The Problem of Low Wage Work Runs Far Beyond Workfare

02/03/2012 21:43 | Updated 02 May 2012

The recent furore surrounding the UK government's work experience programme has centred somewhat narrowly on the rights and wrongs of large corporations benefiting from free youth labour.

Largely absent from the debate has been the wider problem of low wage work in our economy.

At a time of rising unemployment one could be forgiven for thinking that raising job quality and wages is hardly a priority. Yet there are good reasons for believing that, alongside the pressing issue of unemployment among low-skilled workers, improving low paid jobs will be one of the key routes to higher living standards in the next decade.

Precarious low paid work - often with little means of advancement - is now a key feature of labour markets in advanced economies throughout the world. A combination of factors have driven its onward expansion including declining worker bargaining power and technological advances that have driven down wages for tasks traditionally undertaken by low and medium-skilled workers while increasing the demand for low-skill, low-wage work in personal service sectors.

Yet among advanced economies, the UK stands out as having one of the highest incidences of low wage work with polarisation between workers with higher skill levels and those with low skills and low wages now an entrenched feature of the UK labour market. As a report from the Resolution Foundation has shown, despite the protection afforded by the National Minimum Wage (set at £6.08 since 1 October 2011), around 21% of employees in the UK (5 million in total) still earn less than a living wage - currently set at £8.30 in London and £7.20 in the rest of the country - that would guarantee a minimum acceptable standard of living. These workers are disproportionately female, part-time, and concentrated in the private sector.

And low paid poor quality work in the UK is not a problem solely for individuals in the formative years of labour market participation. It affects workers of all ages and for a sizable core of workers has become a life sentence. One in seven workers aged 36-45, at the point of their 'peak earnings' potential, earn less than a living wage. Nor are these types of jobs confined to specific sectors such as retail. Low wage work in the UK is strikingly prevalent across the economy. Those who see the 'rebalancing' of the UK economy towards manufacturing as a Holy Grail should bear in mind that wage inequality varies far more within industries than between them, with around 13% of workers employed in manufacturing earning less than a living wage.

If economic rebalancing is not the silver bullet for reducing the UK's high incidence of low paid work, what is? Part of the answer lies in tipping the balance away from employment strategies that rely on low paid, low productivity, poor quality jobs. Too many UK firms operate low value business strategies in which the workforce is viewed principally as a cost driver rather than a driver of sales. As Professor Zeynep Ton has shown in a US context, this is not the only option. Evidence suggests that, when backed up with a specific set of operating practices, investing in employees can boost customer experience and decrease costs while maintaining low prices. Critically, Professor Ton's examples of employers pursuing these 'high road' strategies aren't all high value producers in the manner of John Lewis or Rolls Royce. Some, like Cost Co, are value supermarket chains, operating in the highly competitive US retail sector.

The incidence of low paid, poor quality jobs varies not just between advanced economies but also within them, with different firms actively choosing to pursue different employer strategies. This broad variety of approaches that firms can take is one reason the trade-off between wage levels and employment is not as simple as was once presumed. Companies have many ways of adapting to a higher wage bill, many of which don't just mean laying off workers, and many did just that in the wake of the introduction of the National Minimum Wage in 1999.

Ultimately, of course, tilting the balance towards 'high road' employment strategies will be difficult and will likely require institutional innovations to support firms in their transition as much as it will require incentives to make that choice profitable. Yet the scale of the problem should be clear. Requiring young people to take part in work placements for no pay, poor training, and no guarantee of a job on completion is wrong. But we shouldn't lose sight of the nature of the jobs that potentially confront these young people if they are successful or the fact that the eagerness of some firms to use unpaid workers is symptomatic of a wider reliance on low cost employees. When it comes to our economies reliance on low wage work workfare is only the tip of the iceberg