The 're-discovery' of in-work poverty: empirical insights and policy
implications
Work in progress - not to be cited or quoted without authors’ permission
A paper presented at the Social Policy Association conference Social policy in times of
change Lincoln 5-7 July 2010
Michael Orton, Anne E. Green, Gaby Atfield, Duncan Adam and Rhys Davies
Contact: Michael Orton
Institute for Employment Research
University of Warwick
Coventry
CV4 7AL
Email: [email protected]
Acknowledgment
This paper draws on research conducted for the East Midlands Development Agency (emda)
by the University of Warwick Institute for Employment Research (with Rhys Davies from the
Wales Institute of Social and Economic Research, Data and Methods - WISERD) to be
published as Orton, M., Green, A. E., Atfield, G., Adam, G., Davies, R. and Hogarth, T.
(2010, forthcoming) In-work poverty in the East Midlands Coventry: Institute for Employment
Research. The views expressed in this paper are solely those of the authors of the paper.
Work in progress - not to be cited or quoted without authors‟ permission
Introduction
The UK‟s status since the late 1990s has been as a labour market „success story‟, based in
particular on a higher employment rate than other European countries such as France and
Germany (e.g. see Clegg, 2010). However, the existence of in-work poverty, meaning that a
person is engaged in paid employment but is still living in poverty, presents a rather different
picture. Cooke and Lawton (2008: 5) argue that the right to work and to earn a decent living
are timeless demands of the labour movement and basic characteristics of a fair society –
the existence of in-work poverty means that “millions of families are meeting their
responsibility to contribute to society but are not receiving a fair deal in return”. But as
Grover (2005) puts it, poverty among workers is a perennial problem and the notion of inwork poverty is far from new, as evidenced by the in-work relief of eighteenth century
Speenhamland and debates about the New Poor Law of 1834.
In the 21st century in-work poverty is the focus of increasing attention in the UK. Kenway
(2008) notes that the earliest reference to in-work poverty in recent UK academic and policy
literature came in 2000 in the second of the Government‟s Opportunity For All report series
(Department for Work and Pensions, 2000), but interest in the subject developed more
substantively after Harker‟s (2006) report on child poverty. Having said that, „making work
pay‟ was a major theme from the outset of New Labour governments from 1997-2010 (for a
helpful discussion see Bennett and Millar, 2004). Policy development under this theme
included the introduction of the National Minimum Wage and the tax credits system. But
despite these developments, in 2006 almost six in ten poor households (57 per cent) had
someone at work – a rise of 10 percentage points and half a million more working-poor
households than a decade earlier (Cooke and Lawton, 2008). Increasing interest in in-work
poverty is demonstrated by a growing literature e.g. Lawton, 2009a, 2009b;Tripney et al.,
2009; Kenway, 2008; Cooke and Lawton, 2008; Bevan Foundation and New Policy Institute,
2006, and on related issues e.g. the „low pay-no pay cycle‟ (Goulden, 2010) and discussion
of making work pay and living wage agendas (Grover, 2005; 2009). Concern with in-work
poverty was clearly acknowledged by the New Labour government in 2008: “Work is the
surest route out of poverty but not an immediate guarantee: a combination of low wages
and/or low hours in low skilled jobs may mean that working families remain in poverty” (HM
Treasury, 2008: 20).
Whether concern with in-work poverty is shared by the Coalition Government that came to
power in May 2010 is yet to be seen. In its first Budget the Government has increased the
personal (income tax) allowance, with a longer term policy objective of further increasing the
allowance to £10,000 (HM Government, 2010a). This is intended to help low and middle
earners, although modelling suggests that the majority of such a cut will go to the better-off
(Horton and Reed, 2010). The freeze on public pay also has a small caveat in that the 1.7
million
lowest
paid
will
get
a
£250
wage
increase
(www.guardian.co.uk/uk/2010/jun/22/emergency-budget-full-speech-text - website visited 23
June 2010). However, in June 2010 the Coalition Government cancelled a series of
employment support programmes including the rollout of the Future Jobs Fund, six month
offer recruitment subsidies, extension of Young Person's Guarantee and the two year
Jobseeker's Guarantee (http://news.bbc.co.uk/1/hi/politics/10341015.stm - website visited 17
June 2010). The Coalition Government‟s first welfare policy document pledged that
“Addressing poverty and inequality in Britain is at the heart of our agenda for government”
(HM Government, 2010b: 1), but made no mention of in-work poverty or low pay. The
emphasis was far more on an uncritical view of work as a route out of poverty and identifying
the benefits system (not low pay) as the problem e.g. “The benefits system continues to
adversely affect the work incentives of those who most need an incentive to work” (HM
Government, 2010b: 37). This was emphasised in the Chancellor‟s Budget declaration that
incentives to work will be addressed not by tackling low wages but by seeking to “reduce the
2
Work in progress - not to be cited or quoted without authors‟ permission
incentives to stay out of work” (www.guardian.co.uk/uk/2010/jun/22/emergency-budget-fullspeech-text website visited 23 June 2010).
