The prison of the minimum wage: Only a quarter of low-paid workers will move up the income ladder

Women and part-timers make little progress in changing jobs market

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Indy Politics

Only one in four low earners has managed to permanently escape the prison of low pay in the past decade, according to a major study published today.

The Resolution Foundation think tank uncovered the most graphic evidence to date of the scourge of in-work poverty, in which millions working part-time, in sales jobs and the hospitality industry, cannot move up the income ladder. Fewer than one in five people working in restaurants, pubs, takeaways and catering left low pay for good in the past 10 years.

Many of those affected are women. The foundation said the “strong negative link” between working part-time and escaping low pay would be a big concern for the UK’s army of 6.8m part-timers, more than three quarters of whom are women. According to the study, major barriers to pay progression include being disabled, a single parent, an older worker and the number of years spent working part-time.

Although many workers do move into higher-paid jobs, they often fall back. Among the three quarters of workers who were low-paid 10 years ago, a clear majority have moved between low and higher pay since. However, only 12 per cent of those who stayed in employment were stuck in low pay in every year of the period.

A previous study by the Joseph Rowntree Foundation found that the majority of the 13m people living in poverty in Britain are in families where one or more are in work, rather than so-called “scroungers” claiming out of work benefits. Today’s report reveals how hard it is for these “strivers” to move up the income ladder.

It says that “escapers” from low pay saw their wages grow by on average 7.5 per cent a year in real terms over the past decade, bringing their pay up to around the level of typical workers. Those unable to escape low pay saw their wages grow half as fast (3.6 per cent a year).

Alan Milburn: 'The majority of Britain’s poorest paid workers never escape the low pay trap'

The report, “Escape Plan”, written for the Social Mobility and Child Poverty Commission, used official data to track low paid workers to find out how far up the ladder they climbed. It defined the low pay threshold as two thirds of median hourly earnings - £7.69 in 2013.

Alan Milburn, the former Labour cabinet minister who chairs the commission, said: “The majority of Britain’s poorest paid workers never escape the low pay trap. Too many simply cycle in and out of low paying jobs instead of being able to move up the pay ladder. Any sort of work is better than no work but being in a job does not guarantee a route out of poverty.”

He added: “This research provides compelling evidence for employers and government to do more on pay progression. It is a powerful argument for Britain to become a Living Wage country.” The Living Wage, paid voluntarily by more than 1,000 employers, is worth £9.15 an hour in London and £7.85 outside the capital, higher than the £6.50 an hour national minimum wage.

Vidhya Alakeson, the foundation’s deputy chief executive, said: “Britain has a long-standing low pay problem, with over a fifth of the workforce in poorly paid jobs. But the limited opportunities for escaping low pay is just as big a concern as it has huge consequences for people’s life chances. More permanent escape routes are needed for the huge number of workers who move onto higher wages but fail to stay at that level.”

Ms Alakeson said that even in low paid sectors, it was it is possible for staff, helped by employers, to progress their career and earn more. “But we need more employers to take the issue seriously and have effective plans to promote pay progression,” she said.

Factors that help people escape low pay include having or obtaining a degree, having a positive outlook for the future and working for a large employer with 1,000 or more employees, the research found.

In a significant shift yesterday, Britain’s bosses called for action to tackle the living standards crisis, by lifting the lowest paid out of national insurance and expanding free childcare. The CBI discussed what business could do to tackle low pay at its annual conference in London.

Sir Michael Rake, the CBI president, said: “Falling real wages – a price worth paying to preserve jobs during and after the recession – cannot go on for much longer. For those currently in low-paying jobs or trying for entry level roles, business has to do much more to help them climb the ladder and progress. We want to see the benefits of a growing economy translated into better opportunities for all people.”

Dr John Sentamu, the Archbishop of York, told the CBI conference that Britain was in danger of becoming a country in which the “haves” and the “have-nots” lived in separate worlds. “Income inequality is a stain on our consciences,” he said. “Let us make paying the Living Wage a litmus test for a fair recovery. Income inequality is the giant we must slay together.”

Low wages, depressing pay

Why do wages remain low?

The market. As a society, we value Wayne Rooney much more than a care-home worker. There are few Rooneys and a huge paid demand for them; there are many of the latter and companies can get away with paying them little.

Is it getting worse?

Most of the rise in prosperity across the West in recent decades has gone to the wealthy. Globalisation has pushed wages down across the world, and, in Britain, displaced skilled jobs in manufacturing. The owners of capital and those who manage and control it on their behalf, have benefited.

What is the answer?

Reverse globalisation; subsidise skills training; redistribute wealth and income though taxation; raise minimum-wage rates; improve education to expand opportunities.

What about part-time workers?

The latest report says that this is a limiting factor, but for some it may simply be that part-time occupation suits their family commitments. For some, in notorious “zero hours” contracts, this may also be the case, though there is much disquiet about their operation. Lack of funds and time limits chances of acquiring experience or skills.

Sean O'Grady