Number earning below the Living Wage has soared during downturn to almost 5 million

Economic downturn has pushed a further 1.4 million employees below the Living Wage – the rate deemed necessary for a basic standard of living – a report reveals today.

Low Pay Britain 2013 , published by independent think tank the Resolution Foundation, shows that 4.8 million Britons (20 per cent of all employees) earn below the Living Wage – a leap from 3.4 million (14 per cent) in 2009 – at the height of the recession.

The Living Wage was calculated at £7.20 outside London and £8.30 in the capital for the period covered by the report – April 2012 – the most recent full figures available. Since then the Living Wage has risen to £7.45 an hour outside London and £8.55 in the capital.

The Resolution Foundation report provides the most comprehensive breakdown of the extent of sub-Living Wage pay and low pay more generally among the country’s 25 million employees, including by age, gender, sector and region.

Women, younger workers (aged 16-20) and all those working outside London and the South East are most at risk of being paid below the Living Wage. The report finds that:

· One in four female employees (2.9 million or 25 per cent) earned less than the Living Wage in 2012 – compared to 15 per cent of male employees (1.9 million)

· Three-quarters of employees aged 20 and under (77 per cent) earned less than the Living Wage

· Just 16 per cent in the South East and London were paid below the Living Wage, compared to almost 23 per cent in Wales and more than 20 per cent in many other parts of Britain

· Pay below the Living Wage is most common in the hotels and restaurants sector, where two in three employees (67 per cent are low paid) are in this position. It is least common in public administration and defence (just 2 per cent)

As well as the numbers paid below the Living Wage, the report also records those in low pay – a different, internationally-recognised measure defined as those earning below two-thirds of the median hourly rate (£11.15 in the period covered by the report). Using this definition, 5.1 million of all employees (21 per cent) are low paid. This includes anyone earning £7.44 or less – equivalent to £13,530 a year for a 35 hour week. Because levels of low pay are calculated relative to median pay, which has also fallen during the downturn, they have remained flat over recent years.

However, a striking trend highlighted by the report is a significant fall in low pay among older employees – those aged over 60. In the mid-1990s, as many as 37 per cent of this group were in low pay – by 2012 that had fallen to 24 per cent – fewer than one in four. Over the same period, the number of low-paid younger employees (aged between 16 and 30) has climbed steadily – from 26 per cent to 37 per cent in 2012. The report suggests this shift may be down to the growth in student employment among younger people and a general increase in older employment – with those continuing to work beyond 60 being higher-skilled and higher-paid than in the past.

The report also suggests the emergence of a two-tier workforce in Britain, in which the lower tier is increasingly characterised by low-paid, low-skilled work which is often temporary, part-time or self-employed. Initial evidence suggests that early signs of economic recovery, such as an increase in jobs, have done little to avert this trend with rates of part-time or temporary work among new employees (those starting or returning to work) remaining high. And in 2009 the median hourly wage for a new employee stood at £8.42 – it is now just under £8.

The Resolution Foundation report is published on the day that Rachel Reeves, Shadow Chief Secretary to the Treasury gives a major speech at the independent think tank on Labour’s approach to low pay, amid reports that the Conservatives are considering ways to raise the national minimum wage. The speech will be the third in a Resolution Foundation series in which each of the main parties has been challenged to set out how it would address the issue of low pay. Skills minister Matthew Hancock spoke for the Conservatives in March, arguing that we should “strengthen” the minimum wage, followed in June by Education minister David Laws for the Liberal Democrats – both, like Ms Reeves, key architects of their party’s policy agenda in the approach to the next election.

The Resolution Foundation has also launched an in-depth review of the future of the national minimum wage – run by one of its key architects Prof Sir George Bain and involving leading labour market economists – which will report in the New Year.

Matthew Whittaker, senior economist at the Resolution Foundation and author of the report, said : “For most of the working population real wages have been flat or declining for many years and as a result more and more people have dipped below the level of the Living Wage. This means an increasing struggle to keep up with the cost of living.

“Britain has a sorry story to tell on low pay. Only a handful of our close competitors do worse and the large majority have much lower rates of low pay – sometimes half as much. The challenge for all parties is to find ways of boosting rates of pay, especially for those who earn less, without putting economic growth at risk.”

Ends

Notes

1. Low Pay Britain 2013, by Matthew Whittaker, will be published on Wednesday 4 September.

2. Total numbers of people below the Living Wage are derived from the ONS Annual Survey of Hours and Earnings. In addition to the self-employed, the total also excludes employees having their pay affected by absence in the survey period. As at April 2012, the total number of employees in Britain stood at around 25 million, while the number in self-employment was around 4 million.