You can have a job and still be poor

In-work poverty is a major issue which is growing in importance. Over the last decade, the UK has been very successful in creating jobs. Where there has been much less success, however, is in the quality of the jobs that have been created. From a poverty perspective, the net result is that, whilst out-of-work poverty has been falling, in-work poverty has, at best, been steady.

Half of all children in poverty — 1.7 million children — now live in households where at least one of the adults is in paid work.

In-work poverty and low pay do not go hand-in-hand because poverty relates to households whereas low pay relates to individuals. For example, a low-paid person can be married to someone who is not low paid or they can be living with their (non-low paid) parents. They may also have other private income.

Furthermore, thanks to the national minimum wage, a household is very unlikely to be in poverty if all the adults in the household are working full-time. Also, thanks to tax credits, lone parents who are working at least 16 hours a week should no longer be in poverty. Rather, the high risk groups are part-time workers (other than lone parents) and couples where only one of the couple is in paid work.

The net result is that most (around 85%) low-paid workers are not in poverty. However, by definition, all working households who are in poverty are low paid. Addressing low pay is therefore key to addressing in-work poverty.

Tax credits are, of course, the major government initiative to address in-work poverty. But, as the statistics above illustrate, they have clearly not fully solved the problem. This is partly because low-paid workers without children are either not eligible for tax credits or for small amounts only, partly because couples with children in receipt of tax credits can still remain below the poverty line, and partly because more than half of the recipients of tax credits (above the flat £10 a week family element that most households with children get) would be above the poverty line even if they were not receiving tax credits.

Low pay is also key to address out-of-work poverty. This is because pay at the bottom sets a ceiling for out-of-work benefits above which they cannot go if work is still to pay more.

A commonly used threshold of low pay is £6.50 per hour which is roughly two-thirds of median hourly earnings.

Around six million people are paid less than £6.50 per hour. Part-time work is especially likely to be low paid, with half of part-time workers earning less than £6.50 an hour, mostly women. Taking part- and full-time jobs together, two-thirds of all low paid workers are women.

For young employees, low pay is common in all sectors. For those aged 25 and over, low pay is most common in the hotels and restaurants sector. But this is a relatively small sector and thus accounts for less than a tenth of all low-paid workers.

By contrast, although only a relatively small proportion of workers in the public sector are low paid, the size of this sector is such that it accounts for over a quarter of all low-paid workers aged 25 and over. Furthermore, this does not include those low-paid workers employed by contractors working for the public sector.

Although it is not possible to produce a precise figure, probably no more than a fifth of low-paid employees work in sectors exposed to international competition. This means that most low-paid workers are low paid because of decisions taken by employers in Britain.

A further striking observation is that very few low-paid workers are unionised: one in eight of those earning £6.50 or less per hour compared with getting on for half of those earnings £10 to £20 per hour.

The quality of a job is, of course, about more than simply low pay. It also encompasses job security, future prospects, and terms and conditions of work. Each of these appears to remain a major problem.

Job security: nearly half of men who find work, and a third of women, no longer have that work six months later. This shows the short-term nature of the jobs that many unemployed people go into.

Future prospects: only a small minority of employees with no educational qualifications receive any job-related training at work.

Terms and conditions: more than half of employees on below-average incomes are not contributing to a non-state pension.

This government has introduced two major initiatives to tackle in-work poverty, namely the minimum wage and tax credits. The minimum wage is now reaching a level such that households where all the adults are working full-time should no longer be in poverty. And tax credits can considerably boost the incomes of those with children, particularly lone parents.

But, even in combination, the minimum wage and tax credits have not succeeded in reducing overall levels of in-work poverty. Furthermore, both address the consequences of low pay rather than its causes.

Indeed, it could be argued that both send out the wrong message to employers, with the minimum wage saying ‘it is okay for you not to pay any more’ and tax credits saying ‘don’t worry if your employees are in poverty, we will handle the situation’.

If the government’s anti-poverty strategy is to retain momentum, finding more fundamental solutions to the problems of low pay will be central. A good starting point might be with the quarter of low-paid workers employed directly by the public sector.

Peter Kenway is Director of the New Policy Institute.