wehavebeenattheforefrontofprogressivedebateandpolicymakingintheUK.Throughourindependentresearchandanalysiswedefinenewagendasforchangeandprovidepractical

solutionstochallengesacrossthefullrangeofpublicpolicyissues.

WithofficesinbothLondonandNewcastle,weensureouroutlookisasbroad-basedaspossible,

whileourinternationalandmigrationteamsandclimatechangeprogrammeextendourpartnerships

andinfluencebeyondtheUK,givingusatrulyworld-classreputationforhighqualityresearch.

ippr,30-32SouthamptonStreet,LondonWC2E7RA.Tel:+44(0)2074706100E:[email protected]

www.ippr.org.RegisteredCharityNo.800065

ThispaperwasfirstpublishedinJanuary2009.ippr2009

Aboutippr

Abouttheauthor

KayteLawton isaResearcheratipprworkingonwelfarereform,employment,povertyandhousing.

Acknowledgements

ipprwouldliketothanktheCommissionforRuralCommunities,theEastofEnglandDevelopment

Agency,theLearningandSkillsCouncil,LeonardCheshireDisability,RemployandScottishEnterprise

Glasgow(nowpartofSkillsDevelopmentScotland)fortheirgenerousfinancialsupport,whichmade

thispaperandthewiderWorkingOutofPovertyprojectpossible.

SpecialthankstoGraemeCookefordetailedinputonearlierdrafts.Theauthorwouldalsoliketo

thankGeorginaKyriacou,KateStanley,LisaHarker,MikeKenny,DaliaBen-Galim,CharlotteBeckford,

KaterinaLagoudaki,RogerTurner,MaryHough,GuyParckar,JohnKnight,KenWardrop,Stephanie

Young,SteveScott,HowardReed,KatieSchmuecker,PeterRobinson,EwartKeepandDavidCoats.

ThisisthethirdandfinalreportfromipprsWorkingOutofPovertyseries,whichisinvestigatingthe

causesoflowpayandpovertyamongworkingfamilies,anddevelopingpotentialsolutionstothese

injustices.Thefirstpaperinthisseries,WorkingOutofPoverty:Astudyofthelowpaidandthe

workingpoor,waspublishedinJanuary2008.Thesecondpaper,ForLoveorMoney:Pay,

progressionandprofessionalisationintheearlyyearssector, waspublishedinApril2008.

ThisworkcontainsstatisticaldatafromONSwhichisCrownCopyrightandreproducedwiththepermissionofthecontrollerofHMSOandQueensPrinterforScotland.TheuseoftheONSstatistical

datainthisworkdoesnotimplytheendorsementoftheONSinrelationtotheinterpretationor

analysisofthestatisticaldata.Thisworkusesresearchdatasetswhichmaynotexactlyreproduce

NationalStatisticsaggregates.


4/71


Persistentlyhighlevelsoflowpayandin-workpovertyintheUKrevealablindspotinthe

Governmentsotherwiseimpressiverecordonemploymentandpoverty.Thisreportmakesthecase

foracoherentstrategytodealwiththetwinchallengesoflowpayandin-workpovertythatemphasisesjobqualityandcareerprogressionandrecognisesthedifferentkindsofneedsof

differenttypesofhouseholds.

Asocietyoffullandfulfillingemployment,inwhichworkingpeopleandtheirfamiliesdonotlive

inpoverty,representsabasicaspirationforsharedeconomicprosperityandsocialjustice.

TheLabourgovernmenthasusedpoliciessuchastheminimumwage,taxcredits,andthenew

dealstoincreaseemploymentandmakeworkpay.Ithasalsofocusedonimprovingworkforce

skillstoensurethattheUKiswellplacedtotakeadvantageoftheopportunitiescreatedbythe

knowledgeeconomy.YetintheUKsixintenpoorhouseholdshavesomeoneatwork,whileover

halfofpoorchildrennowliveinaworkinghousehold.Fivemillionemployees,afifthofthe

workforce,arelowpaid,earninglessthan60percentofaverageearnings.

Ourvisionisforasocietyinwhichworkoffersagenuinerouteoutofpoverty,lowpayis

transitoryandkepttoaminimumandbothmenandwomenareabletoavoidthetrade-off

betweenhigherwagesandengaginginfamilylife.

Wearguethatwithoutacomplementaryandcoherentstrategyforimprovingthequalityofjobs

availableintheUKlabourmarket,currentpolicywillhaveonlyalimitedimpactonreducingthe

extentoflowpayandworkingpoverty.Furtheractionisalsorequiredtoensurethatworkerswho

aremostlikelytobeatriskofbeinglow-paidcanaccesshighqualityjobs.

TheeconomicenvironmentintheUKatthebeginningof2009makesachievingourvisionallthe

morechallenging.Oneofthedangersisthatsomefirmsandsectorswillfeelunderpressureto

retainorreverttolowcost,lowvalue,lowskillbusinessmodels.Thiswouldfurtherconstrain

opportunitiestoincreasethesupplyofhighqualityjobs.Itisthereforeimportantthatgovernment

maintainsastrategicfocusonkeypriorities,includingpoverty,skills,innovationandsupporting

businesses.

Aswellasdealingwiththeimpactsofrecession,governmentmustalsopreparefortherecovery

whenitcomes.Focusingonhighervalueeconomicdevelopmentandimprovingproductivityand

economicperformanceasawayofdrivingupwagesoffersasustainable,longertermstrategyfor

economicsuccess.Employerswillneedtobesupportedbygovernmenttomakethenecessary

investmentsandwillneedtoseeimprovementsinproductivityandworkplaceperformancebefore

theycanincreasewages.

ThisisthethirdpaperinipprsWorkingOutofPovertyseries,aprojecttodevelopproposalsto

endtheinjusticeofin-workpoverty,throughpromotinggreaterfairnessandopportunitytoprogressinthelabourmarket.

Belowwesummarisethefindingsofouranalysisofin-workpoverty,lowpayandprogressionin

theUK,andconsidertheimplicationsoftrendsinjobsandworkforceskills.Wethensetoutseven

areasinwhichgovernmentcouldtakeactiontocreatealong-termandsustainableresponseto

lowpayandworkingpoverty.

In-workpoverty,lowpayandprogression

In-workpoverty

Movingintoworkdoesnotnecessarilymeanmovingoutofpoverty,especiallyforfamilieswith

children.Overhalfofpoorchildrennowliveinhouseholdsinwhichanadultisworkingandthe

numberofpoorchildreninworkinghouseholds1.5millionhasnotchangedsince1997.Withoutastrategytotacklelowpayandin-workpoverty,theGovernmentwillstruggletomeetitstargetof

endingchildpovertyby2020.

Executivesummary


5/71


In-workpovertyisaparticularproblemamongcouplehouseholds.Almost80percentofworking

poorhouseholdswithchildrencontainacoupleandcoupleswithjustoneearner,orinwhichneitheris

workingfull-time,faceaparticularlyhighriskofin-workpoverty.

Lowpay

InApril2006,morethanafifthofallemployeesintheUK5.3millionpeoplewerelowpaid

(definitionbasedongrossearningsbelow60percentoffull-timemedianadultearnings).Cross-

nationalanalysisrevealsthatthereisnothinginevitableabouttheUKsrelativelyhighrateoflowpay.

Thedriversoflowpayarecomplexthehighestqualificationheldbyanindividualisimportantin

determiningtheirriskoflowpay,butthejobtheydoandtheindustrytheyworkinarejustas

important.Therelationshipbetweenpayandpovertyiscomplexmostlowpaidworkersarenotpoor

butlowpaidworkersfaceamuchhigherriskofpovertythanworkerswhoarenotlowpaid.

Retentionandprogressioninthelowwagelabourmarket

Lowwage,entry-leveljobscanbeimportantforthosetryingtoenterorre-enterthelabourmarket.

However,itbecomesproblematicwhenlowpayingjobsstopbeingastepping-stoneandworkersget

stuckatthebottomofthelabourmarket.

Lowwageworkersarelesslikelytostayinemploymentthanemployeesonhigherwages.Thisfeeds

intolowpay-nopaycycleswhichacttokeepindividualsandfamiliesonlow,insecureincomes,

whetherinworkoronstatebenefits.Alackofsecureemploymentopportunities,particularlyinlow

payingsectorssuchascatering,securityandretail,isoftenthecauseofpooremploymentretention.

Stayinginworkcanbeparticularlydifficultforlowwageworkerswithadisabilityandamong

individualswhodevelopadisabilityorhealthconditionwhileatwork.

Opportunitiestoescapelowpayexistbutareoftenlimited.Theprobabilityofanemployeemoving

outoflowpayvariesconsiderablydependingonindividualcharacteristicsbutalsothenatureofthe

jobandtheemployer.Thisindicatesthatsomeoccupationsandfirmsofferbetteradvancement

opportunitiesforlowwageworkersthanothers.However,overhalfoflowpaidemployees

experiencednosignificantimprovementintheirincomebetween2002and2005,eitherbecausetheyremainedlowpaidorleftemployment.

Workerswhoarelowpaidinoneperiodaremuchmorelikelytobelowpaidlaterinlife,regardlessof

otherfactorslikeskilllevelorgender.Thissuggeststhatthenatureofthefirstjobheldbylabour

market(re)entrantsisakeypredictoroffutureearnings.

Trendsinjobsandworkforceskills

Labourmarkettrends

ProjectedindustrialandoccupationalchangesuggeststhattheUKlabourmarketwillundergoa

gradualevolutionto2020ratherthanadramaticchange.Importantly,itisprojectedthat,without

significantchangesinpolicy,therewillbearelativelysimilarnumberoflowpayingjobsin2020asin

2004.Thistrendwillbedrivenbyanexpansionofemploymentinsectorsandoccupationswherethe

incidenceoflowpayiscurrentlyhighsuchasretailandcatering,andlowerlevelservicesector

occupations.

However,therewillalsobeconsiderablejobgrowthinsectorsandoccupationswithalowincidenceof

lowpaysuchasmanagementandprofessionaloccupations,andeducationandhealth.Joblosses

areprojectedinintermediateoccupationswheretheincidenceoflowpayisjustbelowthenational

averageincludingadministrationandskilledtrades.

Trendsinworkforceskills

Althoughhigherlevelworkforceskillshavesignificantbenefitsforindividuals,businessesandthe

widereconomy,therearedoubtsabouttheabilityofageneralupskillingoftheworkforceto

significantlyreducetheincidenceoflowpayintheUK.Thesupplyofworkforceskillshasrisenfaster

thandemandsincetheearly1980s.In2006,therewere2.5millioneconomicallyactiveadultswithno

qualifications,but7.4millionjobsrequiringnoqualificationsforentry.By2020,thereareprojectedto


6/71


bejust585,000economicallyactiveadultswithnoqualificationsbutasimilarnumberofjobsasin

2006requiringnoentryqualifications.

