The high cost of low pay

As the minimum wage rises below inflation yet again, Matthew Pennycook examines the cost of low pay.

On Monday the National Minimum Wage (NMW) for people aged 21 and over will rise to £6.19 an hour from its current rate of £6.08. This represents a third consecutive annual fall in the real terms value of the minimum wage, now back to levels last seen in 2003. Put simply, the impact of the NMW is stalling. And while the Low Pay Commission’s cautious 11-pence-an-hour rise may be entirely justified in the current economic climate, it will provide little comfort for those that rely on a minimum wage to get by.

None of this is to denigrate the crucial role of the minimum wage. Since its introduction in 1999 the NMW has had a dramatic effect in reducing extreme low pay, providing around one million low-paid workers with the protection of a legal pay floor and ensuring that they are less badly paid than their counterparts in countries such as Germany and the United States. What’s more, this positive effect has come with little or no negative impact on either employment or working hours.

But while the minimum wage continues to shelter a significant minority of British workers from extreme low pay, it is not (and never has been) set at levels that would reduce the overall levels of low-paid work in Britain. Consequently, as a new report released today by the Resolution Foundation makes strikingly clear, its existence does not alter the fact that 5 million workers in the UK – 1 in 5 employees – paid at or above the legal minimum nevertheless remain in low-paid work. These 5 million people earn below £7.49 an hour (£13,600 a year gross for full-time work) and below the level of a living wage that would provide for “a minimum acceptable quality of life”. For this low-paid army – disproportionately female, part-time, and concentrated in the private sector – the NMW provides a safeguard from extreme low pay but not an escape route from life on a low wage.

Low-paid work is, of course, a feature of labour markets in all advanced economies. Yet low-paid work in Britain is associated with a number of negative attributes not shared by other countries. These include higher pay penalties for part-time work, a greater risk that women will find themselves in low-paid work, and a higher risk of low-paid work in certain low-skilled occupations such as social care and childcare.

And among advanced economies, the UK stands out as having one of the highest incidences of low-paid work. This was not always the case. After falling sharply in the early 1970s the share of low pay in the British labour market has grown steadily over the past three decades.

The growth of low-paid work in Britain has been, in part, the product of the steady rise in inequality experienced by much of the developed world in the final quarter of the 20th century. But policy decisions taken over the past three decades have also contributed to the rise, by eroding those institutions that have done much in other countries to arrest the forces bearing down on pay at the bottom of the labour market.

So policy choices matter. Our reliance on an extensive pool of low-skilled, low-paid labour is not predetermined. It’s not the unfortunate but necessary pre-requisite to a strong labour market. Other advanced economies with lower shares of low-paid work have not suffered lost employment or diminished competitiveness. Britain’s low-pay, low-productivity economic model is not the only option available to us.

And it is a model that we pay a heavy price for tolerating. Economically, Britain’s low-paid labour market has been central to the costly – as much £4bn a year – reliance of many low to middle income households on tax credits and other in-work transfers to support household incomes. Socially, low-paid work has been a factor in the gradual rise in in-work poverty since the mid-1990s and is linked to a range of negative outcomes including poor health, higher levels of workplace related stress, and diminished life chances.

Combating low pay is not easy. Tipping the balance away from employment strategies that rely on low paid, low productivity, poor quality jobs and towards 'high road' employment strategies is an almost herculean task. So it is not surprising that many policymakers have preferred to correct market inequities through remedial redistribution. Yet few, if any, believe that the growth in tax credit support that occurred over the past decade can be repeated in these fiscally straitened times. In the years ahead wages will have to do far more of the heavy lifting needed to sustain living standards. But for too long we have confused the existence of the minimum wage with a strategy to reduce low pay. They are not the same thing. So while valuing the vital protection the minimum wage provides for those at the very bottom, we urgently need to start doing the hard thinking required to deliver an ambitious policy agenda to tackle Britain’s endemic levels of low pay.

Margaret Dobb, the wife of a Nottinghamshire miner, holds up a placard at a strike in 1972. Photograph: Getty Images/Hutton Archive

Matthew Pennycook is MP for Greenwich and Woolwich, and member of the Energy and Climate Change Committee. He is PPS to John Healey. 

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How the middle-aged became the hedonists

When they next open a bottle of wine (or three), the parents and grandparents of today’s teens should raise a glass to their responsible offspring.

Rare is the week that passes without more horrific tales of the debauchery of the youth. One photo has come to embody their supposed recklessness: "bench girl", a young woman lying passed out on a public bench in Bristol with bottles of booze scattered beneath her. The photograph is now a decade old, and the image it portrays is in urgent need of updating. The startling thing about today’s youth is now how much they indulge but how well behaved they are. They are putting their hedonistic parents and grandparents to shame.

Wherever you look, the picture is the same. Over a quarter of those aged 16-24 today are teetotal; just 29 per cent drink heavily in an average week, compared with 44 per cent a decade ago. Only 23 per cent of under-25s smoke, a 10 per cent decrease since 2001. Conception rates among under-18s are at their lowest since records began in 1969, and the number of sexually transmitted infections among those under-25 has also declined in the last five years. Today’s youth haven’t been resorting to narcotics, either: drug use among under-25s has fallen by over a quarter in the last decade.

