Earnings gap 'widening' in flexible market

Earnings inequality in Britain is rising dramatically, increasing poverty and marginalisation, according to a new report from a leading economic think-tank.

The stark warning that the UK and US need to tackle the social consequences of their flexible labour markets is all the more notable for coming from the Organisation for Economic Co-operation and Development, a body which has in the past lavishly praised the British Government for policies which have reduced unemployment.

The new report says growing inequality is not an acceptable price to pay for reduced unemployment. It takes the view that the UK has chosen to trade off equality for jobs, in contrast to high-unemployment Continental economies.

Shadow Chancellor Gordon Brown said the figures "confirmed what we already know - that under the Tories only those at the top have benefited from Government policies."

The OECD's annual Employment Outlook foresees only a small drop in unemployment in the industrial countries as a whole in the next two years. The total will remain a little below 34 million in 1997, it predicts.

Britain is one of the handful of countries where it foresees a small decline in joblessness. It puts unemployment at an average of 2.1 million next year, and implies that it could fall below 2 million by the end of 1997. It predicts a UK unemployment rate of 7.5 per cent in 1997, just below the OECD average.

The report, to be published tomorrow, notes that the UK and the US are the only two countries where inequality is still increasing rapidly. Low- paid workers are also widespread in both countries. A quarter of all full- time workers in America and a fifth in Britain are in low-paid jobs, compared with around 10-15 per cent in other industrial economies.

The two Anglo-Saxon economies also have the lowest rates of upward mobility out of low-paid jobs, and the highest earnings volatility. Surprisingly, however, there is no evidence of an upward trend in temporary work, which accounts for a lower proportion of jobs in Britain than in many other countries.

The report says: "The risk now facing a number of OECD countries is that labour market exclusion can easily turn into poverty and dependency." It recommends changes to taxation and benefits to help people escape the poverty and unemployment traps, perhaps targeting reforms on groups that traditionally fare poorly in the labour market, such as the young, the long-term unemployed and lone parents.

It also argues that too many young people leave school without the knowledge needed for jobs in today's economy.

Britain, it points out, has the lowest percentage of 18-year-olds at school. Only 32 per cent of young men and 38 per cent of women remain in education at that age, compared to the OECD averages of 64 per cent and 66 per cent.

Many adult workers will need continuously to improve their skills if they are to reduce their risk of being out of work, the OECD says, placing a new emphasis on lifelong learning.