Are more jobs low-paying?

By H.C. | LONDON

THERE has been a widespread media narrative recently which says that the British labour market recovery has relied on low-paying jobs. We highlighted this trend, and its implications for tax revenues, in the print edition two weeks ago. However, the Independent's John Rentoul claims we have all got it wrong:

For all the fuss about how the British labour market increasingly depends on low-paid jobs, the figures tell a different story…There has been no change in the proportion of workers on low pay for the past two decades

Rentoul uses a chart from a Resolution Foundation report showing that the proportion of employees earning below two-thirds of median income (the “low paid”) and below half of median income (the “very low paid”) has not changed dramatically in recent years. Has the media been barking up the wrong tree?

The answer is "not really". Rentoul’s chart uses a relative measure of low-pay; if median earnings fall as lower paying jobs replacing higher paying ones, then the proportion of people in his groups could go up or down. To dig deeper, let’s have a look at some other charts from the RF report:

This first one shows that median earnings have fallen by about 13% from their pre-recession peak. So the thresholds which define the “low paid” and “very low paid” groups must also have fallen by the same amount. Why has median pay been falling? The RF’s view is as follows:

The jobs market has…become more polarised, with new jobs increasingly falling into two distinct camps: high-skilled and high-paying or low-skilled and low-paying.

Perhaps inevitably, the proportion of workers finding themselves in the bottom tier of this divide has increased since the financial crisis of 2008, with a higher share of those entering or returning to the workforce in this period taking on part-time and temporary roles.

Moreover, the figures above exclude the self-employed. The RF show that self-employment – which tends to be low-paying – has been rising:

Finally, employment growth has been concentrated in the lowest paying industries. Here’s a chart of my own:

This shows employment trends since 2007 in selected industries. I’ve picked those industries which are easily matched to average weekly earnings data (which is broken down on a different basis). Since 2007, employment in finance (average weekly earnings: £605 per week), manufacturing (£564), construction (£568), and the public sector (£489) has fallen. By contrast, employment in accommodation, food and transport services (£316) has grown.

It is clear from all this data that Britain’s labour market recovery has indeed relied on growth in low-paying jobs. This is a drag on tax revenues and consumer spending, and worsens many measures of inequality. The economy is growing strongly, but workers are yet to reap the rewards.