Almost three in four low-paid workers unable to climb the earnings ladder

Britain’s dismal pay mobility means only a minority manage to earn their way up from the bottom 

Almost three-quarters of Britain’s workers who were on low pay in 2002 failed to escape from it over the course of the following decade, reveals a comprehensive study of who is able to get on in life by moving up the earnings scale.

The report from independent think-tank the Resolution Foundation shows that of the 4.7 million workers who were low-paid in 2002 – 1.3 million (27 per cent) didn’t leave low pay at any point during the decade and that a further 2.2 million (46 per cent) cycled in and out of low pay but had failed to escape it for good by the end of the decade. Only 800,000 workers (18 per cent) escaped low pay by moving up the earnings ladder without slipping backwards over a sustained period during these 10 years. A further 400,000 (9 per cent) retired or otherwise left the labour market during the decade.

With those who were stuck and those who cycled in and out of low earnings together making up 73 per cent of the low-paid, the findings illustrate the extent of persistent low pay in Britain and how hard many workers find it to move up the earnings ladder. However, the report, which examined trends in pay since the mid-1970s, also found that though there has been a fair amount of stability in earnings mobility, there has been a slight increase over time in the numbers escaping low pay and a fall in the proportion stuck on it. Mobility for those on low pay increased in the 2000s compared to the 1990s. And of those who did escape low pay, many progress a long way up the earnings ladder.

The evidence from the decade 2002-2012 shows that:

• Women are much more likely to be stuck than men. Of the women who were low-paid in 2012, one in three (33 per cent) were stuck on low pay over the preceding decade – 900,000 employees. This compares to just over one in five (21 per cent) of men – 400,000 employees
• The North East is the region where workers are most likely to be stuck in low pay. One in three (34 per cent) of all low-paid workers in 2012 had been stuck for a decade. The East Midlands, Yorkshire and Humber and Wales were the next worst affected areas – with three in 10 (31 per cent) stuck. In London and in the South East, the best-performing regions, this was true for fewer than one in four (23 per cent) of those low-paid in 2012
• Half of all workers stuck over the decade were aged between 41 and 60 in 2012 – meaning they had spent up to 10 of their peak earning years (from age 30 to 50) in low pay. This suggests some people may remain stuck for their entire careers
• The sectors where workers were most likely to  be stuck were elementary occupations (such as manual labourers) where one in three (32 per cent) were stuck for the decade to 2012 and admin workers where three in 10 (30 per cent) were stuck
• Of the minority that managed to escape low pay during the decade many progressed a long way with roughly half at least two-thirds of the way up the earnings scale by 2012

The report also offers clues about what makes the escapers different from those who are either stuck or who cycle in and out of low pay. It finds that:

• Women are less likely to escape low pay than men, even after accounting for gender differences in employment such as the number of years worked, part-time status and types of occupation
• Those working for very small employers, with fewer than 10 staff, have less opportunity for pay progression, even accounting for differences in gender, sector and part-time status
• Working in the public sector appears more likely to help pay progression for low-paid employees than the private sector. For example, four in 10 (40 per cent) of low-paid employees working in central government in 2002 had escaped low pay by the end of the decade
• Employees working in retail, hospitality, sales and customers services, manufacturing and care are the least likely to escape low pay – suggesting more needs to be done in help them progress. For example, of women working in the retail sector in 2002, only one in six (15 per cent) escaped low pay over the decade

Alex Hurrell, senior analyst at Resolution Foundation and author of the report, said: “For many people, low pay is not a first rung on the ladder – it’s a long-term or even permanent reality. Identifying those who are least likely to escape low pay is the first step in targeting policies to help them get on.”

Gavin Kelly, chief executive of the Resolution Foundation, said: “Living on low pay in 2013 is tough, but being stuck on it for years on end is harder still.  This report shines a light on the persistent nature of low pay for millions of workers and shows that women, those in regions such as the North East, the East Midlands and Wales, and people working in sectors like administration are far likelier to be stuck in low pay than others. It also highlights the large numbers who cycle in and out of low pay over time. Limited earnings mobility is a long-running problem in our economy which spans a number of decades and has occurred under governments of different complexions.”

The report, Starting out or Getting Stuck?, uses data from the New Earnings Survey Panel Dataset, a longitudinal version of the Annual Survey for Hours and Earnings (New Earnings Survey before 2004)

The findings will be presented by Alex Hurrell at an event at the Resolution Foundation at 9am on Wednesday 27 November which also features Frances O’Grady, general secretary of the TUC and Sir Charlie Mayfield, chairman of John Lewis.

Ends

Notes to editors

1. The report uses the standard definition of low pay – two-thirds of median hourly earnings – which is £7.32 per hour with the median at £10.98 per hour, both at today’s prices (using NESPD data).
2. The report identifies three distinct groups among the low-paid; Escapers, the stuck and cyclers. Escapers are defend as those who began a decade in low pay but by its end are consistently in work and earning above the low pay threshold for the last three years of the decade. The stuck are defined as those who only held low-paid jobs during the decade. Cyclers are defined as those held a non-low paid job for at least one year during the decade but did not hold a higher-paid job for the final three years of the decade.