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Professor Geraint Johnes
Professor of Economics at Lancaster University
T 020 7976 3516
Professor Geraint Johnes

A bit more evidence on pay below the Living Wage

Authors: Professor Geraint Johnes

23 February 2015

The TUC has released an instructive analysis of low pay by locality, based on data from the House of Commons Library. The findings suggest that in some areas more than half of all employees are being paid less than the Living Wage. These areas range from urban centres such as Birmingham Northfield and Enfield Southgate to rural areas including Dwyfor Meirionnydd. At the opposite end of the scale, the proportion of employees paid less than the Living Wage is just a little over 10% in several parts of London, but also in Dundee West and Cardiff North.

The Living Wage is an interesting metric, not least because it provides a rough and ready guide to the extent to which workers need support from the welfare system in order to make ends meet. If there is a high proportion of workers not earning enough to meet basic needs, demands on the welfare state are likely to be considerable, and consequently government will experience difficulty in making significant reductions in its own expenditure and so in tackling the budget deficit.

This is just a rough metric, though. In practice it matters who is earning low pay. It may be young people working part-time while still in full-time education; it may be adult workers with families to care for; it may be one, or it may be both, earners in a two income family. Unfortunately the TUC data, based as they are on data from the Annual Survey of Hours and Earnings (ASHE), cannot provide much information about this.

Data from the Labour Force Survey (LFS) can, though. It should be emphasised that these data are not as comprehensive as the ASHE data for the consideration of earnings, but the LFS data nevertheless provide some useful additional information. I have used the most recent available four quarters of data in the analysis that follows - from 2013Q4 through 2014Q3.

In all, some 27.1% of 16-64 year olds in the LFS data were paid below the Living Wage. This figure is somewhat higher than the ASHE equivalent. This may be due to differences in sampling or in the way the data are collected, but it should not unduly affect the relativities reported below.

To some extent, there is a concentration of low pay in the youth labour market. If we restrict the sample to those aged 25 or more, the proportion of those earning less than the Living Wage falls to 23.0%.

Gender differences are marked. Some 32.8% of female 16-64 year olds are paid below the Living Wage, but the corresponding proportion for men is just 20.9%.

If we look just at workers who are not currently married, some 34.8% are paid below the Living Wage. For men who are not currently married, the proportion is 30.3%.

In many respects, the most interesting group is those who are married. It is important to know the extent to which individuals with low pay tend to have spouses who also have low pay. The greater the extent, the greater are the implications for poverty and the greater the implications for the welfare system. Some 19.0% of married respondents with earning partners earn less than the Living Wage. There is a marked gender differential, with the proportions being 25.9% and 12.2% for married women and married men respectively. Some 5.9% of households with married earners have both partners earning less than the Living Wage – a much lower proportion than is observed for other groups.

These statistics are instructive in providing greater detail on the demography of low pay. The concentration of low earnings amongst those not currently married - and in particular amongst women - should be a matter of concern.

The economic recovery, in terms of employment gains, has been impressive so far. While there has been some evidence in recent months of wage increases, there has also been some evidence that the gains have been skewed, with those in the lower part of the income distribution gaining relatively little. Low pay is obviously a problem for those who do not receive sufficient earnings to meet their basic needs. But it is also a much wider problem that is affecting our ability to pay back the deficit. Putting in place the conditions for a productivity revival - encouraging investment in physical and human capital, stimulating demand - should be the priority for the labour market over the coming months and years.