The prospects for improving job quality at the lower end of the labour market in the UK – pay
Frederick Engels once wrote that labour is the prime basic condition for all human existence, and this to such an extent that, in a sense, we have to say that labour created man himself (1934). A person’s job helps define who they are. The level of income, time spent working, and the quality of the job, highly influence a person’s life. As Sweet and Meiksins say: “work occupies most of our waking hours; it is a crucial part of identities and influences life chances.” (2008, p. 1)
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As it has always been, employers are mostly looking for hardworking, well-educated people with particular sets of skills. These days education has become the Alpha and Omega of employment – as Daniel Bell puts it: “If capital and labour are the major structural features of industrial society, information and knowledge are those of post-industrial society.” (1973, p. 211)
With the rise in the number of people with higher education, one would expect a rise in higher, well-paid jobs. But in the UK, the situation is quite different. Not only is there a lot of low skilled service sector jobs with low wages, which result in poverty, but there is also growing pay inequality. The worst off are those on the lower end of the labour market who receive a pay of the bottom 20-25% and hold low-skilled jobs which are routine and semi-routine, and require no qualification. The most common job among these is that of the sales assistant. The number of these kind of low-wage workers in the UK is a staggering 20.6% (OECD 2011).
This kind of inequality brings health and social problems. Studies show that more unequal countries have worse health and social problems such as lower life expectancy, higher mental illness and obesity, more teenage births and infant mortality, more homicides, etc. (Wilkinson and Pickett, 2009). This is quite a logical deduction to make, since a big part of an individual’s life is his/her job, and dissatisfaction with one’s job – which is directly linked to the dissatisfaction with one’s income – greatly influences the physical and psychological health of the said individual.
Changes in the new economy
In recent years, there has been a shift from the old economy to the new. These terms were thought up and are used by Sweet and Meiksins in their work – Changing countours of work. There they state that the old economy represents the various ways of assigning and structuring work that developed in the wake of the Industrial Revolution through to the mid-20th century. It included systems which were built around mass production, gendered divisions of labour, unionized labour, etc. The new economy brought about changes. For one, good jobs that require a limited education are disappearing, which forces a big group of people to take on menial, low-paid jobs with little prospects for future advancement. This system partially stems from Frederick Winslow Taylor who introduced his philosophy at the beginning of the 20th century. He argued for the separation of ‘thought’ from ‘execution’, which resulted in the creation of legions of deskilled jobs and the decline in the individual worker’s ability to control the conditions and rewards of work. (2008, p. 10).
This fit perfectly into the abiding cultural belief that some should be owners and others workers. This popularized the idea that inequality in the workplace is actually desirable in a capitalistic system. (Sweet and Meiksins, 2008, p. 11)
The belief that workers are indolent and cannot be trusted is directly responsible for the creation of the so-called McJobs – a.k.a. jobs on the very low end of the labour market. Wikipedia defines a McJob as a low-paying, low-prestige dead-end job that requires few skills and offers very little chance of intercompany advancement. The quality of these types of jobs is extremely low.
The deliberations of the European Commission show that there is a propensity for the representatives of governments to assert that all parties would gain from job quality improvements. Francis Green states that wage rate is a key indication of a job’s quality, and claims that for the pay to be fair, it should be related to a worker’s contribution to the performance of the organization. (2006, p. 111)
Green claims that there are no specifically economic reasons to look forward to long-term improvements or any other trend in the perceived fairness of material rewards. In the mid-20th century countries in transition would experience rising inequality, followed by a later equalizing trend. A lot of countries experienced declining income inequality for most of the 20th century, which started to rise again after the 1970s. (2006, pp. 119-20). This could be construed as a realistic standpoint, but it could also be called unnecessarily pessimistic. Although trends are not promising, this issue is one yet to be tackled.
Concerns over wage inequality
Public debates and policy discussions are brimming with concerns over inequality of wages.
