A hard day’s night

The new Government has two big ambitions when it comes to the labour market – to raise the level of employment, and to drive up job quality. If successful, both would have their biggest impact on the poorer half of working-age Britain, which is where employment rates still have room to rise, and where various types of insecure work are concentrated.

This report provides the context for the Government’s ambitions: it describes the labour market experiences of low-to-middle income families and how these have changed over the past quarter century. It explores those families’ employment, pay, experiences at work, and their feelings about changing jobs and progressing in work.

This report is part of ‘Unsung Britain’, a year-long programme of work to explore the lives of families on low-to-middle incomes.

Increasing employment has been one of the major economic shifts of the past quarter century. During most of the 20th century, the working-age employment rate tended to reach 73 per cent in high-employment periods. But in the 2010s the employment rate reached 76 per cent, an additional 1.3 million workers compared to previous peaks. Workless households – households without any members in work – have become correspondingly rare: they account for 14 per cent of working-age households now, versus 21 per cent in 1996 – a fall of one-third.

The vast majority of this shift has taken place within lowto-middle income families. (‘Low-to-middle income’ families refers to working-age families (where no member is over the State Pension Age) who have equivalized after-housing-costs (AHC) income in the bottom half of the all-age AHC income distribution. We refer to ‘higher-income’ families as working-age families with AHC incomes in the top half of the distribution.) Among higher-income families, employment has inched up: the employment rate among 20-64-year-olds in higher-income families was 90 per cent in 1996-97 and 92 per cent in 2022-23. But among low-to-middle income families the change has been dramatic: the 20-64-year-old employment rate rose from 54 per cent in 1996-97 to 64 per cent in 2022-23.

This is not because of changes in who low-to-middle income families are, but instead because employment rates have risen across the board within low-to-middle income Britain. Since 2002-03, among people on low-to-middle incomes, the employment rate has risen 17 percentage points among single parents, and 13 percentage points among people with disabilities. In fact, the make-up of low-to-middle income families has changed in ways which would have been expected to push slightly down on the low-to-middle income employment rate, as groups with below-average employment rates now comprise a larger share of the low-to-middle income population than 25 years ago: for example, the share of low-to-middle income adults with a disability has increased from 18 to 31 per cent over the past 20 years.

Employment remains the most important determinant of family incomes. In 2022-23, the typical incomes of workers sat 34 percentiles higher up the distribution than those of nonworkers. This gap is smaller than 25 years ago (in 1996-97 it was 43 percentiles), and it’s also the case that in-work poverty has risen in this period: by 2022-23, more than half (54 per cent) of families in poverty had someone in work, up from 44 per cent in 2000-01. But it remains the case that having a job boosts your income significantly.

In 2022-23, median hourly pay among low-to-middle income employees was £11.20, compared to £17.65 among workers in higher-income households. Low-to-middle income workers are also more likely to be paid the minimum wage: between 2019-20 and 2022-23, nearly one-in-five (18 per cent) of low-to-middle income workers were paid close to the minimum wage, compared to just 5 per cent of higher-income workers.

This is not a surprise. Lower wages, alongside lower employment and hours worked, contribute to lower earned incomes, and put families into the low-to-middle income category in the first place. It’s more interesting to note the extent to which low incomes and low wages don’t overlap. In 2022-23, among workers in households in the bottom half of the working-age AHC income distribution, a majority (three-in-four) had hourly pay in the bottom half of the hourly pay distribution, but this still leaves one-in-four with wages in the top half of the pay distribution. Similarly, among workers in the top half of the income distribution, one-in-three have hourly earnings in the bottom half of the hourly pay distribution. This partial overlap has changed very little over the past two decades.

This is one reason why raising the minimum wage has only a limited effect on the incomes of the poorest households. Moreover, relatively few of the lowest-income households are working at all, and they often receive means-tested benefits, which are reduced when their earnings rise. For example, next year’s chunky 6.7 per cent increase in the adult minimum wage will have a bigger impact on the disposable incomes of households those in the middle of the income distribution (+0.8 per cent on average for households in the fifth income decile) than near the bottom (+0.6 per cent for those in the second income decile).

There are big differences in the occupations and industries that low-to-middle income and higher-income workers work in. Unsurprisingly, they are more than twice as likely as those from higher-income households to work in sales and customer services roles, at 16 per cent and 7 per cent respectively. More than one-in-ten (11 per cent) low-to-middle income workers work in retail occupations, compared to 6 per cent of those from higher-income families. And workers from low-to-middle income families are less likely than those from higher-income families to work in the public sector, with one-in-five (19 per cent) low-to-middle income workers being in the public sector, compared to a quarter (26 per cent) of higher-income workers.

Lower-income workers are also slightly more likely to work in ‘insecure’ jobs. This term has no set definition, but we tend to think of jobs as ‘insecure’ if they are associated with some form of income risk – this can be because they aren’t permanent, or because earnings aren’t guaranteed or are volatile. The vast majority of low-to-middle income workers are in ‘secure’ jobs – between 2017-2021 (years are grouped to improve the reliability of estimates), three-quarters (77 per cent) of workers from low-to-middle income families were in ‘secure’ work (defined as a permanent job which is not a zero-hours contract or gig job or solo-self-employment). But this still leaves a significant minority in insecure work. Across the years 2017-2021, among workers in low-to-middle income families, 2.0 per cent of workers reported being on zero-hours contracts (versus 1.6 per cent in higher-income households), 12.8 per cent were ‘solo’ self-employed (that is, they were self-employed without anyone working for them – compared to 8.7 per cent of higher-income workers), and 10.9 per cent were on temporary contracts (versus 9.2 per cent of higher-income workers). Additionally, in 2021-2022, 1.7 per cent of low-to-middle income workers were doing ‘gig’ work as a driver or courier, compared to 1.3 per cent of higher-income workers.

