The UK jobs recovery has been something of an international phenomenon but the tax revenues the Chancellor expected would fill the deficit have not materialized because too many of today’s new jobs are low skilled and low paid.
Compared to our international competitors, we have a higher percentage of low paid workers – those earning below £7.69 an hour. One in five British workers – 5.2 million – are low paid. More worryingly low pay is, for too many, not a passing phase.
Three quarters of those who started off low paid in 2001 failed to move permanently out of low pay during the next decade. This lack of pay progression costs us all because what the low paid do not earn from businesses, tax payers subsidise through tax credits to the tune of £20 billion a year. Creating an economy where more people can earn their way to a better standard of living is essential for a sustainable recovery.
Enabling more of the low paid to earn their way up requires business to do more to address two critical barriers to progression:
- The first is the lack of meaningful pay increases for extra responsibility in sectors such as retail and hospitality. Moving from being on the shop floor to being a supervisor may get you no more than an extra thirty pence an hour – not a fair exchange for more responsibility, skill and stress and still far below a decent standard of living.
No one at the top end of the pay scale would expect to see their responsibility double without being adequate rewarded. Career progression in low paying sectors must go hand in hand with meaningful pay progression and for this to happen, business needs to invest to improve productivity.
- The second barrier is the limited opportunities for progression for those who work part-time and are not able to offer complete flexibility, those with young children, other caring responsibilities or with a long term health condition. Working part-time makes you much more likely to get stuck in low pay which explains why low pay affects women disproportionately. More than one in four female employees were low paid last year compared to 17 per cent of men.
Business needs to find ways to maximize the potential of the entire work force and open up opportunities for training and progression to all workers, not just those who can be available 24/7. Families with two parents in work are far less likely to be in poverty which makes it critical to create opportunities for second earners, usually women, to progress.
Fully addressing the challenge of our low pay economy will require action from business and from government. Business has an important role to play, without which our much hailed jobs recovery could quickly turn sour.
Vidhya Alakeson is the Deputy Chief Executive of the Resolution Foundation. She previously worked for the UK and US governments and in several other leading think tanks.