Despite growing interest in the issue of in-work poverty the body of empirical evidence
remains relatively small with investigation largely restricted to Cooke and Lawton (2008),
Kenway (2008) and Bevan Foundation and New Policy Institute (2006). This paper therefore
engages with debates about in-work poverty through a new in-depth empirical investigation
of the issue in one specific English sub-region, the East Midlands. It is the first empirical
investigation of in-work poverty at sub-national level of which we are aware.1 The East
Midlands is an illuminating case to examine because on the one hand it has a higher than
average employment rate suggesting it shares the UK‟s labour market „success story‟, but at
the same is known for problems of low wages and a „low pay-low skill equilibrium‟ in which
employers engage in low skill, low value work which pushes down wages (e.g. see Gambin
et al., 2009; East Midlands Development Agency, 2006). The paper is in three parts. First is
a discussion of in-work poverty. Second, findings are presented from the empirical
investigation. Third, policy implications are discussed.
In-work poverty in the 21st century UK
Before considering in-work poverty directly, it is first necessary to make some contextual
points regarding the UK labour market and public policy.
UK labour market policy – employment as a welfare strategy
As already noted, the UK‟s status since the late 1990s has been as a labour market success
story based primarily on a higher employment rate than other European countries such as
France and Germany (Clegg, 2010). In short, the post-1945 settlement incorporated strong
labour market demand-side policies (e.g. nationalisation of key industries) but from the mid
1970s, and particularly marked by the election of Margaret Thatcher‟s first Conservative
Government in 1979, policy changed dramatically to an emphasis on free market principles.
Privatisation rather than nationalisation was pursued; legislation reduced the power of trade
unions, and so on (e.g. see Clarke, 1988). The Government no longer saw itself as
responsible for job creation or protection, and what policy intervention there was focused
overwhelmingly on the supply-side of the labour market equation.
Under New Labour governments from 1997 to 2010, the 1970s/80s shift at the level of the
political economy was essentially maintained (e.g. see Hay, 2004), but with much greater
support for supply-side measures and a concern with poverty. On the one hand, therefore,
New Labour was committed to maintaining the most lightly regulated labour market of any
leading economy (Dean, 2002) but at the same time introduced the New Deal programme
and subsequently a vast array of other supply-side activation programmes. In addition was
the already noted policy theme of making work pay based on the National Minimum Wage
and tax credits system.
It is arguable that the UK has in effect ceased to have an identifiable employment policy.
Concern with employment is in reality a welfare policy of seeing work as the route out of
poverty. Activation policies have primarily been based on a „work first‟ strategy whereby any
job is seen as better than being workless – concern with employment has been replaced by
concern with employability; the unemployed are jobseekers or the workless. The approach to
the labour market is to allow market forces to determine job creation and availability. This
was exemplified in the Leitch review of skills needs with it stated that: “In the new global
economy, people‟s economic security will not depend on trying to protect particular jobs,
1
MacInnes and Kenway‟s (2009) London‟s Poverty Profile included consideration of in-work poverty
but not as a specific focus and not as in-depth as the investigation presented here.
3
Work in progress - not to be cited or quoted without authors‟ permission
holding back the tide of change...the best form of welfare will be to ensure people can find
their next job” (Leitch, 2006: 9).
