Biggest fall in low pay for 40 years, following introduction of the National Living Wage

Published on Jobs, Skills and Pay

The number of low-paid employees dropped by over 300,000 last year as Britain experienced its biggest year on year fall in low pay since 1977, according to a new report by the Resolution Foundation published today (Thursday).

Low Pay Britain 2017, the seventh instalment of the Foundation’s flagship annual low pay report, shows that the UK remains too reliant on low paid work, defined as employees earning less than two-thirds the median hourly wage (roughly £8.25 in 2017).

The report also confirms the success of the National Living Wage (NLW). As of April 2016, 5.1m employees (19.3 per cent) were low paid, down from 5.4m (20.7 per cent) last year, a drop of 6.8 per cent. This brings the share of employees that are low paid to below one in five for the first time since the 1980s.

The analysis finds that the proportion of women who are low paid has fallen to below one in four for the first time since records began, at 23.4 per cent. However, women still make up the majority of low paid workers at 61 per cent of the total, which has changed little over the last few years. The proportion of men who are low paid is only at its lowest since 2004, reflecting the more recent shift of men into low paid work previously dominated by women.

Young people have seen a boost to their pay despite the NLW only legally applying to those aged 25 and over. The analysis finds evidence of a ‘domino effect’ on those aged 16-20 with a 3 per cent fall in their low pay risk since last year, though three-quarters of this group are low paid.

While progress has been made across the country, sizeable gaps remain across nations, regions and cities. Yorkshire and the Humber and the East Midlands are the regions with the highest share of low paid employees, with 24 per cent of employees falling below the low pay threshold in each. At the other end of the spectrum, just one in ten employees in London (10 per cent) are low paid. Among city regions, Sheffield (24 per cent), Nottingham, Liverpool and Newcastle (all 23 per cent) are at the top of the low pay table.

However while 2016 was a good year in terms of falling low pay, the UK still has a long way to go in reducing its reliance on low paid work. The number of people earning below the voluntary Living Wage – calculated based on the amount needed to achieve an acceptable standard of living – reached a record high, rising from 6 million to 6.2 million. With the cost of living rising more rapidly in recent months and the benefits freeze affecting low-income working families, the Foundation argues that a more comprehensive strategy to tackle low pay will be needed.

While causing a welcome drop in low pay, the introduction and increase in the National Living Wage has led to new challenges. An ever greater number of workers are clustered around the wage floor, with reduced incentives and opportunities to progress onto better paid work. Around 1.9 million workers earned within 1 per cent of the legal wage floor last year, a figure that is projected to nearly double to 3.7m by 2020.

The Foundation says that this presents a huge challenge for employers, particularly in sectors like retail and hospitality, in providing pay and career progression opportunities for staff.

While the progress on low pay is encouraging, the Foundation warns against complacency. Over five million British workers remain on low pay and even by 2020, when the series of major National Living Wage rises are complete, the UK is still expected to have 4.3 million people earning less than the low pay threshold. Upcoming Resolution Foundation work will explore the likelihood of low paid workers moving into higher-paid roles. Overall, pay has performed badly since the recession with average weekly earnings currently £16 a week below their pre-crisis peak in 2008.

Conor D’Arcy, Senior Policy Analyst at the Resolution Foundation, said:

“Many people warned that the National Living Wage would be a jobs-killing disaster. It’s early days still but the result so far has been the biggest fall in low pay for four decades, in an economy where employment is at a record high.

“While it’s important to celebrate the National Living Wage as a bold, positive policy action, we shouldn’t get complacent. As well as the challenges it presents to some employers, over four million workers are still expected to be in low pay by 2020, and the old problems of women and part-time workers being far more likely to be low paid than men remain.

“The government must continue to work closely with employers to monitor any specific challenges arising from the ramping up of the National Living Wage, as well as continuing to tackle illegal non-payment of the National Living Wage and minimum wage.”

Notes to Editors

The National Living Wage is the legal minimum wage set by the government for workers over 25, and is currently £7.50. It is calculated based on its target of reaching 60% of median earnings among those aged 25+ by 2020. The minimum wage for workers 21-24 is £7.05

The voluntary Living Wage, calculated based on the cost of living, is £8.45 for the UK and £9.75 for London, and is set by the Living Wage Foundation.

Copies of Low Pay Britain 2017 are available from the press office.