Althoughmostqualificationscontinuetoprovideconsiderablewagereturns,thereissomeevidence

thatwagereturnsforlowerlevelvocationalqualificationsareweakanddecreasing.Thisraises

questionsabouttheGovernmentsfocusonLevel2qualificationswithinitsworkplacetrainingstrategy.

TheUKsrelativelypoorskillsbaseisestimatedtoaccountforaroundafifthoftheproductivitygap

withcountriessuchasFranceandGermany.Thissuggeststhatstepstoenhanceworkforceskillswill

onlyhavealimitedeffectonthecountrysproductivityandeconomicperformance.Improvementsin

workforceskillsneedtobematchedbyincreasesininvestment,innovationandskillutilisationand

demand.Whereprogressonproductivityandeconomicperformanceisachieved,itisnecessaryto

ensurethatareasonableproportionofthegainsarepassedontoworkersintheformofhigher

wages.

Policyimplications

Threemajorpolicyimplicationsemergefromtheanalysispresentedinthisreport,andourrecommendationsseektoaddresseachofthesechallenges.

1.Actionisneededtoincreasethesupplyofwell-paid,goodqualityjobs: Undercurrentpolicy,

theevolutionofthelabourmarketandcontinuedimprovementsinworkforceskillswillnotlead

toasignificantreductioninemployerdemandforlowwage,lowskillworkersby2020.This

representsaconsiderablechallengetocurrentgovernmentpolicy,whichprioritisesimprovements

inworkforceskillsasaresponsetothechangingglobaleconomiccontext.Theseimprovements

areundoubtedlyimportant,butneedtobecomplementedwithactiontoincreaseemployer

demandfor,andutilisationof,higherlevelskills.Thisrequiresagreaterfocusonhigh-value,high-

skilleconomicdevelopmentandimprovementsinproductivityandeconomicperformance.

2.Lowwageworkersneedsupporttostayinworkandprogress: Bythemselves,lowwagejobs

donotnecessarilyprovideastepping-stonetohigherwagesandbetterjobquality.Workersneed

betterinformationandsupporttohelpthemaccessopportunitiesforprogressionandactionis

alsorequiredtoincreaseroutesoutoflowpayinsomesectors.Someworkersonlowpayalso

needextrahelptostayinwork.

3.Strategiestotacklelowpayneedtobecombinedwithafamily-basedresponsetoin-work

poverty:Thecomplexrelationshipbetweenpayandpovertymeansthattacklingonewillnot

necessarilyhaveasignificantimpactontheother.Complementaryactionisneededtoaddress

bothlowpayandin-workpovertytogether.

Recommendations

ThecomplexityoftheUKlabourmarketmilitatesagainstasinglesolutiontothechallengesoflow

payandin-workpoverty.Someoftheproposalswesetoutbelowwillbemoreappropriatefor

particularsectors,workers,firmsandplacesthanothers.Thekeyistodeveloptailoredpackagesof

supportthatreflecttheUKseconomicandspatialdiversity.

Employment,skillsandeconomicdevelopmentfunctionsshouldbeintegratedand

decentralisedacrosstheUK

Thiswouldensurethateffortstoincreasebothemploymentandworkforceskillsarejoinedupwithstrategiesforenterpriseandeconomicdevelopment,helpingtoincreaseinvestment,

innovationandskillutilisationalongsideimprovementsinworkforceskills.

Greaterintegrationshouldbebasedonexistingframeworksforpartnershipworkingatthelocallevel.

Decentralisationofobjectives,targetsandfundingrelatedtoemployment,skillsandeconomicdevelopmentwouldenablelocalagenciestomakedecisionsbasedontheirknowledgeofthe

locallabourmarket.


7/71


Integrationanddecentralisationwouldalsoallowlocalagenciestonegotiatebargainswithemployerstoensurethatimprovementsinworkforceskillsarematchedbystepstoraiseskill

demandandutilisation.

TheUKCommissionforEmploymentandSkillsshouldrolloutanationalUKProgramme

forWorkplacePerformance

Workplaceperformancewhichreferstofactorssuchasjobqualityanddesign,workorganisation,humanresourcepoliciesandmanagementqualitycanbeacrucialelementof

strategiestoraiseproductivityandwages.

ManyEuropeancountriesoperatesuccessfulstate-backedprogrammestohelpemployersdriveupworkplaceperformance,inpartnershipwithtradeunionsandgovernment,butthisapproachis

lackingintheUK.

Theprogrammesmissionshouldhelpfirmsadapttheirproductstrategiessotheycanoperateinhighervaluemarkets,boostproductivityandraisejobquality.

ThisshouldbeachievedbyincreasingtheprofileofworkplaceperformanceintheUK,collatinganddisseminatingevidence,providingaconsultancyservicetofirmsandreportingtogovernment

ontheperformanceofUKfirms.

Workersandemployersneedamorestrategicsystemofworkplacetraining,which

addressestheneedsofthewholeworkforce

AslidingscaleforthepublicfundingofintermediateandhigherlevelqualificationsshouldbeimplementedtoincreaseaccesstotrainingbeyondLevel2(giventherelativelypoorreturnsto

qualificationsatthislevel).

SkillsAccounts,whichwilloperateinEnglandfrom2010,shouldofferflexiblefundingforintermediateandhigherlevelqualifications,ratherthanasimpleentitlementtoafirstLevel2

qualification.

LowwageworkersshouldalsobeabletouseSkillsAccountstoborrowandsavesothattheyhaveaccesstotheresourcestoco-fundhigherqualifications.

JobcentrePlusshoulddevelopandroll-outapackageofpersonalisedin-worksupport

targetedatvulnerableworkers

Thisshouldincludepost-employmentadvisorysupportandfinancialsupport,buildingoncurrentgovernmentinitiatives.

Supportshouldbetargetedatthosedeemedmostlikelytodropoutofemploymentorgettrappedinlowwagework,usingsophisticatedscreeningtoolsandthediscretionofpersonal

advisers.

Toprovideparticularsupporttoworkerswhodevelopahealthcondition,theGovernmentshould

continuetobuildonthekeyrecommendationsfromDameCarolBlacksreportonworkand

health,andextendandreformtheAccesstoWorkprogramme.

Workersandjobseekersneedbetteraccesstoinformationaboutpayandprogression

opportunities

SectorSkillsCouncilsandadultcareeradviceservicesshouldworktogethertodevelopsectoralcareerpathwaystohelplowwageworkersidentifycareeradvancementroutes.

AdultcareersservicesinthefourcountriesoftheUKshoulddevelopaccessible,sophisticatedlabourmarketinformationsystemstohelpjobseekersandworkerschoosesectors,occupations

andfirmswithgoodpayandprogressionprospects.

Thewelfareandtaxcreditsystemsshouldbetterreflecttheneedsofdifferentfamilies ThevalueoftheWorkingTaxCreditforcouplefamiliesshouldbeincreasedbyathirdtoreflect

theiradditionalfinancialneeds.


8/71


APersonalTaxCreditAllowanceshouldbeintroducedintotheWorkingTaxCredittoincreaseworkincentivesforasecondearner.

Jobseekersshouldreceiveacommitmentfromthewelfaresystemthatajobwillliftthewholefamilyoutofpoverty,withtailoredsupporttomakesurethishappens.

Furtheractionisneededtohelpfamiliesavoidanegativetrade-offbetweentimepoverty

andincomepoverty

Therighttorequestflexibleworkingshouldbeextendedtoallworkers.

TheGovernment,employersandunionsshouldtakeforwardtherecommendationsoftheWomenandWorkCommissiontoincreasethesupplyofhighqualityflexiblejobs,forbothmenand

women.


9/71


Asocietyoffullandfulfillingemployment,inwhichworkingpeopleandtheirfamiliesdonotlivein

poverty,representsabasicaspirationforsharedeconomicprosperityandsocialjustice.Yet,intheUK,

sixin10poorhouseholds1

havesomeoneatwork,whileoverhalfofpoorchildrennowliveinaworkinghousehold.Fivemillionemployees,afifthoftheworkforce,arelowpaid,earninglessthan

60percentofaverageearnings.2 Despitemeetingtheirresponsibilitytocontributetosocietythrough

work,toomanyworkingadultsdonotreceiveinreturnanincomeadequatetolifttheirfamiliesoutof

poverty.

ThisreportsetsoutavisionforamoreequalBritain,inwhichworkensuresapathwayoutofpoverty,

lowpayistransitoryandkepttoaminimum,andeveryoneisabletobalanceworkwithcaring

responsibilities.

ThereportisthethirdandfinalinipprsWorkingOutofPovertyseries.Inthefirstpaper,WorkingOut

ofPoverty:Astudyofthelowpaidandtheworkingpoor(CookeandLawton2008a),weexamined

theextentandnatureoflowpayandin-workpovertyintheUK,andmadesomerecommendations

fortheminimumwageandtaxcredits.Oursecondreport,ForLoveorMoney:Pay,progressionand

professionalisationintheearlyyearssector(CookeandLawton2008b)drewonfocusgroupresearch

withworkersintheearlyyearschildrensservicessector.

Inthisfinalreport,weconsidertheimplicationsofchangingpatternsofpay,progression,employment

andskillsfortheUKlabourmarket,andmakesomebroaderrecommendationsaboutwhatneedsto

changetorealiseourvisionforworkasagenuineandreliablerouteoutofpoverty.

TheLabourGovernmenthasusedpoliciesliketheNationalMinimumWage,taxcredits,andtheNew

Dealstoincreaseemploymentandmakeworkpay.Thesehavebeenthecentralplanksofitsstrategy

todeliverontwocoregoals:an80percentemploymentrate,andtheeradicationofchildpovertyby

2020.Theexistingpolicymixhasdeliveredhighemployment(untilmid-2008atleast)and600,000

fewerpoorchildren.YettheGovernmentscurrentapproachhasfailedtoadequatelytacklethetwininjusticesoflowpayandin-workpoverty.

TheGovernmentisincreasinglyrecognisingtheimportanceofjobquality,alongsidejobentry,andhas

setoutnotjustjobs,butjobsthatpayandofferretentionandprogressionasoneofitsfive

principlesofwelfarereform(DepartmentforUniversities,InnovationandSkills[DIUS]and

DepartmentforWorkandPensions[DWP]2007:8).InEurope,theLisbonStrategyforemployment

expansionplacesequalemphasisonjobcreationandjobquality(Eurofound2008).YettheUKs

currentpolicyapproachremainsfocusedonsupply-sideinterventionsprimarily,increasingthe

supplyofskilledlabourandsubsidisinglowwages.Withoutacomplementarycoherentframeworkfor

improvingthequalityofjobsavailableintheUKlabourmarket,thisapproachwillhaveonlyalimited

impactonreducingtheextentoflowpayandworkingpoverty.

1.Introduction

1.Apoorhouseholdisonewhosetotalnetincomeislessthan60percentofmedianhouseholdincome,

beforehousingcosts.ThisisthemainmeasureadoptedbytheUKGovernmentandtheOECD.Seeannex1formoredetailoncalculatinghouseholdpoverty.

