The UK now has an opportunity to escape the low-wage, low-skill economy

Don't just wait for the government to raise the minimum wage, argues the Institute for Employment Studies' Tony Wilson.

by Tony Wilson
Last Updated: 24 Jul 2019

Political consensus has been in short supply in recent years. So the odds of finding an area of economic policy where the government and opposition broadly agree would seem to be pretty slim. But with the chancellor’s announcement that he is considering raising the minimum wage to £9.60 an hour, there would be barely the price of some cigarette papers between government policy and the Labour manifesto commitment for a £10 per hour minimum wage.

However, while this outbreak of political unity is welcome, raising the minimum wage on its own is far from enough to address Britain’s low pay problem. Around five million workers are low paid and just one in six of those low paid a decade ago have ‘escaped’ it a decade on.

As a consequence of low pay and welfare reforms, more than half of all people in poverty now live in working households. At the same time, one third of employers report that they have staff whose skills are underutilised, while UK productivity is significantly lower than many of our main competitors.

Aside from raising the minimum wage, the government’s main focus in trying to tackle low pay has been on the workers themselves – first through trials of conditional support to progress in work for those on universal credit (with mixed results) and then more recently with the announcement of a pilot to support people to change jobs.

However, I would argue that if we are to break the cycle of low pay, low skills, poor productivity and working poverty we now need a far greater focus on the role that employers can play in supporting progression for low-paid workers. And many employers are far from unanimous that paying their people more pays off.

For many employers, it has suited them just fine to keep labour costs low – contributing to a low-price, low-pay, low-skill and often low-quality economy. But this model is often a choice, not a necessity. There are powerful arguments that creating better-paid jobs with better prospects leads to lower staff turnover, higher performance, better quality products and better customer service.

And in our own work (funded by the JP Morgan Chase Foundation) we have found a range of employers across Europe and in traditionally low-paying sectors which are following this model.

So, where do we go from here? I believe we need action in four areas.

Firstly, we need to far more clearly articulate what ‘good work’ and good pay look like and how employers can achieve it. This means having a far more coherent approach across government departments, and greater co-ordination with civil society, business and trade unions. This won’t be easy, but a number of cities are showing that it is possible (most notably through London’s good work standard and Greater Manchester’s good employment charter).

Secondly, the public sector needs to lead by example. Ending the zero-sum, cost-based approach to pay setting would be an excellent start: no system of pay and reward is perfect, but our research has shown that linking pay to skills and competence can lead to improved retention, productivity and performance and has a solid track record in a number of countries.

Thirdly, we need to improve the evidence base on ‘what works’ in improving progression in low paying sectors and the bottom-line impacts that this has on workers and companies. This means working directly through employers and unions to look at how work is organised, how workers are supported, how skills and jobs can be expanded, how additional pay can be funded and how barriers to progression can be overcome. It also means looking at the critical role that line managers play – ensuring that they have the skills to make initiatives work, manage their staff in different and more flexible ways, and be more responsive to individuals’ needs.

And finally, we need to gear public policy far more around tackling low pay and supporting good work. One approach could be to give the Low Pay Commission a broader remit around addressing low pay – to gather evidence on its causes and impacts, advise on wider policy responses (for example through the skills system and business support), and convene employers and social partners in key sectors. Local industrial strategies could also be tasked with setting out clear actions to address low pay and poor progression.

By doing these four things together we can start to break the cycle of low pay, low skills and working poverty. And for once, there’s the political will to act – so let’s make the most of it.

Tony Wilson is director of the Institute for Employment Studies and a contributor to People Power, a report from the Changing Work Centre (a Fabian Society/Community initiative). 

Image credit: Negative Space/Pexels

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