Welfare-to-work ignores women stuck at the bottom of the heap

Detailed analysis makes it clear that the Government has leapt to false assumptions about the UK's dual labour market and dual society
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There can be almost nobody in the country who objects to the aims of Gordon Brown's welfare-to-work schemes and, in reality, very few people who think the Chancellor should not have found extra money to spend on getting the unemployed into work. Labour's approach is actually remarkably similar to a range of schemes introduced by the Tories, except that the new Government is being much tougher than its predecessor about withdrawing benefit from "shirkers".

There is, however, a swelling chorus of criticism of the details of the New Deal for the unemployed. This strikes various notes, but the key worry was highlighted by the recent "Employment Outlook" from the Organisation for Economic Co-operation and Development. This annual bible for anybody who is interested in the jobs market points out the key problem: that we do not know enough about the detailed functioning - and misfunctioning - of the labour market to be able to design welfare-to-work policies with any real confidence.

It has a stab at looking at what needs doing in six member countries, including the UK. The issue that needs to be addressed is not just unemployment but also low pay. It is the need to improve working and living conditions for people stuck on the bottom rungs of the social ladder. Low pay and bad conditions are as serious an issue as joblessness. They are simply different facets of poverty and exclusion.

If it is the case that the same people are stuck in no jobs or bad jobs, and tend to be lumbered with part-time or temporary work - in short, who bear all the brunt of making our economies flexible - the social consequences are bleak, as a new book on the dual nature of the labour market spells out. Gilles Saint-Paul says: "An important issue related to the discussion of labour market flows is whether or not always the same people end up in the bad jobs. If so, then the dual labour market would lead to a segregated society."*

Research on this question requires very fine-grained information on what actually happens to particular people. New data sets that track the earnings and employment of particular individuals over time, described as panel data by economists, for the first time provide enough detail.

As the OECD says, we would be a lot less worried about low pay if it turns out that for most of the people affected it is a temporary problem and they move on to higher-paid employment. Looking at panel data for the years 1986-1991 for six countries, it found, as the chart shows, that the proportion who were low paid at any time during that period (18-24 per cent) was greater than the proportion who were low paid in 1986. This in turn was far bigger than the group who were low paid throughout the entire five years (3-5 per cent).

"Low pay traps appear to be much less common than low pay stopovers," the report comments.

It also found that low-paid employment appears to be more persistent in the US and UK, perhaps because those countries have fewer barriers preventing the payment of very low wages. The probability of escaping from bad jobs is somewhat lower in the UK. In addition, the average earnings of those who were continuously in work during the five years grew most strongly in the UK. Both bits of evidence tie in with the general perception that inequality has increased more sharply in this country than most others in recent years.

The dual labour market does appear to create a barrier between the haves and have-nots that is higher in this country than elsewhere.

In fact, in the case of all six countries, the report says: "Even though low pay is a transitory phenomenon for a majority of workers ... a large share of the time spent in low-paid jobs is attributable to workers for whom [it] appears to be a chronic condition."

Most spells in badly paid jobs are short, but so are the escapes from them, and the same people cycle in and out of poverty. This would be even more true if the OECD's researchers had been able to take account of cycling between low pay and no pay, or unemployment. "The main message," the report concludes, "is that workers' prospects of moving up worsen the longer they have been low paid."

If, as all this evidence suggests, it is the same people who are caught in this cycle, who are they? For it is on them that Government efforts to alleviate poverty and inequality should be concentrated. The OECD offers some indications. It is, broadly speaking, women and those with few educational qualifications who get stuck at the bottom of the ladder. Like young people, they have a higher probability of being low paid in any year. Unlike the young, they are less likely to be upwardly mobile as time goes by.

In the UK, for example, 18 per cent of the panel of workers had pay in the bottom fifth of the income distribution at some point, 13 per cent were low paid in 1986, and 5 per cent were low paid throughout the five years.

But the corresponding figures for women only were 36 per cent, 30 per cent and 12 per cent. Women are more than three times as likely as men to be low paid at some stage and six times more likely to be stuck at the bottom of the heap.

The relative vulnerability of women is even higher in Germany and Denmark, somewhat lower in France, Italy and the US. But the pattern is common. So is the position of the least educated workers, in those cases for which the information was available.

The Chancellor was swift to acclaim this year's OECD report as a vindication of Labour's emphasis on the lack of fairness and opportunity in the jobs market. He was right to point out that the organisation is now emphasising the social aspects of labour market policy, while sticking to its long- standing insistence on the need for deregulation and flexibility in order to create jobs.

However, the detailed analysis makes it clear that the Government has leapt to false assumptions about the UK's dual labour market and dual society. The faultline does not lie exactly where Mr Brown claims. His welfare-to-work scheme concentrates on the young, long-term unemployed. Clearly, providing all young people with a far better education and training, and not permitting them to leave the education system without qualifications, is essential.

But the OECD research suggests that a second focus should be on women rather than the young. With a mere pounds 200m made available from the windfall tax for single mothers, the biggest single category of women in poverty, compared to pounds 3.5bn for the young unemployed, this is obviously something the Chancellor has not thought about yet.

*Dual Labor Markets, Gilles Saint-Paul, MIT Press, April 1997.