2.Theanalysisandrecommendationsinthisreportarelimitedtoquestionsofearningsandincomes,to

enableustoretainsufficientfocus.Low-incomehouseholdsfaceadditionalpressuresintheformof

expenditure,whichhasamajorimpactonhouseholdsdisposableincome,and,therefore,ontheir

experienceofpoverty.Thereisevidencethatunder-consumptionisoneofthewaysinwhichhouseholds

attempttocopewithalowincome,andstudieshavealsoshownthatlow-incomeconsumersoftenpaymoreforessentialgoodsandservicesthanthosewhoarebetteroff(KenwayandWinkler2006,OReilly

2008,NationalConsumerCouncil2004).ipprisalsocurrentlyengagedinamajorprojectlookingatthe

consumptionpressuresonlow-incomehouseholds.


10/71


Thereisbothamoralandeconomicargumentforgovernmenttointervenetotacklebothlowpayand

in-workpoverty.Lowpayoftenreflectspooreconomicperformance,withlowproductivityand

workplaceperformancereducingtherewardsavailabletoworkers.Itisalsooftenassociatedwiththe

ineffectiveutilisationofworkforceskillsandknowledge,suggestingthattheUKisfailingtomakethe

mostofitstalents.Taxcreditsandothertransferstohouseholdsrelyingonlowwagesrepresenta

considerablecommitmentintermsofpublicspending.

In-workpovertyalsounderminestheaimsofsocialjusticetocreateafairerdistributionofresources,

andthreatensthedelicatebalanceofrightsandresponsibilitiesthatoperateacrosssociety.If

individualsaremakingacontributiontosocietybyworking,thentheirfamilysincomeshouldbe

sufficienttoliftthemoutofpoverty.Thepersistenceoflowpay,particularlyamongcertain

disadvantagedgroups,representsasignificantlimitonsocialmobility,bothfortheindividualandtheir

children.

Lowpayandin-workpovertycanoccurtogether,butoftendonot.Weobjecttobothphenomenain

theirownright,bothongroundsofsocialjusticeandeconomicprosperity.Therefore,thisreportis

concernedwiththecausesofandsolutionstobothlowpayandin-workpoverty.

TheeconomicenvironmentintheUKatthebeginningof2009makesachievingourvisionmore

challenging.Oneofthedangersisthatsomefirmsandsectorswillfeelunderpressuretoretainor

reverttolowcost,lowvalue,lowskillbusinessmodels.Thiswouldfurtherconstrainopportunitiesto

increasethesupplyofhighqualityjobs.Itisthereforeimportantthatgovernmentmaintainsa

strategicfocusonkeypriorities,includingpoverty,skills,innovationandsupportingbusinesses.

Aswellasdealingwiththeimpactsoftherecession,governmentmustalsopreparefortherecovery

whenitcomes.Focusingonhighervalueeconomicdevelopmentandimprovingproductivityand

economicperformanceasawayofdrivingupwagesoffersasustainable,longertermstrategyfor

economicsuccess.Employerswillneedtobesupportedbygovernmenttomakethenecessary

investmentsandwillneedtoseeimprovementsinproductivityandworkplaceperformancebefore

theycanincreasewages.

Achievingourvisionforworkin21st-centuryBritainwillnotbeasimpleorstraightforwardprocess,

andcannottransformthenatureofworkforallpeopleinallplaces.Itwillrequireanewcommitment

topartnershipsamongworkers,firmsandtheGovernment,andanewroleforthestateandother

publicagenciesinhelpingtosolvecollectiveactionproblemsinthecontextofanopeninternational

economy.Ourproposedvisionmaynotberealisedforeveryworker,ineveryfirm,ineverypartofthe

country;butitisclearwecouldbedoingmuchbetterthanwearecurrently.

Structureofthereport

InChapter2wesetoutnewanalysisontheriskfactorsforlowpayandthelabourmarketprospects

oflow-wageworkers,supplementedbydatafromthefirstreportinourWorkingOutofPovertyseries

(CookeandLawton2008a).InChapter3,weoutlinefuturetrendsinemploymentandskillsto

establishhowprojectedlabourmarketchangewillimpactontheextentoflow-wagework.Usingthe

analysisinChapters2and3,inChapter4wedrawoutthemainpolicyimplications,andmake

recommendationsinfourkeyareas,whichwebelievewillsetusonthepathtorealisingourvisionfor

workthatoffersasurerouteoutofpovertyandlowpay.


11/71


2.In-workpoverty,lowpayandprogression

Summary

In-workpovertyintheUK

Movingintoworkdoesnotnecessarilymeanmovingoutofpoverty,especiallyforfamilieswithchildren:

Overhalfofpoorchildrennowliveinhouseholdswhereanadultisworking.

Almost80percentofworkingpoorfamilieswithchildrenarecouplefamilies.Couplefamilieswithjustoneearner,orthatdonotincludeanyoneworkingfulltime,faceaparticularlyhighriskofin-workpoverty.

LowpayintheUK

InApril2006,morethanafifthofallemployeesintheUK5.3millionpeoplewerelowpaid.

TheincidenceoflowpayisrelativelyhighintheUK,althoughithasdeclinedslightlysincethelate1990s,havingincreasedsharplyfromthelate1970s.

Thelevelofhumancapitalheldbyanindividualisimportantindeterminingtheirriskoflowpay,butthejobtheydoandtheindustrytheyworkincanbejustasimportant.

Mostlow-paidworkersarenotpoor,butlow-paidworkersfaceamuchhigherriskofpovertythanhigher-paidworkers.

Retentionandprogressioninthelow-wagelabourmarket

Low-wageworkersarelesslikelytostayinemploymentthanhigher-paidworkers:

Thisfeedsintolowpay-nopaycycles,whichacttokeepindividualsandfamiliesonlow,insecureincomes,whetherinworkoronbenefits.

Employmentretentionisparticularlypooramonglow-paidworkerswithadisability,andamongindividualswhodevelopadisabilityorhealthconditionwhileatwork.

Opportunitiesforwageprogressionexist,butareoftenlimited:

Overhalfoflow-wageworkersexperiencednosignificantimprovementintheirincomebetween2002and2005,eitherbecausetheyremainedlowpaidorleftthelabourmarket.

Theprobabilityofanemployeemovingoutoflowpayvariesquiteconsiderablydependingonindividualcharacteristics,butalsoonthenatureofthejobandtheemployer.Thisindicatesthatsomeoccupationsandfirms

offerbetteradvancementopportunitiesthanothersforlow-wageworkers.

Jobmobilitycanbeanimportantrouteoutoflowpay,particularlywherelow-paidworkersmovetoanother,slightlybetter,employertodoasimilarjob.

Workerswhoarelowpaidinoneperiodaremuchmorelikelytobelowpaidlaterinlife,independentofallotherfactors.Thissuggeststhatthenatureofthefirstjobheldbylabourmarket(re)entrantsiskeyforfutureearnings.


12/71


Theextentofin-workpovertyandlowpayintheUKwassetoutinthefirstpaperinthisseries

(CookeandLawton2008a).Wefoundapersistentlyhighrateofin-workpoverty,andhighlightedthe

UKspoorrecordonlowpaycomparedtomanyofourEuropeanneighbours.Inthischapter,webegin

bysummarisingthefindingspresentedinthefirstpaper,andcomplementourpreviousanalysiswith

newregressionanalysis,togainabetterunderstandingofthemostimportantfactorsassociatedwith

lowpay.Wethengoontoassessthelabourmarketprospectsoflow-wageworkers,intermsofboth

wageincreasesandemploymentretention.

In-workpovertyintheUK

ThereismuchtruthintheGovernmentsclaimthatworkisthebestrouteoutofpoverty.However,

therelationshipbetweenworkandpovertyisneithercertainnorstraightforward,andtoomany

familiesintheUKtodaysimplyswaponekindofpovertyforanotherwhentheymoveintowork.

Povertyoccurswheretotalhouseholdincomeislessthan60percentofmedianhouseholdincome

(seeAnnex1formoredetailsonhowthepovertylineiscalculated).Weconsideranyhousehold

containingatleastoneadultdoinganypaidworktobeaworkinghousehold.Justover85percent

ofallhouseholdsintheUKcontainaworkingadult(OfficeforNationalStatistics2008a).Almostsix

in10poorhouseholds(57percent)containedaworkingadultin2005/06,comparedwith47per

centadecadeearlier,atrendthatisnotfullyexplainedbyincreasingemploymentrates.

In-workpovertyrepresentsaparticularchallengetotheGovernmentsambitioustargettohalvechild

povertyby2010anderadicateitentirelyby2020.TheGovernmenthasbeensuccessfulinremoving

600,000childrenfrompoverty,butalmostallofthisreductionhasoccurredamongworkless

households.Infact,by2006/07thereweremorepoorchildreninworkinghouseholdsthanin

worklessones,asFigure2.1demonstrates.Therearenow1.5millionpoorchildreninworking

households,whichisthesameasin1997/98.

Familieswithchildrenfacetwicetheriskofworkingpovertyasthosewithout.However,ratesof

workingpovertyvaryconsiderablyaccordingtofamilytypeandworkingpatterns.

Figure2.2showsthatalmost80percentofworkingpoorhouseholdswithchildrenareheadedby

couples.In-workpovertyisaparticularproblemamongcouplesbecausetheyaremorelikelytohave

someoneinwork,whereasworklesspovertyaffectsagreaterproportionoflone-parenthouseholds.

Couplehouseholdswhereonlyoneadultworksorwherenooneisworkingfulltimefaceparticularly

highrisksofin-workpoverty,asFigure2.3shows.However,Figure2.3alsoshowsthatforthoselone

parentswhodowork,theriskofpovertyisstillhigh,at15percentforthoseworkingfulltimeand30

percentforpart-timeworkers.

0

0.5

1

1.5

2

2.5

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

No.ofchildren(millions)

Working households

Workless households

Figure2.1:Child

povertyin

workingand

workless

households,

1996/97to

2006/07

Source:DWP

2008a


13/71


Despitethehighnumberofchildreninpoorworkingfamilies,in-workpovertyisalsoareal

challengeforsinglepeopleandcoupleswithoutchildren,whoaccountedforjustover40percent

ofallworkingpoorfamiliesin2005/06.Singlepeoplemadeupjustover70percentofall

workingpoorhouseholdswithoutchildren,withaparticularlyhighriskofpovertyexperiencedby

singleadultsworkingparttime.

Ourfindingsalsodemonstratethatyoungpeople,disabledworkersandmembersofsomeethnic

minoritiesfaceahigherriskofin-workpoverty.Thisisparticularlytrueforworkersaged18-21

(35percentofwhomlivedinpoverty),andpeoplefromaPakistaniorBangladeshibackground

(whoseriskofin-workpovertywas53percentand63percentrespectively).Finally,wefound

especiallyhighlevelsofworkingpovertyinLondon,partlyasaresultofhigherhousingcosts

there.