Labour market change – polarisation and wage inequality
In terms of what has happened to the UK labour market since the 1970s, there has certainly
been fundamental change (e.g. see Carpenter with Speeden, 2007). This has included
increasing participation by women, the rise of two-earner households, and major industrial
and occupational shifts from manufacturing to the service sector, and from manual to
„professional‟ jobs. Of particular relevance for the purposes of this paper is the increasing
segmentation of the labour market and a tendency towards a „hollowing out of the middle‟,
that is a polarisation between employees who are working in relatively stable, well-paid,
skilled jobs on the one hand, and those who are in unstable, low-skilled, low-paid
employment on the other, with little movement between the two groups (e.g. see Working
Futures, 2007). In contrast to several other European counties, job growth in the UK prior to
the onset of recession in 2008-09 was concentrated in either high or low pay sectors, rather
than in intermediate occupations, making labour market polarisation a particular concern in
the UK (Eurofound, 2007).
What is also evident is rising wage inequality (see Hills et al., 2010: 28-30). From 1977 to
2002 median earnings grew by 56 per cent. However, for men at the 90th percentile of the
distribution, earnings doubled during this time from £531 per week to £1,045, while for men
at the 10th percentile earnings grew by only 27 per cent. For women, the 10th percentile
over the same years rose by 56 per cent, the median by 84 per cent, and the 90th percentile
by 114 per cent. It is right at the top of the distribution that there have been the fastest
increases in earnings in the last 30 years, and while the UK is not the only country where
wage differentials have risen, the increase has been both faster and greater than in many
comparable countries.
Low pay and the extent of in-work poverty
To focus on low pay, in 2006 more than one fifth of all UK workers – 5.3 million people –
were paid less than £6.67 an hour i.e. the equivalent of 60 per cent of median full-time pay
(Cooke and Lawton, 2008: 10). This equates to just over £12,000 a year for someone
working 35 hours a week. The proportion of workers who are low paid has declined slightly
over the last decade, reversing the trend of the previous two decades. This is primarily due
to a series of rises in the minimum wage above the rate of average earnings growth. As Hills
et al. (2010) note, for those at the 10th percentile of the earnings distribution a significant part
of the increase in earnings over the last 30 years came after 1997. However, this still leaves
over 5 million UK citizens on low pay and trends are not uniform across the UK: the East
Midlands, which is the subject of the empirical investigation presented in this paper, is one of
five regions/nations of the UK that was identified by Cooke and Lawton (2008) as
experiencing an increasing level of low pay even during the last decade.2
Investigation of in-work poverty, however, needs to go beyond the extent and nature of lowpaid employment because while earnings from employment are a critical source of income
and are likely to be highly correlated with poverty, households may have other sources of
income i.e. low pay is measured at the level of the individual but poverty is measured at the
2
An additional point to make here is that work and worklessness should not be seen as two distinct
states (Kenway, 2008). Harker (2006) notes that almost 70 per cent of Jobseeker‟s Allowance claims
are repeat claims, with 40 per cent of claimants who move into work returning to benefit within six
months. For the „no pay-low pay‟ cycle see Goulden (2010), but the issue is one that goes beyond the
scope of this paper.
4
Work in progress - not to be cited or quoted without authors‟ permission
level of the household. Gardiner and Millar (2006) found that the vast majority of low-paid
people (86 per cent) did not live in poor households because of additional household income
e.g. a partner‟s wages, benefits, tax credits and so on.
Cooke and Lawton‟s (2008) investigation of in-work poverty found that in 2005/06 almost six
in ten poor households (57 per cent) had someone at work. This was a rise of ten
percentage points over the preceding decade, meaning there were 2.5 million working-poor
households in 2005/06 compared with 2 million 10 years earlier. Cooke and Lawton (2008)
found that half of all poor children now live in a working household. The risk of working
poverty is very low among couples with either two or 1.5 earners, but rises substantially
where there is just one earner. 35 per cent of working households headed by someone aged
between 18 and 21 are poor. Ethnic minority headed households face around twice the risk
of working poverty as households headed by a white person.
