The coming years will be pivotal for the UK’s labour market. Along with new questions raised by Brexit, the responses to longstanding issues dogging firms and workers alike will be key. When it comes to action points, Britain’s woeful productivity growth since the financial crisis is top of the list but not far below is getting to grips with a decades-long overreliance on low-paid jobs.
Sometimes overlooked is the extent to which these two issues are connected: a more productive economy is likely to be built upon a more highly-skilled, highly-paid workforce. Answering the question of whether low pay is the first step towards better paid, better-skilled roles or as high as many employees climb is therefore an essential prerequisite in responding to the productivity challenge, as well as making sure the country works for all earners.
To explore this, our analysis tracks initially low-paid employees (earning below two thirds of median hourly pay) across a decade. Based on their outcomes, we split them into three main groups:
- ‘Stuck’: employees who were in low-paid work in every year they appear in
the data. - ‘Escapers’: those who earn above the low pay threshold in each of the final
three years of the decade, suggesting they have made a sustained move onto
higher wages. - ‘Cyclers’: people who fall between the above categories, moving onto higher
wages at some point during the decade but not consistently out of low pay by
the end of the period.
Our analysis finds that for most low-paid workers, poorly-paid positions are not acting as a first rung on the ladder – it is the only rung. Of all those low paid in 2006, by 2016 just one in six (17 per cent) were escapers. One in four (25 per cent) remained stuck throughout the period while just under half (48 per cent) were cyclers, moving onto higher wages at some point but not sustaining that progress. The remaining one in ten employees exited the data, meaning they were not an employee after the initial period.
Despite this negative overall picture, these figures represent progress over recent decades. For instance, 35 per cent of those who were low paid in 1981 were still stuck in 1991, the highest proportion in our data which stretches back to low paid workers in 1975. But while the share of low-paid employees escaping has risen slightly over the past quarter of century (from one in ten, or 11 per cent, for the 1981- 91 cohort), the falling share of people becoming stuck appears to have been
replaced by a greater proportion of cyclers.
Change – and some progress – has been visible within groups too. We find that women are overrepresented among those who remained stuck from 2006 to 2016. But the proportion of women getting stuck has fallen from 48 per cent in 1981-91 to 30 per cent in 2006-2016, when those who exit the data over the following decade are excluded. In contrast, the risk of long-term low pay has increased for men over the same period (from 20 per cent to 25 per cent). This is likely due to the increasing number of men working in low-paid part-time work. People switching from part-time to full-time work were more likely to have escaped than those who didn’t.
In order to assess which of these characteristics appear to be linked to getting stuck or escaping, and the relative size of the effect those factors have, we carry out regression analysis to isolate the key factors. We find that the number of years spent in employment over the following decade is positively and significantly linked to escaping from low pay. On average, 2016 escapers had been in employment for an average of 8.3 years compared to 5.9 years for cyclers and 4.5 years for the stuck.
This is likely to weigh particularly heavily on women who have children and take time out of the labour market after giving birth. Our analysis finds that women are significantly less likely to escape than men, with the size of the negative effect particularly large for women in their early 20s. This, combined with the fact that the number of years worked part-time is also negatively linked to progression strongly suggest that caring responsibilities and the lack of quality part-time work is bearing down on the progression chances of mothers.
This reinforces previous research on the topic, and organisations such as Timewise have long highlighted the dearth of quality employment available for women with caring responsibilities. But given the scale of the skills and potential of mothers that is currently going untapped, more clearly should be done. Some of this responsibility lies with employers, ensuring where possible that they offer more higher-paying roles on a part-time or flexible basis. Government has a key role too, with the design of Universal Credit and the incentives it offers to women to seek out better-paying work currently doing too little to support progression. And while the new system of ‘in work conditionality’ will most likely push affected claimants towards full-time work rather than higher-paying positions, government, as well as local leaders like Metro Mayors, should take this shift in the role of the state as an opportunity and be thinking creatively about what interventions could help more low-paid women to progress.
Some kinds of workplace are also significantly linked to the question of progression. Accounting for the type of occupation worked in, a strong negative impact persists for those who remain in the accommodation and food services industry. This is unsurprising in some senses given the prevalence of low-paying roles in the sector but does suggest that people find it easier to progress by leaving hospitality and moving into other higher-paying industries. But the issues already highlighted on Brexit and productivity are particularly relevant for hospitality given its relatively large EU workforce and low productivity compared to other countries. Taking progression seriously and building more routes out of low-paying roles and into higher-skilled positions within the industry would be an important step.
The government’s forthcoming industrial strategy could contribute to this by putting not only high-employment (in which the UK has some considerable success) but reducing the prevalence of low pay in sectors in which it is endemic, such as hospitality and retail, front and centre. Focusing on these parts of the economy will be essential if low pay is to become a springboard to higher earnings for more people and to improve our long run record of only a minority of low paid workers escaping to a higher rate of pay within a decade.