Couple, one

working full

time, one part

time

15%

Couple, both

working full time

3%

Lone parent

working part

time

15%

Lone parent

working full time

6%

Couple, one or

more working

part time only

22%

Couple, one

working full

time, one not

working

39%

Figure2.2:

Compositionof

workingpoor

familieswith

children

Source:Authors

calculationsusing

datafrom

HouseholdsBelow

AverageIncome

2005/06

0

10

20

30

40

50

60

Couple, both

working full

time

Couple, one

working full

time, one

part time

Couple, one

working full

time, one not

working

Couple, one

or more

working part

time only

Lone parent

working full

time

Lone parent

working part

time

%w

orkingfamilieswhoarepoo

Figure2.3:Riskof

in-workpoverty

forfamilieswith

children

Source:Authors

calculationsusing

datafrom

HouseholdsBelow

AverageIncome2005/06


14/71


LowpayintheUK

PreviousanalysispresentedinCookeandLawton(2008a)revealedthatmorethanafifthoftheUK

workforce3 waslowpaidinApril2006.Inthissection,wesummarisethekeyfindingsfromthatpaper

aboutwhotheselow-paidworkersare,wheretheyworkandwhatkindsofjobstheydo.Thisanalysis

isbasedondatafromtheAnnualSurveyofHoursandEarnings(ASHE)2006.

Wealsosupplementourpreviousanalysiswithnewdatadrawnfromregressionanalysis(seeAnnex1

fordetails).Thisenablesustoexaminetherelativeimportanceofdifferentfactorsassociatedwithlow

payintheUK.TheregressionanalysisdiscussedinthissectionusespooleddatafromtheLabour

ForceSurvey(LFS)between2006and2007.

WebeginthissectionbybrieflyconsideringtrendsinlowpayintheUK,andcomparinglow-payrates

intheUKwiththoseexperiencedbyotherWesterneconomies.

Thereisnostandardnationalorinternationaldefinitionoflowpay,butwehavechosentouse60per

centofmedianfull-timehourlyearningsasthelow-paythresholdanyonewhosehourlyearningsare

belowthatlevelisclassifiedaslowpaid(seeCookeandLawton2008aforadiscussionofthevarious

waysofdefininglowpay).Ourdefinitionis,therefore,arelativeone,whichrecognisestheimpactoflowpayinthecontextoftheearningsoftheworkforceasawhole.

Sincetwodifferentdatasetsareusedfortheanalysisinthissection,andthedatainthesesurveysare

collectedindifferentways,eachdatasetproducesslightlydifferentlow-payrateswhenourlowpay

measureisapplied.IntheAnnualSurveyofHoursandEarningsthelow-payratewas6.67inApril

2006;intheLabourForceSurveytheaveragelow-payratewas6.38in2006/07.Ourmeasureof

lowpayisclearlydistinctfrom,andhigherthan,theNationalMinimumWage,whichsetsalegalwage

floor.

Lowpayinhistoricalandinternationalcontexts

EvidencefromtheNewPolicyInstitute(NPI)suggeststhattheproportionofworkerswhoarelow

paidintheUKhasdeclinedslightlyoverthelastdecade,reversingthetrendoftheprevioustwo

decades,whichalsosawwageinequalityrisesharply(NPI2008,McKnight2000).Overthelast10

yearsthelowestpaidhaveseenstrongwagegrowth,largelythankstoaseriesofminimumwagerises

abovetherateofaverageearningsgrowth.Thishasslightlynarrowedthegapbetweenthebottom

andthemiddleofthewagedistribution,whilekeepingpayinequalityincheck.

Figure2.4setsoutratesoflowpayinfiveEuropeancountriesandtheUS.Thisdata,drawnfroma

cross-countrystudyundertakenonbehalfoftheRussellSageFoundation,revealstherelativelyhigh

incidenceoflowpayintheUK(Solow2008).Itisimportanttonotethatthereisnonecessarytrade-

offbetweenhighemploymentandalowincidenceoflowpay:countriessuchasDenmarkandthe

Netherlandsareabletoachievelowerlevelsoflowpaywithoutsacrificingjobcreation(OECD1996,

Solow2008).

A2008studyofemploymentgrowthintheEU15statesbetween1996and2006foundthatanumberofcountries,includingIreland,Finland,Denmark,LuxemburgandSweden,hadbeenableto

createlargenumbersofnewjobs,themajorityofwhichwereofaboveaveragequality,asmeasured

bymedianhourlyearningsineachsector/occupationalgroup(Eurofound2008).However,theUK,

FranceandtheNetherlandsexperiencedamorepolarisedexpansionofemployment,withgrowthat

thetopandthebottomofthelabourmarket.

3.Theanalysisthroughoutthisreportrefersonlytoemployees,andexcludesself-employedpeople.Thisispartlyduetodatalimitationsandthefactthattheearningsofself-employedpeopleareoftenrecorded

inaccurately.Lowpayandin-workpovertyarelikelytobefeaturesofself-employment,andthis

phenomenonrequiresfurtherinvestigation,butisoutsidethescopeofthisreport.


15/71


ThisvariationinpatternsofjobgrowthwithinEuropedemonstratesthattheextentoflowpayina

moderneconomyisdependentonarangeofeconomicandinstitutionalfactors,andisnotsimplythe

inevitableresultofglobalisationandtechnologicalchange.Thissuggestsanimportantroleforpolicy.

Whichfactorsaremostimportantinexplaininglowpay?

Wenowturntomoreadetailedconsiderationoftheparticularriskfactorsassociatedwithlowpayin

theUK,andlookatfoursetsoffactors:thoserelatingtotheindividualworker;thecharacteristicsof

thejob;factorsassociatedwiththefirm;andtheeffectofplace.

Workercharacteristics:gender,age,healthstatusandqualifications

Inourfirstpaperwefoundastronggenderdimensiontolowpay,underpinnedbythegenderpay

gap,whichstoodat22percent(CookeandLawton2008a).In2006,nearlytwo-thirds(64percent)

oflow-paidworkerswerewomen,andovertwo-thirds(41percent)werewomenworkingparttime.

Youngerworkersalsofacedamuchgreaterriskoflowpay,perhapsunsurprisingly.Nearly70percent

ofemployeesaged18to21werelowpaid,comparedtoaround15percentofworkersintheir

thirtiesandforties.

AnalysisbytheNewPolicyInstitutehasalsofoundthatpeoplewithawork-limitingdisabilityhavea

higherriskoflowpay,asdosomeethnicminorityworkers,especiallythosefromBangladeshi,

PakistaniandBlackAfricanbackgrounds(NPI2008).

Figure2.5(nextpage)showstheeffectofvariouspersonalcharacteristicsontheprobabilityofan

employeebeinglowpaid,independentofthekindofjobtheyweredoingorwheretheyworked.This

isbasedontheresultsofourregressionanalysis,usingdatafromtheLabourForceSurveyin2006

and2007.Genderhasasmallbutstatisticallysignificantimpactontheprobabilityofbeinglowpaid.

Independentofallotherfactors,womenwere6percentmorelikelytobelowpaidthanmen.This

highlightstheimportanceofgenderedoccupationalsegregationandthenatureofpart-timeworkin

explainingthegenderpaygap.

Employeeshealthstatusalsoappearstohavearelativelysmallimpactonthechancesofthembeing

lowpaid.Again,thiswouldsuggestthatthehigherriskoflowpayexperiencedbypeoplewitha

disabilityorhealthconditionislargelyexplainedbythekindofworkavailabletothem,ratherthan

differencesinpaybetweendisabledandnon-disabledpeopledoingsimilarwork.Evidencefromother

studiessuggeststhatdisabledpeoplearemorelikelytoworkinloweroccupationalgroupsandin

part-timejobs(Parckar2008).Therearealsosignificantvariationsinthelabourmarketstatusof

disabledpeopledependingontheircondition,withindividualswithmentalhealthissueshavinga

particularlyhighriskoflowpay(Sainsburyetal2008).

25.022.1

20.818.2

12.7

8.5

0

5

10

15

20

25

30

U

S

UK

German

y

Nethe

rlands

France

Denma

rk

%o

fworkerswhoarelowpaid

Figure2.4:Incidenceoflow

payinfive

European

countriesandthe

UnitedStates

Source:Solow2008

Note:Figuresarebasedonastandardlow-paythresholdoftwo-thirdsofmedianearnings.DataforUS,UK

andDenmarkarefrom2005,GermanyandNetherlandsfrom2004,andFrancefrom2002


16/71


Theeffectofqualificationlevelonthelikelihoodofanemployeebeinglowpaidissubstantial.Figure

2.5givesestimatesfortheriskoflowpayatvariousqualificationlevelsrelativetoholdingadegree:

employeeswhohavenoqualificationsare30percentmorelikelytobelowpaid,andthosewhose

highestqualificationisatGCSElevelare15percentmorelikelytobelowpaidthanworkerswitha

degree.Ageisalsoanimportantdeterminantoflowpayforthoseagedunder25relativeto

employeesinthe40-49agegroup,butnotforolderworkers.

Ethnicitywasalsoincludedintheregressionmodel,butstatisticallysignificanteffectswereonlyfound

forcertainethnicgroups:relativetowhiteBritishworkers,onlyworkersidentifyingasOtherAsian

(whichdoesnotincludepeopleofIndian,PakistaniorBangladeshiorigin),OtherBlack(whichdoes

notincludeBlackAfricanandBlackCaribbean)andOtherweremorelikelytobelowpaid,although

theeffectsfortheseworkerswerelargebetween15and30percent.

Jobcharacteristics:workingpatterns,contracttypeandoccupation

Theanalysisinourfirstpapershowedthatthetypeofworkpeopledohasanimportantinfluenceon

theirriskofbeinglowpaid(CookeandLawton2008a).Over60percentofpeopleemployedin

elementary,4 andsalesandcustomerservicejobswerelowpaid,accountingforoverhalfofalllow-

paidworkers.Employeesworkinginpersonalservicesalsohadahighriskoflowpay,atjustunder40

percent.Almosthalf(46percent)ofpart-timeemployeeswerelowpaid,comparedtojust14per

centoffull-timeworkers.

Drawingonresultsfromourregressionanalysis,Figure2.6showsthatoccupationisaparticularly

importantpredictoroflowpay,andtheeffectisofasimilarmagnitudetothatofqualificationlevel.

Estimatesforlowpayindifferentoccupationalgroupsaregivenrelativetomanagementandsenior

officialoccupations.