Public policy and in-work poverty
As already noted, making work pay was a major strategy under New Labour governments
but an additional policy theme related to skills as a key to increasing wages (for individuals –
and despite the fact that the relationship between skills and wages is far from clear). While
claims regarding the economic case for improving skills levels may be unsurprising, much
broader claims were made about skills in relation to social policy. For example: “the UK has
serious social disparities with high levels of child poverty, poor employment rates for the
disadvantaged, regional disparities and relatively high income inequality. Improving our skill
levels can address all of these problems” (Leitch, 2006: 1 – emphasis added). The emphasis
on skills is exemplified in the creation of the UK Commission for Employment and Skills and
the national strategic skills audit (UK Commission for Employment and Skills, 2010).
An alternative approach, however, would be to focus on the demand for labour and the
nature of employment being created. New Labour governments did improve some rights at
work such as protection against unfair dismissal, increased maternity and parental rights,
and anti-discrimination legislation (Bennett and Millar, 2004) but the agenda here was
limited. For example, Cooke and Lawton (2008) argue for development of a labour market
that competes on high-value skills and productivity rather than on low wages. From a slightly
broader perspective Coats and Lekhi (2008) have set out in detail the case for „Good Work‟.
But there remains little evidence of policy interest in such approaches.
We now turn to our empirical investigation of in-work poverty.
The empirical investigation of in-work poverty in the East Midlands
The East Midlands3 is an interesting focus for empirical investigation because low wages are
prevalent in the region, and there is concern that the region is locked into a „low pay-low skill
equilibrium‟. What is meant by this is that the region has a relatively high employment rate
(greater than the UK average) but this is partly maintained by a significant number of low
pay, low skill jobs (e.g. see Gambin et al., 2009; East Midlands Development Agency, 2006).
Average earnings are relatively low in the region and a relatively large number of people in
the region have no formal qualifications. The region also has one of the lowest proportions of
its workforce educated to degree level in the UK. Our own investigation, using the Annual
Survey of Hours and Earnings, found that in 2008 female workers in the East Midlands had
the lowest median hourly pay rate of all the UK regions/nations; for part-time workers the
3
By way of an overview, the East Midlands is one of the ten English regions, self-evidently located in
the east of the English Midlands, with a population of 4.4 million – for further details see Office for
National Statistics East Midlands Regional Profile at www.statistics.gov.uk/cci/nugget.asp?id=1075,
and more generally Hardill et al. (2006).
5
Work in progress - not to be cited or quoted without authors‟ permission
median hourly rate in the East Midlands was lower than in all other regions/nations with the
exception of Wales. Analysis based on a different dataset, the Labour Force Survey, found
that in 2009 the East Midlands had the highest percentage of employees earning less than
60 per cent of median gross hourly earnings, of all the UK regions/nations. The industrial
structure of the East Midlands is also important. For example, our analysis found that the
proportion of low-paid work in the East Midlands accounted for by food processing is larger
than that observed within the UK as a whole.
But as already noted, investigation of in-work poverty needs to go beyond identification of
low wages. The analysis presented here is therefore based on Households Below Average
Income (HBAI) data derived from the Family Resources Survey (FRS). The definition of
poverty that is used is households with less than 60 per cent of median income (for further
details of the research methodology see Appendix A).
Figure 1 presents information on the proportion of individuals living in in-work families in the
East Midlands which have household income that is less than 60 per cent of median income
for the UK (or Great Britain prior to 2002/3). Estimates are presented both before and after
housing costs.
From Figure 1 it can be seen that in 2007/08 10.5 per cent of East Midlands individuals living
in working families lived below the poverty threshold, before housing costs. This is higher
than the UK average of just over 9 per cent. For the same year, the proportion of people in
the East Midlands living in working families but below the poverty threshold was just under
14 per cent after housing costs, compared to the UK average of just over 14 per cent.
Figure 1 also demonstrates recent increases in the level of in-work poverty. It can be seen
that from the second half of the 1990s until 2007/08, the incidence of poverty among people
living in in-work families in the UK (or Great Britain prior to 2002/3) was approximately 9 per
cent before housing costs without any significant fluctuations. However, after housing costs,
the proportion of people living in working families in the UK but still being below the poverty
threshold appeared to increase from just under 12 per cent to just over 14 per cent between
2004/05 and 2007/08.
