Poverty and low pay in the UK: the state of play and the ... · Poverty and low pay in the UK ......

Robert Joyce

Agnes Norris Keiller

Poverty and low pay in the UK: the state of play and the big challenges ahead

Incomes in low paid employment

© Institute for Fiscal Studies Poverty and low pay in the UK

Robert Joyce

Growth in hourly wages and weekly earnings since 1994-95 (women)

Notes: Sample is employees in Great Britain.

Source: Blundell, Joyce, Norris Keiller and Ziliak (2017): www.ifs.org.uk/publications/10031. Data used is FRS 1994-95 to 2015-16.

Poverty and low pay in the UK

Hours of work have been changing – narrowing earnings inequalities between women...

© Institute for Fiscal Studies

Growth in hourly wages and weekly earnings since 1994-95




...but increasing earnings inequality among men


Prevalence of part-time work among men aged 25-55, by hourly wage level

Notes: Sample is men aged 25 to 55 in Great Britain who are employees in their main job. Part-time work defined as working less than 30 hours per week.

Source: Labour Force Survey. Poverty and low pay in the UK

Part-time work among men steadily creeping into bottom end of labour market

0%

5%

10%

15%

20%

25%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

% w

orki

ng p

art-

time

Highest 20% Middle 20%

Lowest 20% of hourly wages


Growth in pre-tax weekly earnings among working households since 1994-95




At household level, earnings inequality has been trending up (driven by men)

0.0%

0.5%

1.0%

1.5%

2.0%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Aver

age

annu

al re

al g

row

th (%

)

Percentile


Growth in incomes among working households since 1994-95


Source: Blundell, Joyce, Norris Keiller and Ziliak (2017): www.ifs.org.uk/publications/10031 Data used is FRS 1994-95 to 2015-16.


The state has been swimming against this tide to stabilise household income inequality

0.0%

0.5%

1.0%

1.5%

2.0%

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Aver

age

annu

al re

al g

row

th (%

)

Percentile of households’ pre-tax pay / post tax income

Working households’ pre-tax pay

Working households’ post-tax total income


Source: DWP benefit expenditure tables (https://www.gov.uk/government/publications/benefit-expenditure-and-caseload-tables-2017).


Real spending on tax credits and equivalents

0

5

10

15

20

25

30

35

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

£ bi

llion

per

yea

r, 20

17-1

8 pr

ices


Current policy direction is very different

© Institute for Fiscal Studies Poverty and low pay in the UK

Note: Assumes full take-up of means-tested benefits and tax-credits. Policies partially rolled are Universal Credit, the 2-child limits, the

replacement of DLA with PIP and the abolition of the WRAG premium in ESA.

Source: Authors’ calculations using the IFS micro-simulation model run on uprated data from the 2015‒16 FRS and 2014 LCFS.

-10%

-8%

-6%

-4%

-2%

0%

2%

Gai

n/lo

ss a

s %

of n

et h

ouse

hold

inco

me

Income decile

Planned or being rolled out

Already implemented in full All

Long run distributional impact of personal tax/benefit reforms since 2015

% of employees aged 25+ paid the minimum wage

Source: Figure 5 of Cribb, Joyce and Norris Keiller (2017): www.ifs.org.uk/publications/9205.


Instead the flagship policy aimed at helping low paid is a higher minimum wage...

0%

5%

10%

15%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current policy


0.0

1.0

2.0

3.0

4.0

5.0

6.0

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Aver

age

annu

al r

eal g

row

th (%

)

Percentile

Real growth in hourly wages by percentile, April 2015-April 2017

Source: Calculations using Figure 2.11 of Low Pay Commission 2017 Report (https://www.gov.uk/government/publications/national-minimum-wage-low-pay-commission-report-2017), deflating figures using CPI. Underlying data used is ASHE.


...which is having clear effects on hourly wages at bottom end


Higher minimum wages

Distributional impact very different from cash transfers: one reason why it is unhelpful to think of them as substitutes

• Hourly wages and household incomes are not the same!

Poverty and low pay in the UK © Institute for Fiscal Studies

The increase in the NLW between now and 2020: which working households get the extra money?

Note: Shows mechanical increase in net income arising from minimum wage rises planned between now and 2020. Ignores all knock-on effects of higher minimum wages, such as impacts on company profits, the wages of other workers, employment and hours worked. Does account for interaction with tax payments and benefit entitlements.