Young fogeys are not only on the rise in Britain. In America teen sexual activity has decreased by one-fifth since 1988, and only 38 per cent of 12th grade students (those aged 17 and 18) said they have been drunk in the past year, compared to 52 per cent in 2001. Something similar is happening throughout Western Europe: in Spain, wine consumption has halved since 1980.

These trends reflect how times have changed for young people. The rise of online entertainment and socialising has its downsides, such as increased loneliness and anxiety, but teenagers and those in their early twenties have many more alternatives to boozing or smoking a spliff. “In past decades, teens might have smoked, drank and had sex because they didn’t have much else to do,” says Jean Twenge, the author of Generation Me. “Now, teens have a world of entertainment and digital communication available on their phones 24/7.” And savvy youngsters know that social media has given debauchery an online afterlife. About half of recruiters in the UK already look at a candidate’s social media profile, according to a study last year from Career Builder, and a third of all recruiters have rejected candidates about finding evidence of binge-drinking or drug use online. Small wonder ambitious young people are so reluctant to indulge.

Today's youngsters have less money for booze and drugs. They have become poorer in the past decade: in real terms, full-time wages for those aged 18-21 and 22-29 were over 10 per cent lower in 2013 than in 2004. Add to this soaring housing costs, and Generation Rent is too preoccupied with saving to spend a great deal on drink and drugs: 670,000 more people aged 20-34 live with their parents in Britain today than in 1996. 

Parenting has become better, making it harder for children to drink away their teenage years. A quarter more 11-15-year-olds say their parents don’t like the idea of them drinking than in 2008. Parents have become older – the average age of a woman giving birth has passed 30 for the first time in history, and is four years higher than in the 1970s – and are having fewer children: the average number of children per UK woman has decreased from 2.93 to 1.83 in the past 50 years. “Over the last 20 years, parents have become more attentive and involved, more playful, less harshly punitive with their children. They are more educated about parenting, and monitor their children more closely,”  says Frances Gardner, Professor of Child and Family Psychology at Oxford University. “Women have also become more educated in general, and now have children at later age. So this may have improved the behaviour of young people.”

The government has also made life harder for youthful hedonists. Schemes like Challenge 21 and Challenge 25 and an increase in fines dished out to shops, pubs and clubs that allow those under-18 to drink have made it more difficult to source drink under-age. The ban on smoking in enclosed public places, including pubs and bars, and workplaces in 2007 has ushered in an era when smoking is increasingly regarded as an inconvenience. Meanwhile taxes on cigarettes and alcohol have been ramped up: across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today. Selling alcohol below cost price was banned last year.

But the decline of youthful excess is about far more than the cost. If price were all that was driving youngsters away from booze and fags, then use of drugs, which have become significantly cheaper in real terms, would be on the rise. That young people are far better behaved owes to something much deeper than a thinning out of their wallets: it is the result of a generation who know how competitive the workplace is and are ambitious to get ahead.

The recession and globalisation mean have made the employment market far tougher. Most important to making the workplace more cutthroat is the rise of skilled female graduates. Women outnumber men at university today – including Russell Group institutions. Thirty years ago, only 56 per cent of women aged 16-64 were in work; today, 69 per cent are.

Young people have never faced more competition for the best jobs. They know it, too: even at university, freed from the prying eyes of their parents, young people are shying away from drugs and booze. The trebling of tuition fees to £9,000 a year five years ago makes university an awfully expensive place to go if your only aim is to get hammered. And students know that indulging while their contemporaries swat up in lectures will make them less employable after they graduate. Greater competition in the workplace means that “the cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of consumer trends agency Future Foundation.

Some fear that as real wages increase, so will underage drinking and drug taking. Yet it seems more likely that young people will become even better behaved. Even as the economy has ticked up young people have not changed their habits. “If you grow up in the middle of a recession it will effect what you spend your money on,” says Kate Nicholls, chief executive of the Association of Licensed Multiple Retailers. Young people who have discovered alternatives to late-night drinking have learned there are plenty of other ways to be entertained than binge drinking into the early hours.

The changing face of Britain is making youthful excess less common. Although London is the richest part of the country, it is also among the least hedonistic: a third of adults in London do not drink alcohol at all, easily the highest of any British region. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” says Dr James Nicholls, Director of Research and Policy Development at Alcohol Research UK. Not only are ethnic far less likely to indulge in booze, drugs and fags, but the effect seems to rub off on their white British friends.

While millennials have proved better behaved than the previous generation of young people, they are now being outdone by those born in the new century. Children are a third less likely to bunk off school now than in 2008. Just 22 per cent of under-16s have tried a cigarette, half the number who had in 2003.

“All I need are cigarettes and alcohol,” Oasis sang 22 years ago. While the spirit of excess is dying among today’s young, it remains alive among their parents and grandparents. Sexually transmitted infections, which are declining among the under-25s, are rising fastest among those over 45. Those aged 65 and above are now more likely than any other group to drink alcohol at least five days a week, with those aged 45-65 not far behind. Perhaps, as Katherine Brown of the Institute of Alcohol Studies says: “Watching your parents get gozzled might put young people off.”

When they next open a bottle of wine (or three), the parents and grandparents of today’s teens should raise a glass to their responsible offspring. And when politicians complain about “broken Britain”, they should make it clear that they have middle-aged hedonists in mind. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war