Rethinking low pay and in-work poverty

There is frequent confusion in public debate and media stories between low pay and in-work poverty. Fran Bennett argues that a focus on gender roles and relationships, and gendered access to resources, is essential to unpick the distinction between these two problems.

This article was first published in the IPPR Progressive Review Journal (Spring 2018), and is reposted here with their permission. 

There is a lot of confusion around low pay and in-work poverty. Significant numbers of people have low hourly pay. Many of these may also live in a household (by themselves, or with others) that has a low weekly disposable income. Indeed, there is some evidence that the overlap between these two situations is growing. However, it is important to understand that they are not the same, and that they are likely to require different solutions to tackle them.

Late last year, the Joseph Rowntree Foundation (JRF) reported that 8 million people living in poverty in 2015/16 were in families in which at least one person was in paid employment.[1] And, on the surface, it would be hard to disagree with a new move by Business in the Community (BiC), supported by JRF, to persuade employers to ensure ‘good jobs for all’.[2]

However, BiC’s exhortation to enterprises to back up this call – “even with a job, one in eight UK workers are living in poverty, so it’s highly likely this applies to some of your employees” – goes to the heart of the confusion between low pay and in-work poverty. The employees living in (households in) in-work poverty might not be the people that their employers thought were in that situation. In addition, if they were, it would not always be action by the employer that would solve the problem.

Clarifying the differences between low pay and in-work poverty is crucial, if we are to identify the causes of each and devise appropriate solutions to both.[3] Doing so also requires a focus on the influence of gender roles and relationships and on the differential access to resources, from paid work or elsewhere, which these often bring about.

Recent research for the Nuffield Foundation by Hick and Lanau found that, as the proportion of dual-earner households has increased, living in a one-earner household has become a key factor in the likelihood of experiencing in-work poverty.[4] People living in one-earner households face a highly significant risk of in-work poverty, and amount to almost six out of every 10 experiencing it – over twice their proportion in the population. But discussion about ‘in-work poverty’ often foregrounds the earner and their wage or in-work support, rather than the household they live in or other relevant factors in their situation.

On the other hand, Hick and Lanau also found that the relationship between low pay and in-work poverty was less strong than is often assumed. Less than half of those experiencing in-work poverty have a low-paid earner in their household. Most low-paid workers are not counted as living in poverty because many live in households with additional earners. However, this does not only mean that we should concentrate on the household and its income as a whole, as is sometimes suggested. As I have written about elsewhere,[5] we cannot always assume that resources are being shared fairly within such households – one of a range of reasons why low pay is important as an issue in its own right, and not just as a relatively weak influence on the likelihood of in-work poverty.

Tackling in-work poverty through financial support

So, if low pay is only weakly related to in-work poverty, but being a one-earner household is important, what other factors should we be considering? Hick and Lanau examined tax credits, which are paid to low-income households with one or more earners (who have to be working a certain number of hours per week in order to qualify, the number depending on whether they have children or a disability, or are in a couple, or none of these). They found that tax credits did reduce in-work poverty substantially for those who received them. But, unlike the picture often painted in public debate, in which in-work support is the answer to in-work poverty, other benefits were also found to be important sources of financial support.

These include child benefit, which is a principal means of compensating for the fact that wages do not (and should not) vary with household size. As Eleanor Rathbone, the champion of family allowances, put it: to pay a uniform male ‘family wage’ assuming a standard number of children would amount to paying for many thousands of non-existent children, whilst leaving many others unprovided for.[6] Instead, she argued convincingly, family allowances should ideally be paid by the national government in accordance with family size. To combat in-work poverty, it is therefore crucial that child benefit – which does not vary with employment or family status[7] – is continued, and its level increased; instead, however, it is currently being frozen for four years, along with many other benefits for those below pension age.

In addition, in many families, as noted above, there is also only one earner. In couple households, one adult may be out of the labour market, but may not be receiving any income in their own right. So, somewhat counter-intuitively, benefits for people out of work are also relevant to countering in-work poverty, as Hick and Lanau argue.

Conditions for contributory benefits such as jobseeker’s allowance (JSA) for unemployed people, and employment and support allowance (ESA) for those too ill or disabled to work, have been ratcheted up over many years now. This makes it harder for women in particular to qualify, given that they are more likely to have time out of the labour market. Part-timers are also less likely to be able to qualify for such benefits, as pointed out in a recent Eurofound report on in-work poverty.^[8] More recently, ESA for those in the work related activity group (WRAG) has been limited to just one year, whilst JSA was already only available for six months without having to go through a means test. And the remuneration for maternity leave, and parental leave (now, in theory, shared between mothers and fathers, but in practice largely taken by mothers), is inadequate or non-existent for most of the leave period.

