Facts about low pay

Rising Inequality – the Great Pay Divide

A major cause of the growing inequality experienced by people in Britain is the ever-widening divide between the rich and poor in the labour market.

Inequality grew faster in Britain than in any other industrialised nation except New Zealand during the 80s and early 90s, resulting in the widest gap between rich and poor since the formation of the welfare state (The Rowntree Foundation Inquiry into Income and Wealth, 1995).

The wealthiest 1 per cent of individuals own between a fifth and a quarter of total household wealth in the UK. Half the population share between them 6 per cent of total wealth (Social Trends 2001, ONS).

There are more individuals living in households with income below 60% of the median (the official measure of poverty) than in 1994/5 – 11.7 million compared to 11 million (Households Below Average Income 1994/5 to 1999/2000, DSS).

The salaries of Britain’s top chief executives have increased by nearly 15% over the last year. This follows an increase of 16.5% in the previous year. A chief executive can now expect to earn £960,000 (Incomes Data Services, October 2001).

Executive directors earn many times more than their average workers, and that gap is growing wider. In one company providing contracting services to the NHS, the average executive earns 77.3 times that of the average employee, a gap which has widened from a multiple of 63.2 over the last two years (Labour Research, Oct 2001).

Workers receiving the adult minimum wage rate had an increase of 10% in October 2001 – equivalent to just 40p an hour. The minimum wage had previously increased by only 1.8% since its introduction in April 1999 (rising from £3.60 to £3.70 in October 2000).

It would take a worker on the current minimum wage (£4.10) 131 years to earn the basic salary that the Chief Executive of Vodaphone earned last year (£1,069,000).

Low pay and poverty

‘Making work pay’ is a key component of the government’s strategy for reducing poverty. This strategy focuses primarily on raising the incomes of low-paid workers through tax credits, underpinned by the national minimum wage. Yet in-work poverty has not been eradicated - partly because of the persistence of low wages, and partly because of the complex interaction between benefits and household income.

3.5 million people - 30 per cent Of those living in poverty - live in households with at least one wage-earner. The working poor represent a larger group than the unemployed or pensioner poor (Households Below Average Income 1994/5 to 1999/2000, DSS).

Nearly 2.5 million workers earn below the lower earnings limit for national insurance contributions (currently £72 a week) and are therefore not entitled to basic benefits such as statutory sick pay and the basic state retirement pension (Labour Force Survey 2000).

The NMW was introduced at a rate too low to low to lift working households out of poverty, according to UNICEF (A League Table of Child Poverty, 2000)/i. In April 1999, when the adult minimum wage was £3.60, researchers calculated that the minimum cost of healthy living for a single adult was £131.86 a week. A man aged 18 to 21 would have had to work 51 hours, and at aged 22 plus 42.5 hours, to meet this minimum cost (The Price of Good Health, J N Morris, Journal of Epidemiology and Community Health, Dec 2000).

Tackling low pay is essential because poverty and low pay are entwined throughout an individual’s lifetime and across generations of the same family. Childhood poverty is linked to adult low pay, whilst persistent low pay causes poverty in old age. Low pay leads to poverty, ill health and social exclusion which can affect every area of individuals’ and families’ lives. Nearly a fifth of people cannot afford a ‘holiday once a year not staying with relatives’. Twenty-eight per cent cannot afford two or more of the items generally rated as basic necessities, such as replacing worn-out furniture or having friends or family round for a meal (Social Trends 2001, ONS).

Being low-paid once makes it more likely that an individual will be low paid again. Low-paid workers are also more likely to experience periods of unemployment. The persistence of low pay and the ‘low pay, no pay cycle’ have been documented by a number of research studies. It has been statistically shown that the probability of escaping from low wage employment decreases the longer an individual has been in that low paid job, and the longer the period spent in low paid work over the course of their life (McKnight A, A Study of the Working Lives of Individuals in Low-Wage Employment, Institute For Employment Research 1997).

There is a clear link between unemployment and low pay. Low paid jobs tend to be more precarious than high paid jobs. People who are unemployed are more likely to find a low-paid job than a high-paid one. It has been calculated that the low-paid in any year are 2.7 times more likely to be unemployed the following year as those who were higher paid. The unemployed in any year are three times more likely than the employed to be low-paid if in employment the following year (Gregory M, Smith Institute Seminars Dec 2000).