Theriskoflowpayinsemi-skilledmanualoccupations,semi-skilledserviceoccupationsand

elementaryoccupationsisparticularlyhighcomparedwithmanagementjobsbetween20and28per

centhigher.Theeffectofworkingpart-timeoronatemporarycontractindependentofallother

0%

5%

10%

15%20%

25%

30%

35%

Fem

ale

Heal

thco

nditi

on

16-1

9

20-2

4

Oth

erHE

ALe

vel

GCSE

Leve

l1

Othe

r

None

Figure2.5:Effect

ofpersonal

characteristicson

theprobabilityof

lowpay

Source:Authors

calculationsusing

LabourForceSurvey

2006-07

Notes:Estimatesarebasedonaprobitregressionmodel,whichalsoincludeddummiesforindustry,

occupation,workinghours,tenure,ethnicity,sector(public/private)andregion.Estimatesaresignificantat

the5percentlevel.Estimatesforagearerelativetothe40-49agegroup.Estimatesforagegroupsnotshownonthegrapharenotstatisticallysignificantatthe5percentlevel.Estimatesforqualificationlevels

arerelativetoholdingauniversitydegree.

4.Elementaryoccupationsgenerallyrequirenoentryqualificationsorsubstantialpriorknowledgeor

skills.Occupationsinthisgroupincludeagriculturallabour,constructionlabour,routineofficejobs,waitingandbarwork,andunskilledmanualjobs.


17/71


factorsissignificantbutsmall,indicatingthehigherriskoflowpayinthiskindofworkis,inpart,a

functionofthenatureofthepart-timeandtemporaryworkavailable.Jobtenurewasalsoincludedin

theregressionmodel,andhadasmalleffectonreducingthelikelihoodoflowpayforworkerswho

hadremainedintheirjobformorethan10years.

Firmcharacteristics:industryandsector

Ourpreviousanalysisrevealedthatnearly70percentofworkersinthehotelandrestaurantindustry

werelowpaidin2006(CookeandLawton2008a).Wealsofoundthat44percentofemployees

workinginwholesaleandretailwerelowpaid,and,becausethissectoraccountsfor15percentoftheUKlabourmarket,nearlyathirdoflow-paidworkersarefoundintheretailindustry.

0%

5%

10%

15%

20%

25%

30%

Part-tim

e

Temp

orary

Admi

n&secre

tarial

Skille

dtrad

e

Perso

nalse

rvice

s

Sales

&custo

mer

servi

ce

Proc

ess&

machin

e

opera

tives

Eleme

ntary

Figure2.6:

Effectofjob

characteristicson

theprobabilityof

lowpay

Source:Authors

calculationsusing

LabourForceSurvey

2006-07

Notes:Estimatesaresignificantatthe5percentlevel.Estimatesforoccupationalgroupsarerelativeto

managementandseniorofficialoccupations.Estimatesforprofessionalandassociateprofessional

occupationsarenotstatisticallysignificantatthe5percentlevel.

Table2.1:Low-payratesandexposuretointernationalcompetitionbyindustry

Industry Productivity Exposuretointernationalcompetition Incidenceoflowpay(%)

Allemployees - - 22.5

Hotelsandrestaurants Low Low 69.2

Wholesaleandretail Low Low 43.6

Agriculture Low High 42.0

Otherservices Medium Zero 31.1

Realestateandbusinessservices High Medium 20.6

Health Low Low 19.2

Education Low Low 17.4

Manufacturing High Medium/high 14.6

Construction Medium Low 11.3

Transportandcommunications High Low/medium 10.8

Publicadministration Medium Zero 5.8

Financialservices High Medium 5.4

Primaryproduction Veryhigh High -

Source:Wilsonetal (2006);authorsestimatesusingdatafromBeavanetal (2005);authorscalculationsusingdatafrom

theAnnualSurveyofHoursandEarnings2006

Notes:Productivityismeasuredbygrossvalueaddedperworker,andshouldbetakenasanindicativeestimateonly.

ProductivityineachsectorismeasuredrelativetooverallproductivityintheUKandcannotbeusedforinternational

comparisons.


18/71


Table2.1givestherateoflowpaybyindustry,andalsohighlightsthebroadexposuretointernational

competitionandlevelofproductivityofeachsectoroftheUKeconomy.Itisinterestingtonotethat

threeofthefourindustrysectorswithanaboveaverageincidenceoflowpayhaveeitheralowor

zeroexposuretointernationalcompetition.

Thereissomeevidencethatglobalcompetitivepressuresprovidefirmswithincentivestocompeteonhighervalueproductsandservices,andincreaseproductivity,whichoftenfeedsthroughintohigher

wages(Mason2004).However,externalcompetitivepressuresareclearlyonlyoneelementofthe

relationshipbetweenindustrysectorandlowpay.Sectorssuchasconstructionandpublic

administrationalsofaceloworzerointernationalcompetition,butstillhaverelativelylowlevelsoflow

pay.Furthermore,globalcompetitionisnottheonlysourceofcompetitivepressurethatcompanies

face,andfirmsinlowpayingsectorscanfacesignificantdomesticcompetition,whichhelpssome

moveintohighervaluemarkets.

Figure2.7confirmsourpreviousanalysisoflowpayacrossdifferentindustrysectors,showingtherisk

oflowpaybyindustryrelativetotheriskinthefinancialservicessector.Workersinhotelsand

restaurantsare24percentandworkersinretail17percentmorelikelytobelowpaidthan

employeesinfinancialservices.Peopleworkinginotherservices(whichincludeswastedisposal,leisureandrecreation,andhairdressing)arealso22percentmorelikelytobelowpaid.

Overall,theeffectofindustrytypeontheprobabilityofanemployeebeinglowpaidisofsimilar

importancetotheeffectofqualificationlevelandoccupationalgroup.However,Anderssonetal

(2005)foundthat,evenwithinthesameindustry,differentfirmscanhaveverydifferentlevelsoflow-

wagework,suggestingthatinternalvariationsinhiringandhumanresources(HR)practicesarealso

important.

Workersintheprivatesectorare8percentmorelikelytobelowpaidthanthoseinthepublicsector,

which,inpart,reflectsthegreaterwageinequalityintheprivatesector.

Theeffectofplace

Inourfirstreportonlowpayandin-workpoverty,wefoundlittledifferenceintheriskoflowpay

betweentheregionsandnationsoftheUK,exceptinLondon,whereonly11.1percentofemployees

werelowpaidcomparedwithanationalaverageof22.5percent(CookeandLawton2008a).

However,Londonalsohadthelargestgapbetweenthehighestandlowestpaidworkers.

Ournewregressionanalysissupportsourpreviousfindings,and,asFigure2.8shows,workingoutside

Londonisagoodpredictoroflowpay.Workersinthenorthernregionsarebetween11and15per

0%

5%

10%

15%

20%

25%

30%

Part-tim

e

Temp

orary

Admin&

secre

tarial

Skille

dtrad

e

Personal

servic

es

Sales&

custo

mer

serv

ice

Process

&machin

e

operative

sEle

menta

ry

Figure2.7:Effectoffirm

characteristicson

theprobabilityof

lowpay

Source:Authors

calculationsusing

LabourForceSurvey

2006-07

Notes:Estimatesaresignificantatthe5percentlevel.Estimatesforindustryarerelativetofinancial

intermediation.Estimatesforindustriesnotpresentedinthegraph(miningandmanufacturing,utilities,

constructionandtransportandcommunications)arenotstatisticallysignificantatthe5percentlevel.


19/71


centmorelikelytobelowpaidcomparedtosimilarworkersinLondon.EmployeesinWalesarealso

significantlymorelikelytobelowpaidthantheircounterpartsinLondon.However,althoughworkers

inLondonarelesslikelytobelow-paidthanelsewhereintheUK,thoseindividualswhoareonalow

wagefaceparticularhardshipinLondon.Analysisinthefirstreportfoundthattheimpactofthe

minimumwagehasbeenweakestinLondon,becauseofslowerwagegrowthforlow-paidworkers

andhigherlivingcostsandratesofpoverty(CookeandLawton2008a).

Figure2.9highlightstheparticularlyhighincidenceoflowpayinthemostsparselypopulatedpartsof

England,ifearningsaremeasuredbyplaceofwork.Therateoflowpayinlocalauthoritydistrictsinwhichover80percentofthepopulationliveinruralsettlements(Rural80)standsat28percent,

comparedwithanaverage22percentinEngland.

0%2%

4%

6%

8%

10%

12%

14%

16%

North

East

North

Wes

Yorks

&Hum

ber

East

Midlands

WestM

idlands

SouthE

ast

SouthW

est

Wale

s

Scotlan

d

Figure2.8:The

effectofregionon

probabilityof

beinglowpaid,

relativetoLondon

Source:Authors

calculationsusing

LabourForceSurvey

2006-07.

Note:Estimatesaresignificantat5percent.EstimatesfortheEastofEnglandarenotstatisticallysignificant

relativetoLondon.ThedatasetuseddoesnotincludefiguresforNorthernIreland.

0

5

10

15

20

25

30

Major

urba

n

Large

urba

n

Othe

rurba

n

Signfi

cant

rural

Rural

50

Rural

80

Place of work Place of residence

Figure2.9:Average

incidenceoflow

payinruraland

urbanareasin

England

Source:Authors

calculationsusing

datafromtheAnnualSurveyofHoursand

Earnings2006

Note:WehaveappliedtheDepartmentforEnvironment,FoodandRuralAffairsClassificationofLocal

AuthorityDistrictsandUnitaryAuthoritiesinEnglandavailableatwww.defra.gov.uk/rural/ruralstats/rural-

definition.htmtocategorisedistrictsdependingonpopulationdensity.Thisisaproxymeasureforrurality.

Rural50referstodistrictsinwhich50percentormoreofthepopulationliveinruralsettlements;Rural80referstodistrictsinwhich80percentormoreofthepopulationliveinruralsettlements.Thedatacovers

Englandonly.


20/71


Therateoflowpaybyplaceofresidenceismoreconsistentacrossdistricttypes,exceptformajor

urbandistricts.Thissuggeststhatworkerswhodependonthelocalruraleconomyforemployment

aremorelikelytoexperiencelowpay.Thosewhoareabletocommutetomoredenselypopulated

areasfacealowerriskoflowpay.Theparticularlylowratesoflowpayinmajorurbandistrictsreflects

thelowincidenceoflowpayinmostLondonboroughs.

Therelationshipbetweenlowpayandpoverty

Thereisnostraightforwardrelationshipbetweenpayandpoverty.Differentfamilytypesrequire

differentamountsofmoneytoenjoyasimilarstandardofliving,andanindividualspayisonlyone

sourceofincomeonwhichhouseholdscandraw.Low-paidindividualsmaylivewithotherworking

adults,whocollectivelyavoidhouseholdpovertybyvirtueoftheircombinedearningsandadditional

income.Employeesearningalowhourlywagemayworklonghours,andhelptheirhouseholdavoid

povertyinthisway.Conversely,someonewhoearnsaboveourlow-paythresholdmay,nevertheless,

liveinahouseholdinwhichthecombinedhouseholdincomeisnotsufficienttoliftitabovethe

povertyline.

