To tackle low pay, policymakers must think about sectors

Neil Lee Anne Green Paul SissonsNeil Lee, Anne Green and Paul Sissons

An extended version of this blog post was originally published in Discover Society on 9 January 2018.

The UK has a low pay problem. The traditional policy mix has been work-first employment policies to get people into employment regardless of the job, a minimum wage to prop up low wages, alongside economic development policies focused on high-end sectors and investments in science and innovation. The result has been strong employment creation but one of the worst rates of low pay in the OECD. Around a fifth of the UK’s workforce are in low pay, defined as earning less than two thirds of national median weekly pay. Low pay has been compounded by wage stagnation: between 2008 and 2015 the only OECD country with worse wage growth was Greece.

Much of this low pay is in a small number of sectors which are set to grow significantly in the future, which will only proliferate the low pay problem. Through our close analysis of sectoral differences and the dynamics of low-paid sectors in our new article in Policy & Politics,  we reveal that instead of the current policy focus, efforts to improve productivity and earnings mobility in low-pay sectors, could improve living standards as well as the UK’s overall economic performance

Low pay exists across all sectors, but the three sectors with the highest share of low pay – Retail and Wholesale, Accommodation and Food Services, and Residential Care – account for almost half of the UK’s low paid workers. This isn’t simply because of the characteristics of the workforce. Our statistical analysis shows that, even accounting for the personal characteristics of the workers, including education, there is an independent ‘sector effect’ on low pay. A worker in Wholesale and Retail is more than 50% more likely to be low paid than one in Manufacturing, even controlling for their other characteristics.

Future labour market trends show that there will be significant growth in some low-paid sub-sectors. Working Futures projections for future employment suggest that by 2024 there will be another 190,000 low paid workers in Accommodation and Food Services and 131,000 in Wholesale and Retail. Efforts to ensure ‘good jobs’ are created in these sectors will be important to help address the UK’s poor wage performance.

What does this mean for policy? The dominant policy approach has been on the supply side of the labour market, but there is now growing interest in the idea that an Industrial Strategy might help address productivity performance. We argue this needs to consider the problem of low productivity and pay in sectors such as Retail. Doing so could have an important dual goal – increasing productivity – and therefore economic growth – while reducing low pay – and increasing living standards. Getting as many people into employment as possible, regardless of the job, has been successful in some ways, but we also need a policy agenda to address its costs.
If you enjoyed this blog, you may be interested in:
Who cares? The social care sector and the future of youth employment

UK employment services: understanding provider strategies in a dynamic strategic action field

Reconsidering the fiscal-social policy nexus: the case of social insurance


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