Low pay – regions, occupations and industries

In Spring 2000, there were an estimated jobs paying less than £4.00 an hour (8.3 per cent of jobs in the UK). There were a further 2,220 jobs paying between £4.00 and £4.50 (9.1 per cent) and 1,900 jobs paying between £4.51 and £5.00 an hour (7.8 per cent) (Labour Market Trends, March 2001).

Low pay has a regional perspective. It is more prevalent in the North East of England and Northern Ireland than elsewhere. Estimates of the percentage of the workforce affected by the minimum wage uprating in October 2001 are highest for the North East (8.7 per cent), the North West (7.8 per cent), Wales (7.6 per cent) and Northern Ireland (7 per cent) (DTI, October 2001).

Low pay is largely concentrated in certain occupations and industries. Across all industries, 26 per cent earn below £6 per hour, well below the Council of Europe’s Decency Threshold of £7.39 (two-thirds of average earnings). In hotels and restaurants, 75 per cent of workers earn less than £6 an hour. In agriculture, forestry and fishing, the figure is 65 per cent. In wholesale and retail, it is 55 per cent. And in other services (including personal and protective services) it is 42 per cent (Social Trends 2001, ONS).

All industries have some low-paid occupations, but those occupations which are consistently at the bottom of the earnings league for both men and women are in traditionally low-paying sectors. For women, the lowest-paying occupation is bar staff, followed by launderer, petrol pump attendant, kitchen hand, waitress, catering assistant, hairdresser, cleaner, checkout operator and childcare worker. Average hourly earnings for these occupations range from £4.41 to £4.91 (New Earnings Survey 2000, ONS).

For men, the lowest-paying occupation is kitchen porter, followed by bar staff, checkout operator, hotel porter, waiter, launderer, counter hand, cleaner, agricultural machinery driver, and fishmonger. Average hourly earnings for these occupations range from £4.63 to £5.44 (New Earnings Survey 2000).

Workers at risk of low pay

Certain groups of workers are most at risk of low pay: women; ethnic minority workers; young workers and older workers; those with low qualifications; part-time workers and homeworkers.

Women working full-time earn 82 per cent of average hourly male earnings; women working part-time earn just 61 per cent (NES 2000, ONS).

Four-fifths of the 2.5 million workers earning below the lower earnings limit for national insurance contributions are women (Labour Force Survey 2000).

Young people often earn less than ‘adult’ workers for doing the same job. Workers aged 18 to 21 on the minimum wage get 60p an hour less than those aged 22 and over. 16 and 17 are particularly vulnerable to low pay, because they are completely excluded from minimum wage protection.

Just over half of lone parents are in work (51 per cent), but their earnings do not lift their families far up the income distribution. Most lone parents are women, and women, particularly those working part-time, are likely to earn significantly less than men. In 2000, lone parents in full-time work earned on average £6.42 an hour (calculations by National Council for One Parent Families, Oct 2001).

Unemployment rates for ethnic minority groups are consistently higher than for Whites. In Spring 2001 the ILO (International Labour Organisation) unemployment rate for 11 per cent compared to 4 per cent (Labour Market Trends, Nov 2001).

Ethnic minority workers are over-represented in low-paying occupations and industries, such as service industries, which employ three-quarters of ethnic minority male employees and self-employed work compared to around three-fifths of white men. Fifty-two per cent of male Bangledeshi employees and self-employed work in the restaurant industry, compared to only 1 per cent of white men. High proportions of Indian and Pakistani women work in the retail trade, another low-paying sector (Labour Market Trends, Nov 2000).

Workers who are non-unionised are more at risk of low pay. Women who work in non-unionised workplaces earn on average two-thirds of the hourly pay of their male counterparts, whilst those women who are union members earn nearly 90 per cent. Black and Asian workers employed in companies where trade unions are recognised, and are covered by collective bargaining, are 32 per cent better off. In cash terms this is a union premium of £2.18 an hour. For white employees the collective bargaining premium is 10 per cent, or 78p an hour in cash terms (Black, unionised and better paid, TUC).

Individuals with lower qualifications are more at risk of unemployment and low pay. Average weekly earnings for someone with qualifications at GSCE grades A – C or equivalent are £240 and the ILO unemployment rate is 6.7 per cent. For someone with a degree or equivalent, weekly earnings are £520 and the ILO unemployment rate is 2.2 per cent. (Social Trends 2001, ONS)

Low Pay Unit, Oct 2001