Althoughthelinkbetweenpayandpovertyisnotclear-cut,low-paidworkerscertainlyhaveagreaterriskoflivinginapoorhousehold.CookeandLawton(2008a)foundthat7.2percentoflow-wage

workerslivedinpoorhouseholdsin2004/05,comparedtojust0.4percentofemployeeswith

earningsabovethelow-paythreshold.Lessthanafifthoflow-paidadultsearnedenoughtolifttheir

householdoutofpovertythroughtheirownwagesalone,comparedwithmorethanthree-quartersof

non-low-paidadults.Additionalearningsfromothersinthehousehold,and,toalesserextent,

benefitsandtaxcredits,helpedafurther74percentoflow-wageworkerstoavoidpoverty(ibid).

Retentionandprogressioninthelow-wagelabourmarket

Havingexaminedtherelativerisksoflowpayindifferentjobs,firmsandplaces,andfordifferent

groupsofworkers,wenowconsiderthefateoflow-paidemployees.Areworkersabletousetheir

low-paidjobsasasteppingstonetobetter-paid,better-qualitywork?Andhoweasyisitforlow-paid

workerstostayinemploymentatall?

InthissectionwewilladdressbothofthesequestionsusingdatafromtheAnnualSurveyofHours

andEarnings(ASHE)andtheBritishHouseholdPanelSurvey(BHPS).Botharelongitudinaldatasets,

whichallowsustotracktheemploymentstatusandpayoflargenumbersofemployees,between

1997and2006inthecaseofASHE,andbetween1991and2005inthecaseofBHPS.We

supplementtheASHEdatawithanalysisfromBHPSbecauseitallowsustotracklow-paidworkers

whomoveoutofwork.(ASHEisasurveyofemployeesonly.)

Therestofthissectionisdividedintotwoparts:westartbyconsideringretentionratesamonglow-

paidworkers,andthenmoveontolookatwhichlow-paidworkersareabletoescapelowpay.

Employmentretentionamonglow-paidworkers

Forasignificantminorityoflow-paidworkers,itisastrugglesimplytoremaininemployment,let

aloneseekoutopportunitiesforadvancement.Lowretentionratesamongsomegroupsof

disadvantagedworkersseriouslylimitthelikelihoodoflow-paidworkersmakingthetransitionto

betterpay.

UsingdatafromtheBHPS,weidentifiedemployeeswhowerelowpaidin2000,2002,or2004,and

thenexaminedtheiremploymentstatusin2005.Wealsodidthesameforthehigherpaidworkers.

Thisanalysiscomparestwosnapshotsintimeratherthanprovidingacontinuousanalysisof

employmentstatus.Anindividualwhowasinemploymentatthetimeofthesurveyinboth2002and

2005may,nevertheless,haveexperiencedaperiodofunemploymentbetweenthesetwopoints.The

resultsareshowninTable2.2.

Forallworkers,thelikelihoodofbeinginemploymentin2005decreasesasthelengthoftimeunderconsiderationincreases.Thisispartlybecauseagreaternumberofworkerswillhaveretiredwhena

longertimeperiodisconsidered.However,overeachperiodoftime,workerswhowerelowpaidat

thestartofourperiodofanalysisfaceagreaterriskofunemploymentorinactivityin2005:


21/71


Only76percentofemployeeswhowerelowpaidin2000wereinemploymentin2005,comparedwith83percentofhigher-paidemployees.

87percentofworkerswhowerelowpaidin2004werealsoinemploymentin2005,comparedwith93percentoftheworkforceasawhole.

Workerswhowerelowpaidin2000weretwiceaslikelytobeunemployedby2005,andthreetimesaslikelytobeeconomicallyinactive.

Ourfindingsonretentionratesamonglow-paidworkersaresupportedbypreviousresearch,from

bothUKandinternationalstudies:

Goslingetal (1997)foundthat30percentofmeninthebottomearningsquartilein1991spentsometimeoutofworkoverthefollowingthreeyears,comparedtojust12percentofmale

employeesinthetopquartile.

Astudyoflow-paidworkersintheUSfoundthat20percentofemployeeswhowerelowpaidin1999wereoutofworkin2001(Poppeetal2003).

Stewart(2006)demonstratedthatlow-wagejobsintheUKactasthemainconduitforrepeatunemployment.

Pooremploymentretentionamonglow-paidworkersfeedsintolowpay-nopaycycles,whichactto

keepindividualsandfamiliesonlow,insecureincome,eitherinworkoronbenefits.Previousresearch

hasestablishedthepoorretentionratesandlowpay-nopaycyclesexperiencedbybenefitleavers,

andbyothergroupsofdisadvantagedworkers:

FouroutoftenpeoplewhomovefromJobseekersAllowance(JSA)toworkreturntobenefitswithinsixmonths,andofthe2.4millionJSAclaimsmadeeachyear,two-thirdsarerepeatclaims.Thisrateofchurnhasremainedatsimilarlevelssincethe1980s(Harker2006,NationalAudit

Office2007).

Table2.2:Employmentstatusin2005ofemployeesidentifiedaslowpaidin2000,2002or2004

Employmentstatusin2005

Year Paystatus Employed Self-employed Unemployed Inactive Retired Total

Higherpaid 93.1% 1.1% 1.5% 2.4% 1.9% 100.0%

Lowpaid 86.5% 0.6% 3.7% 7.2% 2.0% 100.0%

Higherpaid 87.3% 3.8% 1.2% 3.5% 4.1% 100.0%

Lowpaid 78.6% 3.2% 4.1% 9.8% 4.4% 100.0%

Higherpaid 83.4% 4.3% 1.4% 4.1% 6.8% 100.0%

Lowpaid 74.0% 3.6% 3.8% 11.3% 7.3% 100.0%

Source:AuthorscalculationsusingBritishHouseholdPanelSurvey

Note:Low-paidemployeesarethoseearninglessthan60percentofmedianfull-timeearnings

andmorethan3anhourineither2000,or2002or2004.Acut-offhourlywageof3waschosentoexcludeworkerswhodidnotaccuratelyreporttheirearnings,asthiswasjustbelow

thelowestlevel(thedevelopmentrate)oftheNationalMinimumWageineachoftheyearsin

question.Workersearningmorethan100anhourwereexcludedfromtheanalysis,asthese

valuesmaynotbeaccurate.Missingreferstoindividualswheredataisnotavailablefor2005.

SeeAnnex2forfurtherdetails.

2004

2002

2000


22/71


23/71


Table2.3expandsthefindingssetoutinTable2.2abovetoexaminethepaystatusin2005of

employeesidentifiedaslow,mediumorhighpaidin2002,aswellasconsideringtheiroverall

employmentstatus.Itshowsthat:

Low-paidworkersappeartohavethegreatestwagemobility:afterthreeyears,40percentwere

inhigher-payingjobs,althoughasimilarnumberremainedinlowpay.

However,combiningthoseworkerswhoremaininlowpaywiththosewhobecomeunemployedorinactive,wefindthatoverhalf(53percent)oflow-paidworkershadexperiencedno

significantimprovementintheirincomefrom2002to2005.

Wealsocarriedoutadditionalanalysisofthe38percentoflow-paidworkerswhohadfound

medium-paidworkin2005.Althoughthisindicatesthatasignificantproportionoflow-paidworkers

isabletoescapelowpay,wefoundthatonly17percenthadearningsthatwereabovethemedian,

while65percenthadearningsbelow80percentofmedianearnings.Whiletheseworkersareno

longertechnicallylowpaid,theirearningswerenotsubstantiallyhigher,andthevastmajorityhadnotachievedabove-averageearningsafterthreeyears.

TheseresultsaresupportedbyevidencefromtheUS,whichshowsthatalthoughsubstantial

proportionsofworkersappearabletoescapelowpayfromoneyeartothenext,theyeitherdonot

dosoconsistentlyoveranumberofyears,ortheydonotincreasetheirearningsverymuch

(Anderssonetal2005).Thissuggeststhatthepatternformanylow-wageworkersisoffluctuating

earningsaroundarelativelylowaverage,ratherthanpermanentmovesoutoflowpay.

Tounderstandmoreaboutwhichworkersareabletofindwaysoutoflowpay,wecarriedoutsome

regressionanalysisusingdatafromtheAnnualSurveyofHoursandEarnings.Thishelpedtoidentify

themostimportantfactorsassociatedwithmovesoutoflowpay.

Weselectedasampleofemployeeswhowerelowpaidinboth2000and2001,andconsideredthefactorsassociatedwiththoseworkersnotbeinglowpaidinboth2005and2006.Lookingatpay

statusoveratwo-yearperiodhelpstoexcludeemployeeswhohavefluctuatingearningsbutarenot

consistentlylowpaid.Therangeofvariablesweuseforthisanalysisissimilartothoseusedabovein

ouranalysisoflowpay.However,ASHEcontainsfewervariables(althoughthesamplesizeismuch

larger),sowesupplementouranalysiswithfindingsfrompreviousstudieswhereappropriate.

Workercharacteristics

Wehavealreadyestablishedthatpersonalcharacteristicshaveanimportantimpactonthelikelihood

ofanemployeebeinglowpaid,particularlyageandqualificationlevel.Figure2.10showsthatageis

alsostronglyassociatedwithmovesoutoflowpay.Thegraphgivesestimatesforthelikelihoodof

escapinglowpayfordifferentagegroups,comparedwithpeopleaged40to49,andforwomen

comparedwithmen.

Aswewouldexpect,youngpeople,particularlythoseaged16to21,hadagoodchanceofmoving

outoflowpayovertheperiodinquestion,comparedtomiddle-agedworkers.Holdingeverything

elseconstant,womenare11percentlesslikelythanmentomoveoutoflow-wagework.

Table2.3:Employmentandpaystatusin2005forhigh-,medium-andlow-paidemployees

in2002

Employmentandpaystatusin2005(%)

Payin2002 Self- Unemployed Retired High Medium Low Total

employed orinactive paid paid paid

High 7.4 3.2 5.3 63.4 16.6 3.9 100

Medium 2.8 4.9 3.8 7.8 73.7 6.9 100

Low 3.2 13.9 4.4 1.1 38.0 39.4 100

Source:AuthorscalculationsusingdatafromtheBritishHouseholdPanelSurvey

Notes:Employeesearninglessthan3ormorethan100anhourineither2002or2005are

excludedfromthesample.


24/71


ASHEdoesnotcontaindataonemployeedisabilityorhealthstatus,butotherevidencesuggeststhat

disabledworkersexperiencelesswageprogression.Rigg(2005)foundthatthemedianannualchange

inearningswas1.4percentlowerfordisabledmenand0.6percentlowerfordisabledwomenthan

forable-bodiedworkers.EvidencefromtheUSindicatesthatethnicminorityworkers,migrantsand

employeeswithlowerlevelsofeducationarealsolesslikelytoescapelowpaythanpeoplewhodo

notfallintothesecategories(Anderssonetal2005).

Jobcharacteristics

Figure2.11comparesthelikelihoodofemployeesindifferentoccupationsescapinglowpaywith

thoseinmanagerialoccupations.Low-paidprofessionalsandassociateprofessionalsaresignificantlymorelikelytomoveoutoflowpaythanmanagerialworkers,butarenotincludedonthegraph

becausetherearerelativelysmallnumbersoflow-paidworkersintheseoccupationalgroups.