Source: Calculations using data underlying Figure 9 of Cribb, Joyce and Norris Keiller (2017): www.ifs.org.uk/publications/9205


Higher minimum wage targets the lowest-wage people, not the lowest-earning households

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

Poorest 2 3 4 5 6 7 8 9 Richest

% in

crea

se in

net

inco

me

Net household income decile (working households only)




Clearly a reasonable case for a higher minimum

• Up to 2015, it seems to have raised wages at the bottom end without having big negative effects on employment or hours of work





Like cash transfers, there will be limit to how far we can push the minimum before tradeoffs become bigger than we want to accept

• An ever-higher minimum must affect employment of low skilled beyond some point

• We do not know where that point is





Like cash transfers, there will be limit to how far we can push the minimum before tradeoffs become bigger than we want to accept

In the end, to keep a lid on earnings inequalities there may be no substitute for better tackling the underlying drivers...


A lifecycle view of male hourly wages, by level of education

Notes: Wages are shown in 2016 constant-wage terms (population-wide wage growth over time is effectively stripped out). People in the bottom two and top one percentiles of the gender- and year- specific hourly wage distributions are excluded.

Source: Figure 4 of Costa Dias, Joyce and Parodi (2018): www.ifs.org.uk/publications/10358. Data used is LFS 1993Q1-2017Q2.


0

5

10

15

20

25

20 25 30 35 40 45 50

Hou

rly w

age

(£)

Age

GCSEs A levels Degree

Low wages often driven by lack of progression


Proportion receiving job-related training over past year (male employees)

Notes: Training defined as at least 50 hours of formal training over the past year.

Source: British Household Panel Survey 1991-2008.


0%

5%

10%

15%

20%

25%

20 25 30 35 40 45 50 Age

GCSEs A levels Degree

Those without education typically gain less from other sources of wage growth as well


Notes: Wages are shown in 2016 constant-wage terms (population-wide wage growth over time is effectively stripped out). People in the bottom two and top one percentiles of the gender- and year- specific hourly wage distributions are excluded.

Source: Figure 4 of Costa Dias, Joyce and Parodi (2018): www.ifs.org.uk/publications/10358. Data used is LFS 1993Q1-2017Q2.


0

5

10

15

20

25

20 25 30 35 40 45 50

Hou

rly w

age

(£)

Age

GCSEs

0

5

10

15

20

25

20 25 30 35 40 45 50 Age

A levels

Men Women

0

5

10

15

20

25

20 25 30 35 40 45 50 Age

Degree

Progression also key to understanding wage differences between men and women...


Proportion of men and women in part-time paid work

Notes: Part-time work is defined as no more than 25 hours per week.

Source: Figure 7 of Costa Dias, Joyce and Parodi (2018): www.ifs.org.uk/publications/10358. Data used is BHPS 1991-2008 and Understanding Society 2009-15.


0%

10%

20%

30%

40%

50%

-5 0 5 10 15 20 Years before/since birth of first child

GCSEs


A levels

Men Women


Degree

...which brings us to another key determinant of wage progression: hours of work


Decomposing the difference in hourly wages between mothers and fathers once the first-born child is grown up

Notes: Part-time work is defined as no more than 25 hours per week.

Source: Costa Dias, Joyce and Parodi (2018): www.ifs.org.uk/publications/10358.


Part-time experience does not lift hourly wages: one significant driver of gender wage gap

8

30

+8

+3

+11

0

5

10

15

20

25

30

Gap when first child was born

Working mothers more likely to be part-time than

fathers

Mothers more likely to take time out of paid work

Other factors causing widening

gap after childbirth

Gap when first child is aged 20

Hou

rly w

age

gap

(%)


http://www.ifs.org.uk/publications/10358

Should be priority to understand why part time experience brings such little wage uplift

Many possible reasons, including:

• Lack of training

• Less opportunity for informal interaction / networking

• Genuine constraints on build-up of skill in low-hours jobs

• Labour market for part-time workers less competitive

Appropriate policy response will depend on the underlying drivers


Notes: Shows employment rates for women aged 15-64 with a dependent child under 15 (or under 18 in the US). Part-time employment defined as less than 30 usual hours per week in main job.

Source: OECD (2017), “Dare to Share: Germany’s Experience Promoting Equal Partnership in Families”, https://tinyurl.com/ycvqtcpw


The extent to which mothers work part-time in the first place appears malleable

0

10

20

30

40

50

60

70

80

90

100

Part-time (%) Full-time (%) Variable hours/other (%)

Maternal employment rates across OECD countries


Conclusions

General lack of wage growth, underpinned by lack of productivity growth, is a major underlying problem

Over a number of years trends in household earnings have been even weaker at bottom end

• Changes in hours of work key to this – need to understand them better

We have spent lots on cash transfers, and are now aggressively raising minimum wages, to prop up the bottom end – but both can only go so far

• Must also focus on underlying drivers of low pay

Low wages are often about a lack of progression

• Policy design should factor this in

• What effects will conditionality for in-work claimants in universal credit have?


Robert Joyce

Agnes Norris Keiller

Poverty and low pay in the UK: the state of play and the big challenges ahead

Poverty and low pay in the UK: the state of play and the ... · Poverty and low pay in the UK ......

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