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Low Pay Is Fast Becoming a Defining Challenge of Our Age

Posted: 28/02/2013 10:04

You can tell a lot about a downturn by the image that comes to define it. From queues outside job centres in the 1970s and early 1980s to the poll tax riots that preceded the early 1990s recession, the pictures that stick in the mind have a habit of reflecting the key economic and political challenge of the time. So what will be the iconic image this time around? Images of last summers' riots will undoubtedly endure. But the more representative picture of the squeeze so far would be much less dramatic: a low paid, part-time worker, struggling in to work each day, bringing home a wage that barely pays the bills.

Today's new figures from the ONS confirm what's been suspected for some time: low pay is fast becoming one of the defining economic challenges of our age. Among a host of new evidence, they show that a quarter of workers earned less than £12,800 a year in 2012. The findings reinforce last week's jobs market numbers which yet again told a story of fast employment growth and a tightening wage squeeze. Far from being a blip, this 'jobs boom, pay slump' economy seems to be here to stay. IFS analysis of the so-called 'productivity puzzle' suggests a collapse in wages, rather than a squeeze in working hours, lies behind the mismatch of weak growth and strong job numbers. Meanwhile, Resolution Foundation research shows that something fundamental changed in our jobs market as far back as the early 2000s: unemployment has always had a chilling effect on pay but now the effect has grown. Britain's workforce has to struggle harder than it used to for a pay rise.

Some will say this is simply a trade-off: take low pay in exchange for higher employment. And of course a low paid job is better than no job. But the modern phenomenon of low pay is about much more than a flexible labour market navigating tough times. Even back in 2008, before the crisis struck, almost a fifth of UK workers were paid below a living wage. As jobs in sectors like social care, logistics and hospitality have expanded, we've fallen into a low paying economic model. This is not a fact of life in all mature economies: although jobs like these are created everywhere, Britain has twice the scale of low pay of some other European countries.

The good news is that politics is starting to wake up to these trends. As was always likely, this is happening first through tax cuts. Labour's pledge to reintroduce a 10p tax rate, swiped from Robert Halfon's energetic Tory campaign, speaks directly to people who are working yet struggling. So too does the Lib Dem's flagship policy of raising the personal allowance. Yet for all that tax cuts might help to ease the squeeze, they have one thing in common: they throw money at a problem rather than solving it. And for a problem we're already spending more than £2 billion a year on through in-work benefits and tax credits for people paid below the living wage, that's not a strategy that can stick over the long-term.

So what can be done? Front-runners like Matthew Hancock are already arguing that a Conservative response to low pay will mean "passionately supporting the minimum wage, and indeed strengthening it". The influential Conservative Home agrees that opposition to the minimum wage was wrong. Meanwhile Labour talks up the Living Wage. These statements are significant but will need to be built on. That will mean, for example, beefing up the Low Pay Commission into a body worthy of its name, giving it the power to judge when sectors could afford to pay more than the mandatory minimum wage. And it will mean encouraging the spread of the Living Wage through new transparency rules and by striking deals with cities that pay the living wage, for example sharing with local areas some of the money central government saves through reduced benefits and increased taxes.

These ideas will take time to develop. And we shouldn't pretend they'll trump the sharp promise of tax cuts any time soon. But voters do back parties that speak to the material challenges of daily life. It's not for nothing that the minimum wage has been voted the last government's most popular policy. In past downturns, images of unemployment became so iconic that they were turned into political ads, haunting Labour for giving the feeling they had no grip on unemployment. No party will want that to happen when it comes to the grinding reality of low pay.

 

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