Amongtheremainingoccupations,administrativeworkerswerenearly12percentmorelikelyto

escapelowpaythanmanagers,perhapsreflectingthetinynumberoflow-paidmanagers.However,

thisdoesindicatethatsignificantopportunitiesforwageprogressionexistinadministrative

occupations.

-20

-10

0

10

20

30

40

Fema

le16

-17

18-21

21-29

30-39

50-59

60+

Figure2.10:

Personal

characteristics

associatedwith

movesoutoflow

pay,between

2000/01and

2005/06

Source:Authors

calculationsusing

AnnualSurveyof

HoursandEarnings

Notes:Estimatesforagearerelativetoworkersaged40to49.Dummiesforoccupationalgroup,industrial

sector,firmsize,firmtype,regionandlevelofruralitywerealsoincludedinthemodel.

-20

-15

-10

-5

0

5

10

15

Admin

&secretarial

Skill

edtrad

es

Person

alservice

s

Sale

s&custo

mer

service

s

Plant&

machi

neoperativ

es

Elem

enta

ry

Figure2.11:

Likelihoodof

movingoutoflow

paybetween

2000/01and2005/06in

selected

occupations,

comparedwith

managerial

occupations

Source:Authors

calculationsusing

AnnualSurveyof

HoursandEarnings

Notes:Estimatesarerelativetoemployeesworkinginfirmsclassedasoperatingintherealestateand

businessservicessector.Dummiesforage,gender,occupationalgroup,firmsize,firmtype,regionandlevel

ofruralitywerealsoincludedinthemodel.


25/71


Movesoutoflowpayarelesslikelyforworkerswhostartoutinskilledtrades,customerservice,semi-

skilledmanualoccupationsandinentry-leveljobs.Thisindicatesthat,comparedtomanagerial,

professionalandassociateprofessionaloccupations,therearefewerprogressionopportunitiesinthese

occupations,perhapsbecauseoflackofcareerladdersortrainingopportunities.

Firmcharacteristics

Previousstudieshavefoundthatbothretentionandprogressionarehigherinhigherpayingsectors,

inlargefirmsandinfirmswithalowerstaffturnover(EngelandSodhawithJohnson2007,Blazquez

Cuesta2006,Anderssonetal2005).

Inourregressionanalysis,wecomparedlow-paidworkersindifferentindustrialsectorswiththose

workinginbusinessservices.Wefoundthatemployeesinmanufacturing,transportandother

serviceshadaparticularlyhighchanceofmovingoutoflowpay.Wealsofoundthatworkersin

hotelsandrestaurants,retailandconstructionweremorelikelytomoveoutoflowpaythanthosein

businessservices,butthiseffectwassmaller.

Ourfindingsaresupportedtosomeextentbyotherstudies,whichshowthatthemanufacturing,

constructionandtransportsectorshaveparticularlystrongroutesoutoflowpay(Anderssonetal

2005,Poppeetal2003,PavlopoulousandFouarge2006).Ouranalysisalsofoundthatfirmsizeonly

hadasmallimpactonthelikelihoodofescapinglowpay.

Theroleofjobmobility

Thereisanimportantquestionaboutwhetherlow-paidemployeesaremorelikelytoescapelowpayif

theystaywiththeirexistingemployeroriftheyseekbetterworkelsewhere.

Twoopposingtheoriesontherelationshipbetweenlowpayandjobmobilityexist:ontheonehand,

jobmobilityisthoughttoincreasemovesoutoflowpaybecauseitallowsforbetterjobmatching;

ontheotherhand,stayingwithanexistingemployerisfelttobebeneficialbecauseitallowslow-

paid,low-skilledemployeestobuildupfirm-specifichumancapital,which,inturn,isfelttobethe

majordeterminantofwageincreases(BlazquezCuesta2006).

Onbalance,theevidenceappearstosupporttheformertheory,indicatingthatmovingjobsisoftena

usefultacticforlow-wageemployees(EngelandSodhawithJohnson2007,Kellardetal2002,

BlazquezCuesta2006).Thissuggestsemploymentretentionisofgreaterimportancetolow-paid

employeesthanjobretention.

However,BlazquezCuesta(2006)foundthatthiseffectbeginstodiminishafteracertainpoint,

suggestingthatthereisalimittothenumberofjobmovesthatlow-wageworkerscan

successfullymake.Jobmobilitycanalsobeproblematicifitderivesfromnecessity,suchas

redundancy,ratherthanchoice,andifperiodsofemploymentareinterspersedwithperiodsof

unemployment,asdiscussedabove.Furthermore,thewagegainsfrommovingtoabetterjobor

firmareoftenrelativelysmallforlow-wageworkers(AtkinsonandWilliams2003).Overall,

althoughjobmobilityoftenoffersthebestchanceforupwardwagemobility,itisfarfromaguaranteedrouteoutoflowpay.

Theeffectoflowpayandunemploymentonfuturelabourmarketprospects

Theimpactofaperiodofunemploymentonfuturelabourmarketprospectsiswelldocumented,but

thereisalsoevidencethatlowpaycanhaveasignificanteffectonfuturepayandemployment

prospects(Stewart2006,StewartandSwaffield1999).

Evidencefromanumberofstudiessuggeststhatpreviousexperiencesoflowpayandunemployment

areinfactamongthemostimportantpredictorsoflowpay(Stewart2006,StewartandSwaffield

1999,Goslingetal1999,Carpenter2006).UsingdatafromtheBritishHouseholdPanelSurvey

between1991and1996,Stewart(2006)foundthatlow-wagejobshadanegativeimpacton

employmentprospectsofalmostidenticalmagnitudetounemployment,andconcludedthatlowpaywaslittlebetterthanunemploymentinhelpingpeoplemoveintohigher-wagework.Thiseffectwas

independentofotherfactorssuchasoccupationalgroup,industrialsector,age,genderorqualification

level.


26/71


Explanationsfortheeffectoflowpayonfutureprospectsinclude:

Evidenceoflow-paidworkonanemployeesCVmaysendsignalstoemployersaboutabilityormotivation

Low-wageworkersmayfailtokeepupwithotherworkersintermsofhumancapitaldevelopment,ordoinglow-wage,unskilledworkmayactuallycausehumancapitaltodiminish

Aperiodoflowpaymayaffectthemotivationorself-confidenceofanemployee,preventingthemfromseekinghigher-paidwork.

(StewartandSwaffield1999)

Thisindicatesthelimitationsofassumingthattakinglow-wageworktendstoleadtoabetter-paid,

better-qualityjobintheend.Italsosuggeststhatthequalityofthefirstjobthatlabourmarket

(re)entrantstakehasanimportantroleindeterminingtheirfuturepayandemploymentprospects.


27/71


3.Trendsinjobsandskills

Summary

Labourmarkettrends

ProjectedindustrialandoccupationalchangesuggeststhattheUKlabourmarketwillundergoagradualevolutionto

2020,ratherthanadramaticchange:

Itisprojectedthattherewillbearelativelysimilarnumberoflow-payingjobsin2020asin2004.

Thistrendwillbedrivenbyanexpansionofemploymentinsectorsandoccupationswheretheincidenceoflowpayiscurrentlyhigh,suchasretailandcatering,andlower-levelservice-sectoroccupations.

However,therewillalsobejobgrowthinsectorsandoccupationswithalowincidenceoflowpay,suchasmanagementandprofessionaloccupations,andeducationandhealth.

Joblossesareprojectedinintermediateoccupationswheretheincidenceoflowpayisjustbelowthenationalaverage,includingadministrationandskilledtrades.


Althoughhigh-levelskillshavesignificantbenefitsforindividuals,businessesandthewidereconomy,therearedoubts

abouttheabilityofageneralupskillingoftheworkforcetosignificantlyreducetheincidenceoflowpayintheUK:

Thesupplyofworkforceskillshasrisenfasterthandemandsincetheearly1980s.In2006,therewere2.5millioneconomically-activepeoplewithnoqualifications,but7.4millionjobsrequiringnoqualificationsforentry.

By2020,thereareprojectedtobejust585,000economically-activeadultswithnoqualifications,butasimilarnumberofjobsasin2006requiringnoentryqualifications.

Althoughmostqualificationscontinuetoprovideconsiderablewagepremiums,thereissomeevidencethatwagereturnsforlower-levelvocationalqualificationsareweakanddecreasing.

TheUKsrelativelypoorperformanceonsomemeasuresofskillsexplainsaroundafifthofthecountryslowerproductivityrelativetoFranceandGermany.Thismeansthatfour-fifthsisexplainedbyotherfactors,suggestingthat

increasingthesupplyofworkforceskillsmaynot,onitsown,contributesignificantlytoimprovingeconomic

performanceintheUK.


28/71


WehavedemonstratedinthepreviouschapterthatasignificantproportionoftheUKworkforceis

lowpaid,andthatformany,thisisnotashort,transitionalsteponthewaytoabetter-paidcareer.

Thepurposeofthischapteristoexamineprojectedtrendsinemploymentandskillsoverthecoming

yearsthatarelikelytohaveanimpactontheextentandnatureoflow-wageworkinthefuture.

LabourmarkettrendsInthissectionweconsiderprojectionsofindustrialandoccupationalchangebetween2004and2020

takenfromtheAlternativeSkillsScenariosfor2020report(Beavanetal2005)preparedfortheLeitch

ReviewofSkills.TheresultsaresetoutinTables3.1and3.2.Beavanetal (ibid)presentthreesetsof

projections,basedonalternativescenariosofskilldemandandlabourmarketchange.Theprojections

outlinedherearebasedonthereportsbaselineprojections,whichassumeacontinuationofcurrent

labourmarkettrendsandpolicy.

Theseprojectionsweremadebeforetheglobaleconomicdownturn,whichbeganinmid-2007,andso

willneedrevisinginlightofthechangingeconomiccircumstancesintheUK.Somesectors,suchas

financialservicesandconstruction,willfaceparticulardifficultiesoverthecomingyears,whichislikely

toaffecttheprojectionsforchangesinjobdemandinthesesectors.

Reducedgrowthinhouseholdincomecouldalsohaverepercussionsforemploymentinconsumer

services,whichhasexpandedsignificantlyinrecentyears.Overallgrowthinemploymentislikelytobe

curtailedoverthenexttwotothreeyearsatleast.Therefore,theprojectionspresentedinthissection

shouldberegardedasverygeneralestimates.However,theoveralldirectionofchangeinthelabour

marketpredictedbyBeavanetal (2005)isunlikelytochangesignificantlyovertheyearsto2020,and

theprojectionsremainimportantindicatorsofthefutureevolutionofthelabourmarket.

Projectedindustrialchange

ThreekeytrendsemergefromBeavanetalsprojectionsofindustrialchange:thecontinued

importanceofmanufacturing,despitecontinueddecline;thegrowthofjobsinlow-payingsectors;

and,conversely,theexpansionofemploymentinsectorswithalowincidenceoflowpay.