Many partners out of the labour market, especially if they are women, may therefore not have access to a non-means-tested earnings replacement benefit. As a study I co-authored with Holly Sutherland found,[9] if such benefits were abolished completely, the risk of poverty among people in households previously receiving them would rise by between nine and 10 percentage points. Single people (especially men) would be more likely to be compensated for this loss by the means-tested system than couples.

Families and paid work

The Institute for Fiscal Studies (IFS) has recently published an examination of in-work poverty amongst families with children,[10] and found that one-third of all children living in such poverty in 2015 were living in one-earner couples. Of children of one-earner couples, 43 per cent lived in relative poverty in 2015 after taking account of housing costs, compared with 33 per cent for children of working lone parents, and 11 per cent for children of two-earner couples. Of one-earner couples with children, 85 per cent are reliant on male breadwinner earnings.

This is not just a result of the inadequacies of social security provision described above. In particular, it is clearly becoming increasingly difficult for couples with a traditional gendered division of labour to escape poverty. This is, according to the IFS, partly due to real declines in male earnings. But improving breadwinner wages or in-work support for such couples is not the only answer. As the IFS points out, recent ‘welfare reforms’ have already increased the (relative) generosity of benefits targeting one-earner families, and continuing in this direction is likely to weaken (further) the financial incentives for ‘second earners’. High withdrawal rates are often inherent in means-tested benefit provision; but, with the introduction of universal credit, the incentives for many prospective ‘second earners’ are going to worsen compared with the situation under tax credits. Whilst the then Coalition government suggested that it was “intensely relaxed” about this outcome, others would argue that much more should be done to encourage these partners into the labour market. This will often mean engaging more proactively with the gendered division of labour. In addition, the transferable tax allowance for married couples and civil partnerships introduced a few years ago exacerbates the barriers to employment for ‘second earners’, and should be abolished.

The largely marketised system of childcare in the UK, with its increasingly complicated schemes for applying for financial help with the disproportionately high costs, is also a significant barrier to both parents earning, and is ripe for reform. This is of course vital for lone parents living in in-work poverty, as well as for both partners within couple relationships – although it is often seen as only of relevance to the woman partner. Large families, and couples in which one or both partners were born outside the UK, are more likely to be living in in-work poverty than other families, and may need more nuanced and sensitive policy solutions in addition to those discussed above.

For these reasons, therefore, we should avoid an over-emphasis on the situation of the earner in our thinking about solutions to in-work poverty, and instead consider a range of policy solutions which in particular address the gendered nature of access to both employment and social protection.

Focusing on low pay

However, this leaves aside the issue of low pay. As argued above, it is certainly not the case that we should ignore low pay because it is only weakly associated with in-work poverty when taking a snapshot of household income. Indeed, if we see individuals’ access to adequate independent income as important,[11] low earnings should not be of concern just because of the kind of household someone happens to live in at the moment, but largely because of the implications for their current autonomy within any relationship, and also their future prospects over the life-course.[12] Therefore, to describe low pay as ‘poverty pay’ – often done in connection with campaigns for the ‘(real) living wage’, for example – is less than helpful, because it blurs the difference between low pay (that is, gross hourly individual pay) and in-work poverty (weekly household disposable income).

It is clear that low pay – although increasingly affecting men as well – is often primarily an issue affecting women workers;[13] and that it is associated with part-time presence in the labour market and, in my view, under-valuation of caring work. In addition, its gendered nature is particularly apparent when comparing the likelihood of progression out of low pay for different categories of workers. As D’Arcy and Finch argued in one of the last reports published by the Social Mobility Commission,[14] women are significantly less likely to escape low pay then men.

The number of years spent in employment is positively linked to escaping from low pay. As the authors note, this is likely to be particularly relevant for women who take time out of the labour market after giving birth. The number of years worked part time is also negatively linked to progression out of low pay (as well as the gender pay gap),[15] which is likely to bear down on mothers. The lack of quality employment for those with caring responsibilities is clearly key here. Employers may be being exhorted to pay a ‘living wage’ to all. But their contribution to ensuring good quality jobs for mothers and other carers is critical to ending long-term low pay for those individuals most affected.

Moving beyond confusion

In a previous examination of the extent of the relationship between low pay and in-work poverty,[16] IPPR labelled this as “not straightforward”. A decade has elapsed since that report. There has been a plethora of research and investigation revealing the limited extent of the overlap between low hourly pay and in-work poverty, and the factors contributing to the prevalence of each. Yet still the two concepts are frequently confused in public debate. Some ‘living wage’ proponents in particular, whilst talking about “a fair day’s pay for a fair day’s work”, often seem to hold out the promise of solving in-work poverty solely by raising low hourly pay levels. And, meanwhile, the policies that could contribute to tackling in-work poverty on the one hand and low pay on the other, in particular focusing on gender issues as a determining factor, remain under-examined.