Despite the increased importance of tax credits as a source of household income growth over the past decade, pay still remains central to maintaining adequate living standards for most low to middle income households. (Pennycook and Whittaker; 2012, p. 4)
It has widely been agreed that by far the best single measure of income inequality is the Gini coefficient of concentration. (Chen, Tsaur and Rhai; 1982, p. 473). With the Gini coefficient, 0 marks that everyone has the same income, and 1 that the richest person has all the income. In the UK this number is 4 which is well below what one would hope for.
OECD shows that the gap between the rich and the poor has widened in the past decades.
The incomes of top earners in the UK have risen much faster than for everyone else. The richest people have an income of about 10 times that of the poorest. Since the 1990s there has been a rise in people reporting high incomes, and also, high income taxes dropped. (2014)
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Groups that are most likely to hold low paid jobs are women, part-time or temporary workers, young workers, and workers in relatively low-skilled occupational groups such as Elementary Occupations (cleaners, security guards, catering assistants, leisure workers) and Sales & Customer services (Pennycook and Whittaker; 2012, p. 5)
What causes wage disparities?
Over the past few decades, the UK, as well as other countries, has gone through significant changes. It underwent rapid technological progress and was more closely integrated into the global economy. When talking about the issue of income inequality, a lot of people tend to recognize globalization and technological advancement as the main culprits. They affected the job market by bringing high skilled workers greater rewards than the low-skilled ones, thus widening the gap between their respective earnings. Technological progress also penalized those who did not have the necessary skills to adapt and use technology effectively. (OECD; 2011, p. 28). This tended to have the worst effect on the people in low social positions which caused the gap between the well-off, who could afford the time and money to tackle the changing demands, and those who got stuck doing work that was becoming less and less appreciated.
Alongside these changes, minimum wage also declined across many countries, as did the share of union members among workers. A lot of policies and institutions also made significant changes which contributed to higher employment, but also wage disparities. (OECD; 2011, p. 30). A lot of people found employment in factories, the service department and other low-skilled jobs which were in abundance, but had low wages and no prospects for the future.
Some other things that encourage inequality are: privatization, subcontracting, deregulation, welfare to work policies, and neo-liberal policies.
Britain’s reliance on an extensive pool of low-skilled, low-paid labour is not predetermined. The particular incidence and composition of low-paid work in any given country is the result of unique patterns of production and employment and these patterns are influenced, in part, by policy choices. Reducing the share of workers who are low paid is not a political objective that can be easily addressed by legislative levers. It is therefore not surprising that many policymakers have been justifiably reluctant to intervene in the market, preferring instead to correct market inequities through remedial redistribution (Pennycook and Whittaker; 2012, p. 39). But the redistribution systems in reality did little to reduce inequality. (OEDC; 2011, p. 92)
Reforming tax and benefit policies would help soften the problem of inequality, by getting more people into the labour force, while making sure they stay in jobs paying good wages is essential. (OEDC; 2014). Government help and transfers also have an important role of making sure that low-level income households don’t fall further down into poverty. The reform of the tax policies for high-income individuals, whose job and income is generally more stable, would also help the redistribution of wealth and social mobility. However, these reforms would have to be thoroughly examined, and well thought up. The key would be ensuring that the poorly represented groups, such as young people, women and immigrants, have access to jobs with prospects for advancement. Another key point would be to allow low-paid individuals additional job-related education and skill-acquirement by incentivising companies to invest in their ‘human capital’.
Due to the high demand for high-skilled individuals, especially in the newer fields of technology, marketing, and such, in the long haul, one of the possible solutions would be better government-supported education in these deficit fields for children of low-income families. This would create better social mobility, and at least a small boost in economy.
