One in five workers on low pay as National Minimum Wage falls again in real terms

One in five British workers – just over five million employees – are low-paid, finds a new report from the independent Resolution Foundation published as the national minimum wage falls in real terms for the third consecutive year.

The report, Low Pay Britain 2012, shows that the nation’s share of low-paid work has grown steadily over the past 30 years to 21 per cent – one of the highest rates in the developed world.

Low pay is defined as being below two-thirds of the mid-point of hourly rates – and so applies to anyone who earns £7.49 per hour or less before tax, equivalent to an annual wage of £13,600 a year for a 35-hour week .[1]

The report also calculates the numbers of people paid below the Living Wage – a different measure devised to suggest the minimum needed for “an acceptable quality of life”.

In London, where living costs are higher, the Living Wage is set at £8.30 and the report shows that more people (16 per cent) fall into this category than the proportion (12 per cent) who are defined as low-paid. Outside London the figure is £7.20 which means that some low-paid people earn more than the living wage.

For the country as a whole, the number of workers below the Living Wage is 4.7 million – close to the total of 5.1 million defined as low-paid.

On Monday (1 October) the national minimum wage for people aged 21 and over rises to £6.19 an hour from last year’s rate of £6.08. However, adjusting for inflation, this is equivalent to £6.01 at 2011-12 prices and so represents a drop in real terms of seven pence an hour. This is the lowest rate in real terms since 2003.

Low Pay Britain 2012 provides an authoritative audit of the country’s low-paid employees by sex, age, region, occupation, hours and job status. It shows that workers more at risk of being low-paid are female, part-time, on temporary or casual contracts and working in the private sector.  While low-paid work is found in every industry, it is particularly common in the hotels and restaurants sector where two in every three workers is low-paid.

The audit’s findings include:

• Wales is the region where low pay is most prevalent – accounting for 26 per cent of all workers. By contrast, in the South East just 19 pent are low paid.
• Temporary and casual workers (36 per cent) are more likely to be low-paid than permanent employees (20 per cent)
• While hotels and restaurants is the sector with the highest proportion of low pay (69 per cent), public administration is the lowest with just 2 per cent of workers low-paid
• Younger workers are at the most severe risk of low pay with 79 per cent of those under 20 in low pay
• In the private sector, 27 per cent of people are low-paid, compared with 9 per cent in the public sector
• Women are more likely to be low-paid than men – 27 per cent compared with 16 per cent
• A significant minority of workers remain trapped in low-paid work over the course of their lives. Around one in seven of those aged between 31 and 50 – a time when many can expect to be at their ‘peak earnings’ – are low paid.

The report also analyses the trends in low-pay – showing that the overall share of low-paid work has climbed back to levels seen in the late 1960s. For men there has been a steady increase in low-paid work over that period. For women, a positive trend away from low pay which occurred in the 1970s has been reversed over more recent decades.

The scale of low pay in Britain is a serious concern said Matthew Pennycook, Senior Research Analyst at the Resolution Foundation and joint author of the report: “The report gives us a worrying insight into the extent and the depth of the problem. Low pay is hitting families harder than ever right now with tax credits falling and under-employment growing. A real-terms fall in the minimum wage adds to that pressure.

“Today Britain stands out as having much higher rates of low pay than most other developed economies, including Greece, Portugal, Spain and Italy.   We didn’t always have such a high rate – it has emerged over the past three decades as low-paid work became the new normal in some sectors.”

While Low Pay Britain 2012 mainly focuses on the core definition of low pay as two-thirds of middle earnings it also looks at the Living Wage, calculated differently for London and the rest of the country, to identify the proportion of workers in the capital who earn above the Living Wage but remain on low pay.

Notes to Editors

1. Low Pay Britain 2012 by Matthew Pennycook and Matthew Whittaker is published by the Resolution Foundation. It is available in advance to the media from the Resolution Foundation press office and can be downloaded when published at www.resolutionfoundation.org
2. This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates.
3. The report uses a calculation of median hourly pay in Britain which is based on analysis taken from the Office of National Statistics (ONS) and the Annual Survey of Hours and Earnings and is distinct from the ONS published median hourly pay figure.
4. The new national minimum wage for apprentices rises on Monday by five pence to £2.65 an hour – however the real-terms rate (adjusting for inflation) falls to £2.52 the lowest since the apprentice category was introduced in 2010.
5. The hourly rates for workers aged 18 to 20 and those aged 16 to 17 are frozen at £4.98 and £3.68 respectively – meaning real-terms falls to £4.83 and £3.57.

[1] Low pay is defined as an hourly wage below two-thirds of gross median hourly pay for all employees. The report calculates median hourly pay in Britain in 20111 at £11.24.