Estimates for the East Midlands are generally comparable with the UK average, although
more variable, which probably reflects the relatively small samples sizes upon which the
analysis is based (approximately 1,300 observations per annum). In terms of the after
housing costs series, in the East Midlands there has been a gradual increase since 2004/05
in the proportion of people in in-work families that are in poverty, from around 11 per cent to
around 14 per cent.
6
Work in progress - not to be cited or quoted without authors‟ permission
Figure 1:
Percentage of individuals living in working families with a household income
less than 60 per cent of the UK median household income before and after
housing costs, comparing the East Midlands with the UK average (19942008)
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
BHC - East Mids
BHC - GB/UK
AHC - East Mids
AHC - GB/UK
Source: Households Below Average Income, 1994-2008, Office for National Statistics.
Note: The national comparator is the UK after 2002/03. Prior to this date, the comparator is Great
Britain.
Variations in the incidence of in-work poverty between regions/countries of the UK are
presented in Figure 2. The size of the FRS sample is relatively small which is problematic in
terms of undertaking an analysis of poverty within a sub-set of the population (i.e. in-work
households) that also focuses on the regional level. To overcome problems associated with
the relatively small size of the FRS, this more detailed analysis is based upon a pooled data
set of three years of HBAI data, covering 2005/6 to 2007/8.
From Figure 2 it can be seen that with regard to the level of in-work poverty the East
Midlands has a relatively „average‟ position compared to other regions/countries of the UK.
Before housing costs, the East Midlands is ranked in 6th place in terms of the incidence of inwork poverty. On the after housing costs measure, the ranking of the East Midlands declines
to 8th. The effect of housing costs is most evident in the case of London. The high cost of
accommodation in the capital increases the incidence of poverty among those in work from 9
per cent before housing costs to 17 per cent after housing costs. As with all regions/nations
in-work poverty in the East Midlands is higher when measured after housing costs than
before, but because of the relatively low cost of accommodation in the region its ranking
within the UK as a whole is more positive on the after housing costs measure.
7
Work in progress - not to be cited or quoted without authors‟ permission
Figure 2:
Percentage of individuals living in working families with a household income
less than 60 per cent of the UK median household income before and after
housing costs, by region/nation (pooled data 2005/6 to 2007/8)
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
BHC
AHC
Source: Households Below Average Income, 2005/6 to 2007/8, Office for National Statistics.
Note: Regions/nations are ranked in ascending order after housing costs (AHC).
Table 1 presents the relative characteristics of those people living in in-work poverty in the
East Midlands compared with the UK. It can be seen that in the East Midlands in-work
poverty is particularly prevalent in families that:






are headed by women (16.2 per cent) compared to men (11.6 per cent);
are headed by young people (aged 16-29: 14 per cent) compared to older people
(8.7 per cent);
are headed by a non-white person (24.4 per cent);
are headed by a lone parent (20.1 per cent);
contain couples where only one person works, whether it be full-time (21.3 per cent)
or in particular, part time (28.9 per cent);
have higher numbers of dependent children (two or more: 19.7 per cent, none: 9.4
per cent).
Table 2 presents the relative composition of those individuals who are living in in-work
poverty families in the East Midlands compared with the UK. Within the East Midlands,
approximately two-thirds of such individuals are in families that are headed by males and
that contain two adults. Approximately half are in families that have two or more dependent
children and three quarters are in families that are headed by a white person. In terms of
family types, couples with children account for approximately half of people living in in-work
poverty.