Table3.1:Projectedindustrialchangeinthecontextoflowpay,2004-2020

Industry No.ofjobs, Projectedno. Projectedchange Incidenceof

2004(000s) ofjobs,2020 inno.ofjobs lowpay,2006

(000s) 2004-2020(%) (%)

Agriculture 426 335 -21.4 42.0

Primaryproduction 183 136 -25.7 -

Manufacturing 3,552 2,965 -16.5 14.6

Construction 2,090 1,934 -7.5 11.3

Wholesaleandretail 5,055 5,637 +11.5 43.6

Hotelsandrestaurants 1,962 2,086 +6.3 69.2

Transportand

communications 1,813 1,926 +6.2 10.8

Businessand

professionalservices 4,783 6,253 +30.7 20.6

Financialintermediation 1,162 1,136 -2.2 5.4

Publicadministration

anddefence 1,741 1,1,624 -6.7 5.8

Education 2,443 2,640 +8.1 17.4

Healthandsocialwork 3,224 3,695 +14.6 19.2

Otherservices 1,871 2,148 +14.8 31.1Allemployees 30,305 32,515 +7.3 22.5

Source:Beavanetal2005;AuthorscalculationsusingAnnualSurveyofHoursandEarnings2006


29/71


BytheendofthenextdecadetherewillstillbejustunderthreemillionmanufacturingjobsintheUK,

representing9.1percentofallemployment,asTable3.1,above,highlights.Between1984and2004,

thenumberofmanufacturingjobsfellfrom5.3millionto3.6million(Wilsonetal2006).However,

thisdeclineisexpectedtoslowbetween2004and2020,withafallofjust1.7percent.

Lowvalue-addedmanufacturing,operatinginlow-price,low-specificationmarkets,willcontinuetofaceintenseinternationalcompetitivepressuresandsubsequentjoblosses.However,inotherareas

(suchaspharmaceuticals,aerospaceand,potentially,low-carbontechnologies)theUKhasscopeto

furtherdevelopacompetitiveadvantageinspecialistproductmarkets,basedonhighvalue-added,

high-specificationstrategies.Thisshouldbeapriority,giventhatonly14.6percentofmanufacturing

jobsarelowpaid,comparedwith22.5percentacrossthelabourmarketasawhole,withaneven

lowerincidenceinhighvalue-addedsubsectors.

Nearlyonemillionnewjobsaresettobecreatedinindustriesthatcurrentlyhaverelativelyhighlevels

oflowpay.AsTable3.1shows,nearly45percentofjobsinwholesaleandretailwerelowpaidin

2006,andanextra582,000jobsareprojectedinthissectorby2020.Inhotelsandrestaurants,just

under70percentofjobswerelowpaidin2006,andemploymentinthissectorisexpectedtogrow

by124,000.Justunderathirdofworkersinotherservicesarelowpaid,andthissectorisexpectedtoadd277,000jobs.

Thiscouldmeananextra420,000low-wagejobsinthesethreesectorsalone,assumingthatlow-pay

ratesintheseindustriesremainbroadlysimilar.Itisimportanttonotethatthesesectorsfacelittle

exposuretointernationalcompetition.

Therewillbeanestimated2.25millionnewjobsinsectorswithalowincidenceoflowpay.The

expansionofbusinessservicesaloneisexpectedtoseethecreationofanextra1.47millionjobsin

thedecadeto2020.Althoughtherateoflowpayisjustbelowthenationalaverageinthissector,the

greatestgrowthisexpectedtocomefromcomputerservices,wheretheincidenceoflowpayisvery

low(Beavanetal2005).Employmentineducationandhealth,wherelow-payratesarebelowtheUK

average,isprojectedtogrowby668,000jobs.Afurther113,000jobsarepredictedintransportand

communications,asectorwheretherateoflowpayislessthanhalfthenationalaverage.

Ensuringsufficientsupplyofthenecessaryskillstofillthesepositionsisclearlythepriorityhere.These

sectorsarealsoprimecandidatesfortargetingeffortstodevelopcareerladdersforthosecurrentlyin

low-wagework.

Projectedoccupationalchange

Beavanetalsprojectionshighlightthreemajortrendsintermsofthefutureoccupationalcomposition

oftheUKlabourmarket:jobgrowthinoccupationswithaverylowincidenceoflowpay;joblossesin

occupationswherelowpayisjustbelowthenationalaverage;andanexpansionofemploymentin

occupationswherelowpayisprevalent.

By2020itisexpectedthatjustover45percentofalljobs,nearly15million,willbeinoccupationswherethecurrentincidenceoflowpayislessthanfivepercent,asTable3.2demonstrates(next

page).Overall,thereisprojectedtobeanextra2.5millionjobsamongmanagersandseniorofficials,

professionaloccupations,andassociateprofessionaloccupations.Overthesameperiod,thenumber

ofjobsinelementaryoccupationswillfallbyaquarter,downto2.6million.Over60percentof

elementaryjobsarecurrentlylowpaid.

Morethanhalfamillionjobsaresettobelostinoccupationswheretheincidenceoflowpayisjust

belowthenationalaverage.Theseoccupationalgroupsadministrativeandclericaloccupations

(down357,000jobs)andskilledtradeoccupations(down177,000jobs)areunderpressurefrom

technologicaladvancesandinternationalcompetition.

Theprojectedcontractionintheseso-calledintermediatesectorsisconsistentwiththepolarisation

thesisoflabourmarketchange(GoosandManning2003).Thisthesissuggeststhatgrowthinso-calledhigh-endjobsisbeingaccompaniedbyahollowingoutofthemiddleoftheUKlabour

marketandanexpansionofso-calledlow-endjobs.However,itisworthnotingthat,evenby2020,

afifthofalljobs(6.7million)willstillbeinthesetwointermediateoccupationalgroups.


30/71


Anextra1.2millionjobsareprojectedtobecreatedinservicesectoroccupationswheretheincidence

oflowpayiscurrentlysignificantlyabovethenationalaverage.Thenumberofjobsinpersonalservice

occupations(whichincludescaringprofessions)issettogrowby637,000by2020.Almosttwo-fifthsofjobsintheseoccupationsarecurrentlylowpaid.Insalesandcustomerserviceoccupations,itis

expectedthat560,000jobswillbeaddedbetween2014and2020.Nearlytwo-thirdsofjobsinthese

occupationsarecurrentlylowpaid.Significantly,thesearenotsectorswherethereismuchscopefor

taskstobeeitheroutsourcedorreplacedbytechnology.

Theprojectionsgivensofarinthissectionhavereferredtoexpansiondemand:thenumberof

additionaljobscreated(orlost)indifferentindustriesandoccupations2.2millionoverallto2020.

However,combiningthiswithestimatesofretirements,mortalityandotherexitsfromwork

(replacementdemand)suggeststhattherewillbe17.8millionjobopeningsoverallbetween2004

and2020.Thescaleofreplacementdemandmeansthatevenoccupationalgroupssettoseenegative

expansiondemand(suchaselementaryoccupations)willstillseeapositivenetrequirementforjob

openings.

Ourcalculationssuggestthat,by2020,3.5millionoftheadditionaljobscreatedbyacombinationof

expansionandreplacementdemand20percentofthetotalwillbelowpaid,assumingthatlow-

payratesineachoccupationalgroupremainbroadlystable.Giventhatajustoverafifthofjobsinthe

UKlabourmarketarecurrentlylowpaid,thiswouldsuggestthattherewillbeverylittlechangeinthe

proportionofjobsthatarelowpaidby2020.


Inthissectionweexaminetheevidencelinkingskillstoworkerspayandfirmsproductivityinthe

contextoflikelyfuturepatternsofskillssupplyanddemand.Notethatthereisnoperfectmeasureof

skills,butqualificationsarethemostcommonproxymeasure.However,peopleoftenhavemanyskills

thatarenotrecognisedbytheholdingofformalqualifications(Leitch2005).SkillsundoubtedlyhaveanimportantroleintheUKeconomy,andweaknessesintheUKsskillsbase

haveclearconsequencesforworkers,businessesandtheeconomyasawhole.Individualswithhigher-

levelskillsaremorelikelytobeinemploymentandenjoyaconsiderablewagepremium(Leitch2005).

Table3.2:Projectedoccupationalchangeinthecontextoflowpay,2004-2020

Occupational No.of Projected Projected Netrequirement, Incidenceof No.ofjob

group jobs,2004 no.ofjobs, changeinno. 2014-20 lowpay, openings2004-

(000s) ofjobs, ofjobs, (expansiondemand 2006(%) 20whichwill

2020(000s) 2004-20(000s) +replacement belowpaid(expansiondemand) demand) (000s)

Managersand 4,609 5,499 +890 +3,325 4.0 133

seniorofficials

Professional 3,539 4,518 +979 +2,861 1.6 46

Associateprofl 4,302 4,978 +676 +2,764 4.8 133

andtechnical

Administrative 3,790 3,433 -357 +1,791 17.2 308

andsecretarial

Skilledtrades 3,433 3,256 -177 +1,476 17.2 254

Personalservice 2,244 2,881 +637 +1,904 38.9 741

Salesand 2,412 2,972 +560 +1,747 63.7 1,113customerservice

Machineand 2,367 2,234 -133 +1,070 24.0 257

transp.operatives

Elementary 3,403 2,559 -844 +887 60.7 538

Allemployees 30,099 32,330 +2,231 +17,825 22.5 3,522

Source:Beavanetal2005;AuthorscalculationsusingAnnualSurveyofHoursandEarnings2006


31/71


TheUKhasapoorrecordonbasicskillscomparedwithmanyOECDcountries,andlagsbehind

Finland,Sweden,Canada,JapanandtheUSwhenitcomestohigher-levelskills(ibid).Lower-level

workforceskillsofferapartialexplanationfortheUKsproductivitygapwithFranceandGermany.

However,therearethreefactors,onwhichweelaboratebelow,thatraisedoubtsabouttheabilityofa

generalupskillingoftheworkforcetocreatethereturnsinproductivityandeconomicperformanceneededtoreducetheincidenceoflowpayintheUK:thechangingbalancebetweenskillsupplyand

demand;trendsinreturnstoskills;andtherelationshipbetweenskillsandproductivity.

Skillsupplyanddemand5

Despitecontinuedskillsweaknesses,therehasbeensignificantgrowthintheproportionofthe

populationwithintermediateandhigherskillsandaconcomitantdeclineinthenumberofpeople

withlowornoskillsinrecentyears.

Theproportionofmeninemploymentwithnoqualificationsfellfrom50percentin1975to21per

centin1995,whiletheproportionofmenwithdegreesorhigherrosefromsixpercentto16percent

(Machin2003).Thispatternofrapidupskillinghascontinuedintherece

Nice Work if You Can Get It: Achieving a sustainable solution to low pay and in-work poverty

Documents

Transcript of Nice Work if You Can Get It: Achieving a sustainable solution to low pay and in-work poverty