The Welfare Reform Act 2012 introduced a wide range of reforms to the benefit and tax credit system (Universal Credit). Under the current system a working-age individual with low earnings and no disabilities may be entitled to receive payments from one or more of three main benefit groups; unemployment benefits and social assistance; the Housing Benefit and Council Tax Benefit and Tax Credits. Different benefits within each of these three groups are internally coordinated and roughly based on the same framework, while there is close to no coordination across the three benefit groups, leading to a rather erratic incentive structure. Under Universal Credit, the main means-tested benefits, except the Council Tax Benefit will be pooled into one single benefit with generous earnings disregards and one single rate of benefit withdrawal against income (taper rate). At the same time, support for childcare through the benefit system is made accessible for parents regardless of how many hours a week they work. Stated goals of the Universal Credit reform include giving people incentives to work, diminishing complexity, reducing relative poverty and containing the rising cost of welfare dependency (André, C.et al. 2013). This act is important for this discussion because, what is hoped to be achieved in the long run is giving people incentives to work. Combined with some of the measures mentioned before, this would also allow people, who are now in a vicious circle of not having enough money for up-skilling, and not enough skills to make money, to break free and start climbing the proverbial social ladder – better jobs and better pays.
Some say that the greatest priority is bound to be employment security. Macroeconomic and financial stability is the prime job quality policy at the moment. It is the job of government to try to ensure stable macroeconomic conditions, which, despite efforts, has not worked out recently. This recession has hit the lower end of the working class the hardest, but recessions have in the past always ended and, despite climate change we can expect a renewal of growth over the next few years, which will gradually reduce job insecurity again. Francis Green’s analysis of recent trends in Britain implies that the three urgent ongoing issues for policymakers to address are skills, autonomy and effort. (2009. pp. 28-29.)
Jobs are a very important part of who a person is. It is one of the ways we define ourselves. Job satisfaction is one of the principal issues in the overall life satisfaction of an individual. The quality of a job is directly linked to wages. In recent decades, due to various reasons which include globalisation and technological advancement, there has emerged a trend of rising disparity of wages in the UK. The incomes of top earners in the UK have risen much faster than for those receiving low wages. The demand for high-skilled workers is rising, but 20% of people still work in low-paid jobs with no intercompany prospects. This wage inequality is the object of much public and political debate. Although every part of the government asserts that solving this inequality and improving job quality would be better for everyone, this is not a political objective that can be easily tackled by legislature. This is why many policymakers have been justifiably reluctant to intervene in the market, preferring instead to correct market inequities through remedial redistribution.
Some of the ways in which the inequality could be softened are the reformation of tax policies for high-income individuals and households, benefit policies for low-income households, better education and skill acquiring opportunities, ensuring employment security and stabilizing macroeconomics and finances. These changes will have to be made gradually and carefully, but nothing in the economic research suggests that this wage disparity is necessary and cannot be avoided.
- André, C.et al. 2013. Labour Market, Welfare Reform and Inequality in the United Kingdom. OECD Economics, Department Working Papers, No. 1034, OECD Publishing
- Bell, D. 1973. The Coming of Post-Industrial Society. New York: Basic Books.
- Chen, C.N., Tsaur, T.W. and Rhai, T.S. 1982. The Gini Coefficient and Negative Income; Oxford Economic Papers, New Series, (34/3) pp. 473-492. New York: Oxford University Press
- Engels, F. 1934. The Part played by Labour in the Transition from Ape to Man. Moscow: Progress Publishers.
- Green F. 2006. Demanding work: The Paradox of Job Quality and Affluent Economy. Princeton: Princeton University Press.
- Green, F. 2009. Job Quality in Britain. Praxis, issue 1, November, London: UK Commission for Employment and Skills.
- OECD, Jan. 2013, Income Distribution and Poverty at the OECD [Online] Available at: http://www.oecd.org/social/inequality.htm [Accessed: 18 January 2014]
- OECD. 2011. Divided we stand: Why inequality Keeps Rising, OECD Publishing.
- Pennycook M., Whittaker M. 2012. Low Pay Britain. London: Resolution Foundation.
- Sweet S. and Meiksins P. 2008. Changing countours of work. Newbury Park: Pine Forge Press.
- Wilkinson, R.G. and Pickett K. 2009. The Spirit Level: Why More Equal Societies Almost Always Do Better. London: Allen Lane
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