8
Work in progress - not to be cited or quoted without authors‟ permission
Table 1:
Percentage of individuals living in in-work families who are in poverty by
selected family characteristics, East Midlands and UK
Family Characteristics
Before Housing Costs
East
United
Midlands
Kingdom
After Housing Costs
East
United
Midlands
Kingdom
Gender of Head
Male
Female
8.9%
11.8%
8.8%
10.1%
11.6%
16.2%
13.0%
15.5%
Age of Head
16-29
30-50
50+
8.5%
10.3%
8.9%
8.2%
9.8%
8.4%
14.0%
14.1%
8.7%
14.7%
15.0%
9.5%
Number of Dependent Children
0
1
2+
6.5%
8.6%
13.1%
6.5%
8.6%
13.2%
9.4%
14.6%
19.7%
9.4%
14.4%
19.7%
Ethnicity of Head
White
Non-white
8.2%
20.2%
8.0%
16.2%
11.2%
24.4%
11.9%
24.6%
Family Type
Couple with children
Couple without children
Lone Parent
Single without children
Other
12.5%
5.3%
14.3%
8.2%
7.6%
11.7%
5.9%
11.0%
7.3%
7.3%
16.0%
7.0%
20.1%
13.3%
6.3%
17.3%
8.4%
21.7%
11.4%
7.7%
17.0%
2.5%
3.5%
19.0%
2.4%
2.8%
20.8%
4.4%
6.0%
24.6%
4.3%
5.9%
16.1%
12.9%
21.3%
21.4%
24.4%
21.7%
28.9%
29.6%
Economic Status
One or more self employed
Single/couple all in full time work
Couple/one in full time, one part
time
Couple, one full time one not
working
No full time, one or more part
time
All
9.7%
9.2%
12.8%
13.7%
Sample
3,756
51,479
3,756
51,479
Source: Households Below Average Income, 2005/6-2007/8, Office for National Statistics.
9
Work in progress - not to be cited or quoted without authors‟ permission
Table 2:
Composition of individuals living in in-work poverty families by selected family
characteristics, East Midlands and UK
Before Housing Costs
East
United
Midlands
Kingdom
After Housing Costs
East
United
Midlands
Kingdom
Gender of Head
Male
Female
67.3
32.7
67.9
32.1
66.2
33.8
67.3
32.7
Age of Head
16-29
30-50
50+
14.9
64.0
21.0
16.2
63.5
20.3
18.6
66.0
15.4
19.5
65.2
15.3
Number of Dependent Children
0
1
2+
32.4
16.2
51.3
34.4
17.3
48.4
32.7
19.4
47.9
33.9
17.0
49.2
Ethnicity of Head
White
Non-white
73.8
26.2
75.0
25.0
76.1
24.0
74.7
25.3
Family Type
Couple with children
Couple without children
Lone Parent
Single without children
Other
58.2
14.7
9.0
13.7
4.4
58.1
16.3
7.3
13.8
4.5
56.4
14.7
9.5
16.7
2.8
57.4
15.5
9.6
14.3
3.2
19.4
9.6
7.5
28.1
9.4
6.3
17.9
12.6
9.6
24.3
11.3
8.6
30.0
23.4
30.0
25.9
33.5
32.8
30.0
29.9
Economic Status
One or more self employed
Single/couple all in full time work
Couple/one in full time, one part
time
Couple, one full time one not
working
No full time, one or more part
time
All
100
100
100
100
Sample
332
4,571
452
6,252
Source: Households Below Average Income, 2005/6-2007/8, Office for National Statistics.
What is most marked in Tables 1 and 2, however, is how similar the East Midlands is to the
UK as a whole. For many of the characteristics identified in Tables 1 and 2 there is scarcely
a percentage point difference between the East Midlands and the UK. Where there are
slightly greater differences, the choice of a before or after housing costs measure is
important e.g. in Table 1 on the before housing costs measure the ethnicity of the head of
household of an in-work poverty family in the East Midlands is more likely to be non-white
(20.2 per cent compared with 16.2 per cent for the UK) but on the after housing costs
analysis the figures for the East Midlands and the UK are virtually identical (24.4 per cent
and 24.6 per cent).
10
Work in progress - not to be cited or quoted without authors‟ permission
The most notable difference between the East Midlands and the UK is the higher levels of inwork poverty in the East Midlands where only one individual in a couple is in work. In Table 2
it can be seen that on the before housing costs measure 30 per cent of individuals living in
in-work poverty families in the East Midlands are in households where there is a couple of
whom one works full-time and one does not work, compared with a figure of 23.4 per cent for
the UK (the estimates after housing costs are 30 per cent and 25.9 per cent for the East
Midlands and UK respectively). This is likely to reflect relatively low wage levels in the
region, suggesting that an additional work income is particularly important in raising couples
out of poverty. But apart from this, there is no evidence of a particular group of people in the
East Midlands being substantially more likely to be in in-work poverty compared to the UK.
