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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19 things wrong with Daniel Hannan’s tweet about the women’s march

The crackpot and these women.

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

State of this:

I mean honestly, where do you even begin? Even by Daniel’s rarefied standards of idiocy, this is a stonker. How is it stupid? Let me count the ways.

1. “Our female head of government” implies the existence of “their female head of government”. Which is odd, because the tweet is clearly aimed at Hillary Clinton, who isn’t anybody’s head of government.

Way to kick someone when they’re down, Dan. What next? “So pleased that my daughter received a wide selection of Christmas presents, unlike those of certain families”?

2. I dunno, I’m no expert, but it’s just possible that there are reasons why so few women make it to the top of politics which don’t have anything to do with how marvellous Britain is.

3. Hillary Clinton was not “the last guy’s wife”. You can tell this, because she was not married to Barack Obama, whose wife is called Michelle. (Honestly, Daniel, I’m surprised you haven’t spotted the memes.)

4. She wasn’t married to the guy before him, come to that. Her husband stopped being president 16 years ago, since when she’s been elected to the Senate twice and served four years as Secretary of State.

5. I’m sure Hillary would love to have been able to run for president without reference to her husband – for the first few years of her marriage, indeed, she continued to call herself Hillary Rodham. But in 1980 Republican Frank White defeated Bill Clinton’s campaign to be re-elected as govenor of Arkansas, in part by mercilessly attacking the fact his wife still used her maiden name.

In the three decades since, Hillary has moved from Hillary Rodham, to Hillary Rodham Clinton, to Hillary Clinton. You can see this as a cynical response to conservative pressure, if you so wish – but let’s not pretend there was no pressure to subsume her political identity into that of her husband, eh? And let’s not forget that it came from your side of the fence, eh, Dan?

6. Also, let’s not forget that the woman you’re subtweeting is a hugely intelligent former senator and secretary of state, who Barack Obama described as the most qualified person ever to run for president. I’m sure you wouldn’t want to be so patronising as to imply that the only qualification she had was her husband, now, would you?

7. I’d love to know what qualifications Dan thinks are sufficient to become US president, and whether he believes a real estate mogul with an inherited fortune and a reality TV show has them.

8. Hillary Clinton got nearly 3m more votes than Donald Trump, by the way.

9. More votes than any white man who has ever run for president, in fact.

10. Certainly a lot more votes than Theresa May, who has never faced a general election as prime minister and became leader of the government by default after the only other candidate left in the race dropped out. Under the rules of British politics this is as legitimate a way of becoming PM as any, of course, I’m just not sure how winning a Tory leadership contest by default means she “ran in her own right” in a way that Hillary Clinton did not.

11. Incidentally, here’s a video of Daniel Hannan demanding Gordon Brown call an early election in 2009 on the grounds that “parliament has lost the moral mandate to carry on”.

So perhaps expecting him to understand how the British constitution works is expecting too much.

12. Why the hell is Hannan sniping at Hillary Clinton, who is not US president, when the man who is the new US president has, in three days, come out against press freedom, basic mathematics and objective reality? Sorry, I’m not moving past that.

13. Notice the way the tweet says that our “head of government” got there on merit. That’s because our “head of state” got the job because her great, great, great, great, great, great, great, great grandmother happened to be a protestant in 1701 and her uncle wanted to marry a divorcee – all of which makes it a bit difficult to say that our head of government “ran in her own right”.  But hey, whatever makes you happy.

14. Is Daniel calling the US a banana republic? I mean, it’s a position I have some sympathy with in this particular week, but it’s an odd fit with the way he gets all hot and bothered whenever someone starts talking about the English-speaking peoples.

15. Incidentally, he stole this tweet from his 14-year-old daughter:

16. Who talks, oddly, like a 45-year-old man.

17. And didn’t even credit her! It’s exactly this sort of thing which stops women making it to the top rank of politics, Daniel.

18. He tweeted that at 6.40am the day after the march. Like, he spent the whole of Saturday trying to come up with a zinger, and then eventually woke up early on the Sunday unable to resist stealing a line from his teenage daughter. One of the great orators of our age, ladies and gentlemen.

19. He thinks he can tweet this stuff without people pointing and laughing at him.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. He is on Twitter, almost continously, as @JonnElledge.