Work and Pay

Why are so many more people now paid below the Living Wage?

  • Published: Sep 04, 2013
  • Author: Peter Kenway
  • Category: Work and Pay

The striking headline statistic in today’s report on Low Pay  from the Resolution Foundation was that:

4.8 million Britons (20% of all employees) earn below the Living Wage – a leap from 3.4 million (14%) in 2009 – at the height of the recession.

This is a rise of 40% in only three years! So what might account for it?

One possibility is that the job growth that has been seen over the last three years has been concentrated at the bottom of the pay scale. 

Net jobs growth over the period was just 250,000. That is far smaller than the increase of 1.4 million in the number paid less than the Living Wage – but in itself that is not decisive as there could have been a big increase in low paid jobs and a big decrease in higher paid ones.
So has the shape of the jobs distribution, as measured by pay, changed?  Are there proportionately more jobs at the bottom than there were three years earlier?

One way to check this is to look at the ratio of median pay (the rate below which exactly half of workers are paid) and average pay. Because people further up the pay scale are paid a lot more, this ratio is always less than 1. If the distribution were indeed shifting towards the bottom the ratio would fall. The statistics here do show a very slight fall over the three years – although that seems more to do with incomes just below the middle than incomes lower down.. But since this fall accounts (we reckon) for at most an extra 100,000 low paid jobs, this can’t be the explanation either.

Any employer with a beady eye might be inclined to question the rise in the Living Wage itself. But the Living Wage was not in existence in 2009 so to get these figures Resolution has deflated the current Living Wage rate in line with the London Living Wage which began in 2003, a reasonable assumption. So how has the London Living Wage changed? Resolution Foundation took £8.30 for 2012 (before the rise announced in November). Three years earlier it was £7.45. But that’s a rather big jump isn’t it – more than 11%! Isn’t this the explanation for the growth in low paid jobs – no doubt due to some dubious arithmetic in the way the Living Wage is worked out?

As such an employer, I thought this would be the explanation. In actual fact, though, far from being over-cooked, that rise in the Living Wage is – to within just three pence – exactly what you’d get if you had put it up in each of the last three years in line with the consumer price index. So it is nothing to do with any clever-clever way the Living Wage is worked out. It’s just inflation.

And of course that (11%) inflation is indeed one of the villains of the piece. What’s the other? Just that the over the three years, median earnings have risen by only 2%. The painstaking way both the Living Wage and the London Living wage is worked out reflects what has been happening to costs. Wages up 2% when inflation is up 11% plainly have not been doing that at all. As a result, 20% of jobs are now paid below the Living Wage up from 14% in 2009.

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