In summary, there are four points to highlight from our analysis. First, is the significant extent
of in-work poverty in the East Midlands. In 2007/08, on the before housing costs measure,
more than 1 in 10 people (10.5 per cent) of East Midlands individuals living in working
families lived below the poverty threshold; on the after housing costs measure the extent of
in-work poverty in the East Midlands is even greater, affecting around 1 in 7 people in
working families (14 per cent). Second, is the fact that in-work poverty is increasing. Using
the after housing costs measure, the proportion of people living in working families in the UK
but still being below the poverty threshold increase from just under 12 per cent to just over
14 per cent between 2004/05 and 2007/08; in the East Midlands the increase over these
same years was from around 11 per cent to around 14 per cent – the problem of in-work
poverty is growing. Third, is the importance of housing costs. As with all regions/nations of
the UK, in-work poverty in the East Midlands is greater when measured after housing costs
rather than before, but because of the relatively low cost of accommodation in the region its
ranking within the UK as a whole is more positive on the after housing costs measure.
Fourth, in terms of the characteristics of those likely to experience in-work poverty what is
most marked is how similar the East Midlands is to the UK as a whole: there is certainly no
evidence of a particular group of people in the East Midlands being substantially more likely
to be in in-work poverty than across the UK as a whole.
Discussion: policy implications
There are a number of themes that arise from the research findings that could be developed,
but there are three key points we wish to make.
First, in seeking to connect in-work poverty and labour market analysis, projected labour
market trends suggest that in-work poverty is not going to decline merely as a consequence
of structural change in the sectoral and occupational profile of employment (this point is also
made by Lawton, 2009b). Although economic recovery remains fragile in 2010, following
what has been an acute recession, in the medium-term employment growth is likely to be
strong in a range of sectors and occupations. In the National Strategic Skills Audit for
England 2010, the UK Commission for Employment and Skills (2010) points to significant
future demands in managerial, professional and associate professional & technical roles
associated with higher level skills and higher than average pay, while employment in
elementary occupations and for machine & transport operatives at the opposite end of the
skills and pay continuum is projected to decline in net terms. However, the Strategic Skills
Audit concludes that: “Despite the growth of highly skilled work within the labour market, and
a substantial overall decline in recent years in lower skilled jobs, in the future significant
employment is expected to remain in low skilled jobs” (UK Commission for Employment and
Skills, 2010: 6). These lower skilled jobs in personal service occupations and sales &
customer service occupations, concentrated in sectors such as retailing, hospitality and
social care, represent important labour market entry points for many young people and for
those seeking to move out of unemployment. Yet these are also the types of jobs associated
with in-work poverty. Hence, projected labour market trends suggest that, in the absence of
other change, in-work poverty is likely to persist. This is certainly the case in the East
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Work in progress - not to be cited or quoted without authors‟ permission
Midlands where projections suggest that sectoral and occupational structures will not change
significantly over the medium-term – there is expected to be a continuing demand for labour
in low-paid sectors.
Second, is consideration of policy implications at regional level. To reinforce one of the key
findings from the empirical investigation, in-work poverty is a significant problem in the East
Midlands and is increasing. As has been noted above, there is particular concern in the East
Midlands with the existence of a low pay-low skill equilibrium which can: push down wages;
drive down regional consumption levels with regional domestic demand falling because
employers engaged in low-skill, low value work will have a limited demand for high value
intermediate products which might be sourced locally; and employees will have relatively low
disposable income to spend on locally produced products and services.
Many direct policy levers such as the National Minimum Wage and tax credits are controlled
by central (UK) government but as noted above, there is potential for an alternative
approach which focuses on the demand for labour and the nature of employment being
created – and this is an agenda that could be pursued at regional level (although at the time
of writing there is considerable uncertainty regarding the future of sub-national policy
development including the possible abolition of Regional Development Agencies). A
theoretical framework is provided by the idea of a „high road‟ rather than „low road‟ approach
to economic development, based on competitive advantage being gained through
innovation, enhanced quality of products and services, and upskilling through training and
continuous workforce development as integral elements (e.g. see Berger, 2005; Milberg and
Houston, 2005). In more immediate terms, the skills element of regional and local economic
development provides an opportunity for regional and sub-regional partners to tackle issues
around the low skills base in some areas and to influence the delivery system to promote
economically valuable skills and ultimately improve productivity and reduce in-work poverty.
