The myth of the upwardly mobile

The political debate over the Government's labour market policies has been clouded by a lack of hard facts. New research makes sobering reading

The Conservative Government's single-minded creation of a deregulated and flexible labour market has made Britain the stage for a unique natural experiment during the past 20 years. The payoff has been, finally, one of the lowest unemployment rates among industrial countries. This has made Britain an example that is starting to tempt politicians on the Continent, especially in Germany and France, fearful of the electoral consequences of their jobless levels.

Yet the experiment has had other, less appealing, results. Earnings inequality in the UK has risen faster than in any country apart from the US. The distribution of men's wages is more unequal now than at any time since comparable records began in 1870. This, too, has a political cost. The latest British Social Attitudes survey shows that nine out of ten Britons think the gap between high and low incomes is excessive.

The political debate over the years about the merits of the Government's labour market policies has been clouded by a lack of hard facts. In particular, growing inequality might not matter if it is matched by growing opportunity, so that a wider income distribution at any point in time is offset by greater upward income mobility. Britons might have become more like the many Americans who start their career serving in a fast-food joint but work their way up the ladder, giving more equal lifetime incomes. So, at least, the Government has claimed.

The information needed to assess this claim properly is becoming available. A new publication from the Centre for Economic Performance contains the most comprehensive summary so far of research on what impact the new flexibility has had on incomes and job opportunities, at least for men.

The research has been made possible by the availability for the first time of several "panel" data sets. These contain years' worth of information on thousands of individuals, from official national insurance records and from surveys, allowing specific employment and income histories to be tracked.

Recent academic research has therefore been able to present several conclusions about the results of the British experiment. Sobering reading it makes, too. Consider the following conclusions, which economists would call "stylised facts", about the UK labour market.

r Fact 1: Wage mobility has diminished over time.

The degree of movement up the wage distribution was about a quarter lower in 1995 than in 1980. Most of that decline occurred in the early 1980s but the trend has continued since then. Lower inflation is part of the explanation, however: there is much less movement within the income distribution when increases in incomes are low.

r Fact 2: Wage mobility is higher for the young and concentrated in the first year of work.

This result is not surprising, but it does imply that people who do not escape low pay early in their life will find it much harder later. The average person gains as much in their income in the first year of work as they add in the next four years. About 45 per cent of men leave low pay in their first working year, and only half as many in their second year.

r Fact 3: Most people who move up the income distribution do not move far.

Peter Lilley, the Social Security Minister, has made much of the finding that of the men aged 25-34 in 1978/79 whose earnings were in the bottom tenth of the distribution, only 13 per cent were still in that lowest tenth in 1992/93. True, but a full third of them remained in the bottom three-tenths of the earnings distribution and another 18 per cent were claiming benefits. Just under 16 per cent had made it to the top half of the earnings distribution.

The picture is bleaker for an older age group, aged 35-44 in 1978/79. As the chart shows, there was more downward mobility for this age group. Nearly one in five of the bottom tenth were still in the bottom tenth 15 years on, with 37 per cent in the bottom three-tenths. And 27 per cent were on benefits. Under 7 per cent had climbed into the top half of the earnings scale.

r Fact 4: People who leave unemployment for a low-paid job have a higher chance of becoming unemployed.

In perhaps the most telling result about the jobs market, only half of the prime-age men who were the lowest paid at the start of the Conservative era still had a job 15 years later, and only 60 per cent of the younger men. Of those who had been unemployed in 1978/79, 78 per cent (or 64 per cent of the younger group) were unemployed in 1992/93.

"There is evidence of a cycle of low pay and no pay," one of the papers in the CEP report concludes. The British figures display the phenomenon American researchers have labelled "recidivism": those who leave poverty have a propensity to fall back into it.

r Fact 5: The fall in entry-level wages has increased the number of two-job couples.

Pay at the bottom end of the jobs market has fallen by more than a tenth in real terms since 1980, to an average of just under pounds 100 a week. This has tightened the poverty trap - there is less chance of getting a job that makes it worth giving up benefits. One result has been that while the probability of moving from non-employment into work has fallen for single men and women, and married men, it has nearly doubled for married women whose husbands already work. Increasingly, couples have either no jobs or two jobs because the level of pay at the bottom of the earnings distribution is too low to support a family or warrant giving up benefits.

The bottom line is that during the past two decades, lifetime opportunities have been no more fairly distributed than incomes at any single point in time. This depressing list does prompt some fairly obvious policy conclusions. Paul Gregg, editor of the new CEP volume, focuses on two. First, make entry-level jobs more viable, by reducing tax, for example (as shadow Chancellor Gordon Brown plans to do with a 10p or 15p starting rate). Secondly, getting the unemployed into work is not enough; there is also a need to move people on to higher incomes and to reduce their risk of becoming unemployed again.

However, the existence of a large group of people who stand little chance of leaving poverty and unemployment behind them is not enough to condemn the entire British labour market experiment. To the extent that it has reduced unemployment, greater flexibility is welcome, for those with no job are worse off than those with a badly paid job, and generally unhappier too.

A greater caveat has to be that the evidence sheds no light on how much the Government's labour market shake-up is to blame for the trend towards greater inequality, nor on how far the trend will go. There is a strong case for arguing that influences far beyond the UK, such as new communications technologies or international trade and investment, account for it. Britain has reacted one way, the Continent another, and each has paid a high price in either fairness or jobs.

If the world really is a more hostile place for unlucky sections of the population in industrial countries, it might prove a lot easier to limit inequality via taxes and benefits than to reduce unemployment. Little wonder the French and Germans are still undecided about the British experiment.

"Jobs, Wages and Poverty", Centre for Economic Performance, London School of Economics, January 1997. Price pounds 15.

Arts and Entertainment
The cast of The Big Bang Theory in a still from the show
tvBig Bang Theory filming delayed by contract dispute over actors' pay
Sport
England celebrate a wicket for Moeen Ali
sportMoeen Ali stars with five wickets as Cook's men level India series
News
peopleGuitarist, who played with Aerosmith, Lou Reed and Alice Cooper among others, was 71
Travel
travel
PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
food + drinkVegetarians enjoy food as much as anyone else, writes Susan Elkin
Arts and Entertainment
Harry Potter (Daniel Radcliffe), Hermione Granger (Emma Watson) and Ron Weasley (Rupert Grint)
newsBloomsbury unveils new covers for JK Rowling's wizarding series
News
scienceScientists try to explain the moon's funny shape
Sport
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Support Technician / Application Support

£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...

Team Secretary - (Client Development/Sales Team) - Wimbledon

£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...

Accountant / Assistant Management Accountant

Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star