Despite differences in the sorts of jobs that low- and higher-income workers do, they want broadly the same things from work. When asked about the aspects of work that are important to them, an overwhelming majority of low-to-middle income and higher-income workers emphasise liking the work they do, having job security, and having good relationships with colleagues and bosses. Notably, for both low-to-middle income and higher-income workers, ‘good pay’ ranks well below these job considerations.

This echoes what we heard in focus groups with low-to-middle income workers, who reflected that money isn’t everything. Instead, participants spoke about the importance of having good relationships at work, both with colleagues and managers. They emphasised both the enjoyment that comes with working alongside people you get along with and consider friends (“I’m really, really lucky that I love my job, but without the team I’ve got, would I love my job as much? Dunno. We get on so well. I have a better time with my colleagues than I do my friends.”), as well as the importance of having managers who they trust will deal with problems that arise (“You need a manager who’s going to deal with it, but deal with it in an appropriate way.”).

The vast majority of workers are satisfied with their job, and this has increased very slightly over the past decade. In 2010-2011, 78 per cent of workers were satisfied with their job, rising to 80 per cent in 2022-2023. There is a small but persistent satisfaction gap between low-to-middle and higher-income workers, with the former consistently 2-3 percentage points less likely to express satisfaction with their job than the latter. The gap is larger between workers on the very lowest and highest incomes: in 2022-23, around three-quarters (77 per cent) of workers in the bottom income quintile reported being satisfied with their job, compared to 84 per cent of those in the top quintile. This is perhaps not surprising, given what we know about the lowest-income workers being more likely to be in low-paid and insecure jobs.

But other features of work contribute to job satisfaction, too: we heard from low-to-middle income workers about their frustration with working irregular hours, especially when these are decided with little notice. This was particularly the case for those in some public sector jobs, where staff shortages mean that the pressure to work overtime is especially strong. And alongside these ‘concrete’ factors which contribute to job satisfaction, ‘softer’ factors, like relationships with colleagues and managers, matter too. Even if a job scores well in terms of pay and security, bad relationships can override this.

With workers in low-to-middle income families being more likely to face low pay, insecure work, and unsatisfactory conditions, we might wonder why more workers do not switch jobs in search of something better. In fact, the rate of job moves is fairly flat across the income distribution: 7 per cent of workers in the first (lowest) and fourth quintiles of the household income distribution moved job within a year between 2017-2022. (It is only when we look at the top income quintile that job moves decline, with 4.5 per cent of these workers making a job move.)

But although there is not a clear gradient to job mobility across the household income distribution, there are clear differences between household types. For example, even after holding other characteristics constant, women with children are less likely than average to voluntarily move job (-15 per cent), a trend that is also true for those who provide care to a sick, disabled or elderly person (-11 per cent). And differences are even more striking when we look at age: older adults aged 55-64 are considerably less likely than the average worker to choose to change job, holding all else constant (-72 per cent). This underscores a key finding from our focus groups: workers are often all too aware of the disadvantages of their current job, yet feel unable to ‘risk’ moving to another job due to family constraints. For some, this is because a new job would have to meet specific criteria, such as flexible hours or a short commute time. But more generally, we heard from many workers that being secure in a job with unsatisfactory elements was preferable to taking a gamble and moving to a job that might be better; as one participant put it, “Better the devil you know.”

Finally, it’s not just changing jobs that workers are wary of – many are put off the idea of ‘progressing’ at work altogether. We heard this loud and clear in our focus groups, especially among women with young children, and those nearing the end of their career. When asked about the prospect of progressing into a higher-paying role, we heard that “I wouldn’t want the responsibility”. There are financial barriers to progression, too, with those in receipt of means-tested benefits facing high marginal effective tax rates (METRs) as benefits are withdrawn when earnings rise. Strikingly, low-to-middle income couples with children face METRs of 42 per cent, and these rise to 56 per cent for low-to-middle income single parents. These barriers to progression are consistent with trends we see in earnings data: average hourly wages for non-graduates, and especially female non-graduates, actually decline after 30 years of work (or, after age 50 for someone who entered work at age 20).

For a Government committed to “Get Britain Working” and “Making Work Pay”, these findings are important. Employment policy that starts from an understanding of the reality of families’ working lives – and that works with, rather than against, the grain of what families want – is more likely to be successful. To this end, we set out some takeaways for policy makers from the research undertaken for this paper.

First, the aim of raising job quality is a good one. The Government’s reforms in the Employment Rights Bill (including giving workers a right to a contract with guaranteed hours and extending Statutory Sick Pay coverage to the lowest-earning workers) will improve working life for many low-to-middle income families. But we should also remember that not everything that makes work difficult can be legislated away. Some things are for employers to deal with – including treating workers with greater respect and improving management quality.

Second, some workers are not interested in or face barriers to changing jobs or progressing in work. This underlines the need for the state to act to improve pay and conditions. But it also suggests the Government should exercise caution in applying work search ‘conditionality’ to low earners receiving benefits – some of whom, such as those with young children or nearing the end of their career, may struggle to raise their earnings.

Third, while the Government’s commitment to the minimum wage is welcome, it is important to be realistic about what the minimum wage can achieve. Even among families who are working, the impact of the minimum wage on the incomes of poorer families is muted, in large part due to the high marginal deduction rates they face in the benefits system. For families reliant on income from the social security system, benefit levels need to rise to ensure these families share the gains from increased growth.