The establishment of the Skills Funding Agency and the Young People‟s Learning Agency in
April 2010 has enhanced the local authority role in skills, while public procurement can be
used to enhance skills development and business support, advice and guidance can play an
important role in stimulating skills demand. With regard to innovation, interventions at
regional level can include targeted support to foster innovation in businesses, developing
research excellence and providing assistance in the development, promotion and
establishment of new technologies, products and processes and establishing collaborative
networks between researchers, businesses and venture capitalists. Regional partners might
seek to achieve greater impact in their interventions by targeting certain priority sectors –
including sectors associated with lower than average wages and productivity. There is scope
for promoting career pathways and upskilling within low pay sectors. Working with individual
employers and networks thereof is an important way to encourage positive change, since
employers self-evidently play a critical role in determining employment terms and conditions
and how work is structured, including skills requirements and progression, and is again well
suited to action at sub-national level.
Third, is the finding from the empirical investigation of similarities between the East Midlands
and the UK rather than differences in relation to in-work poverty. From this perspective the
cause of problems is not unique to the East Midlands. Rather, the problem is rooted in UK
labour market policies and institutions. Here we could look to a range of issues: relatively
limited employment protection regulation; an unemployment benefits system which is
oriented towards the provision of means tested, targeted benefits paid at a relatively low rate
compared to average wage rates; the work first approach to labour market activation;
provision of indirect wage subsidies to employers through tax credits; limited collective wage
bargaining structures; and a vocational and education training system characterised by
voluntarism in that there is little compulsion for either employers or employees to train. It is in
this sense that in-work poverty may have been „re-discovered‟ since the turn of the
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Work in progress - not to be cited or quoted without authors‟ permission
Millennium but is far from a new problem in the UK. The existence of in-work casts doubt on
the UK labour market success story and instead highlights underlying problems.
Policy that continues to rely on work first and tax credits offers little likelihood of success in
reducing in-work poverty. The real roots of in-work poverty lie within deeper labour market
issues – and the solution lies in the development of a substantive employment policy that is
concerned with the nature of jobs created, reward structures and pathways to career
progression. That is what would create a real UK labour market success story.
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Appendix A: the research methodology
Households Below Average Income (HBAI) data are derived from the Family Resources
Survey (FRS) and are regarded as the key data set for analyses of poverty. During 2007/08,
the FRS completed full interviews with 23,121 households in Great Britain and 1,861
households in Northern Ireland. The HBAI uses household disposable incomes, after
adjusting for the household size and composition, as a proxy for material living standards. In
addition to including variables on household composition and economic activity, it contains
unadjusted income variables, but more importantly, it contains 'equivalised' income, i.e. the
household income is adjusted according to the composition of the household, making it
easier to compare household incomes in relation to household needs.
The basic unit of analysis within the HBAI data set is the benefit unit. A benefit unit (or what
is referred to in the paper as a „family‟), is a single adult or a couple, together with any
dependent children. An adult living in the same household as his or her parents, for
example, is a separate benefit unit from the parents. A household is a single person or
group of people living at the same address as their only main residence, who either share
one meal a day together, or share the living accommodation (i.e. the living room). A
household may therefore consist of one or more benefit units. Therefore, while the FRS in
2007/8 achieved interviews with approximately 25,000 households, these interviews covered
some 29,000 benefit units. However, a key assumption made in HBAI is that all individuals
in the household benefit equally from the combined income of the household. Within the
HBAI, all benefit units within a household are therefore allocated the same equivalised
household income. This enables the total equivalised income of the household to be used
as a proxy for the standard of living of each household member.
The analysis that follows therefore defines in-work poverty as the number of people in
private households where at least one person is in employment and where the equivalised
household income of that benefit unit (family) falls beneath a particular level. There are
limitations to this approach. As alluded to above, somebody who is in work and relatively
well paid may be defined as being in poverty if they share a household with other benefit
units that have relatively low levels of income. Conversely, a benefit unit that is poorly paid
but shares a household with other benefit units that have relatively high levels of income
may not be defined as being in in-work poverty.
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The 're-discovery' of in-work poverty: empirical insights and policy implications