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19 January 2015

Jobs at any price are not enough to close the living standards gap

Full employment must go hand-in-hand with better pay and government support for low-paid workers as a new report highlights the gulf in living standards for many families. 

By Katie Schmuecker

Today David Cameron set out his ambition for a UK with full employment. He wants to see more jobs created so that all those that want to work are able to, and to ensure people can keep more of what they earn before they have to start paying tax. A new report published today by the Joseph Rowntree Foundation underlines how important these goals are. But it also makes clear that we need to aspire not only to more jobs, but to better jobs in the UK.

The report, by Loughborough University, tracks how many people are falling short of the Minimum Income Standard – a benchmark compiled by members of the public, based on what they think is needed for a minimum socially acceptable standard of living.

An unsurprising finding is that the likelihood of falling short of a decent standard of living decreases as the amount of employment in the households increases. To take a couple with two children as an example, 88% of households where neither parent is working lack a decent standard of living, compared to 9 per cent of households where both parents work full time.  As such, ensuring those that are able to work have the opportunity to do so is clearly important.

What is perhaps more significant is that work offers less of a guarantee of a decent living standard than it did in the past. Families where one parent works full time, and the other works part time, and families with a single breadwinner have seen their risk of falling short of a decent living standard increase sharply.  Half of single breadwinner families had inadequate incomes in 2012/13 (the most recent income data), up from less than four in ten in 2008/9. 

Lone parents too have a high risk of falling short of a decent income. A third of lone parents working full time had inadequate incomes, along with more than six in ten of those working part time or self-employed. 

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This decline has been brought about by the cost of essentials rising rapidly for successive years, at a time when wages have been stagnant and in-work benefits, such as tax credits, cut. This has made it more difficult for families to make ends meet, and a gulf has opened up between family incomes and the cost of essential goods and services. 

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David Cameron is right to look to the labour market to provide a solution to this problem, and while the falling unemployment rate of recent years is good news, there is a need to look more closely at both the amount and type of work available to each household, which will influence how far it enables people to reach an acceptable living standard. Recent JRF research found three in five people leaving unemployment last year went into jobs that pay less than the living wage (currently £7.85 an hour outside London, and £9.15 in London). What is more, the UK has more low-paid, low skilled-jobs compared to other western European countries. We need to drive up business investment and productivity to enable wages to rise.

But the biggest challenge is the size of the living standards gap that has opened up. Between 2008/9 and 2012/13 the number of people in families with children struggling to make ends meet increased by more than a third (to reach 8.1 million individuals). The gap is now so great that it is likely to take several years for the ground to be made up. To improve living standards full employment must go hand-in-hand with higher pay and sustained support for the lowest income workers through the tax and benefit system.

Katie Schmuecker @katieschmuecker is a policy and research manager at the Joseph Rowntree Foundation