Can improving productivity help our in-work poverty problem?
February 12, 2020
by Louise Woodruff, Joseph Rowntree Foundation
- In January, the Carnegie UK Trust and the RSA published Can Good Work Solve the Productivity Puzzle? – essays featuring new research, opinion and analysis by representatives from almost 20 organisations from policy, business, trade unions and civil society. The collection sets out how a focus on good work can be encouraged to improve wellbeing by boosting good jobs and helping solve the UK’s long-standing productivity puzzle.
- Days after JRF’s UK Poverty report reveals that the majority of people in poverty are in a working household, this blog argues that designing business practice and policy solutions to addressing good work and productivity must connect with the everyday lives and concerns of people on low-incomes.
It’s not right that many workers in the UK find themselves locked in poverty. Business practices are part of the problem, but they can also be part of the solution to in-work poverty and loosening its grip so that workers can build decent lives for themselves and their families.
The UK’s in-work poverty problem
Sue is a care assistant providing domiciliary care to older people in her area in a coastal town in the South of England. She works for an agency on the National Living Wage, receives her shift patterns week to week and often works unpaid to spend more time with her vulnerable clients. She is a single mum of two primary school children and often struggles to pay her rent on time.
John works on a zero-hours contract, driving all over the North West delivering parcels for a major retailer – he’s often tired and has an unpredictable income, which makes it difficult to budget and to keep on top of his claims for Universal Credit. He had to use a foodbank in the past and feels ashamed that he could not feed his family in those weeks.
Sonia lives in social housing in London. She is a cleaner with two pre-school children. She often works split shifts to manage childcare with her partner and regularly falls asleep on the bus on the way home to her outer London borough.
This week, Sue, Sonia and John are amongst the 4 million people heading out to work in the UK’s private sector firms and in public sector roles whilst caught in the grip of poverty. The proportion of working families that are in poverty has risen over the last 20 years – an unacceptable situation, and a trend that now sees the majority of people of working age experiencing poverty coming from a working household. Seventy per cent of children pulled into poverty come from households where at least one adult works. Foodbank use in the Trussell Trust Network has risen by 73% over five years and around one in six foodbank users are in work .
It’s not right that so many working families are locked in poverty. Problems with jobs, housing and social security benefits mean many UK workers are struggling on incomes that just do not cover their living costs, and severely restrict their options and opportunities. Reducing housing costs and increasing support via social security benefits play a key role in addressing in-work poverty at a household level but we should not let the labour market off the hook: the UK needs more better paid jobs with good conditions, progression, genuine flexibility and more hours to help loosen poverty’s grip.
The characteristics of low-wage work
Although there are employees in poverty in all sectors, these households are concentrated in the large low-wage sectors. How these sectors of the so-called everyday economy behave – their business models, sustainability and productivity levels – really matters for the millions of workers on low pay and in poverty. Retail and hospitality are especially important. They are large employment sectors with a high incidence of low pay. A little under half of workers in retail (46%) and just short of three-fifths (59%) of workers in hospitality are on low pay. Around a third of workers in poverty work in these two sectors alone. Social care and the facilities management sector also face similar challenges.
Despite the introduction and rising value of the minimum wage, low-income families have seen slower growth in earnings than the average family for much of the last 20 years. At least some of this has happened because people can’t find jobs that provide them with as many hours of work as they would like. A fifth of low-paid men and women say they would like to work more hours than they can find, around three times the rate for non-low-paid workers.
UK firms invest less in their lower paid staff than those in higher-paid roles and this training can often focus on basic induction tasks rather than being continuous and linked to pay progression. Some workers in low-paid sectors complain about having to do the same basic training again and again every time they change employer and I wonder how productive that can be: each day across the UK employers are spending money on training employees in skills they already have but happened to gain at another employer. What if that money was invested more wisely in developing new skills or retraining for a digital working environment; or if we made skills recognition much more portable between employers? It is also well documented that many low-paid employees remain stuck on low pay and flatter structures in many firms make pay progression challenging. For many employees, lack of genuine flexibility in better paid roles just makes juggling caring and work too difficult; a problem that particularly affects the large number of low-paid mothers in the workforce.
The government has acknowledged the problem of one-side flexibility where risk is shifted to the employee who can have shifts cancelled or changed at their own expense. These working practices are particularly damaging to families on low incomes: making it very difficult to plan ahead and being left out of pocket for childcare and transport costs. Businesses still operating these business models are clearly out of step with public opinion. Recent JRF polling of low-income voters has shown that 79% voters supported policies to guarantee hours at work each week, 62% supported more time flexibility for workers and 49% supported more advance notice of hours.
There are of course, many great employers in the traditionally low-wage sectors, such as the employers who pay the higher voluntary Living Wage or sign up for Living Hours ; who invest heavily in training and manage their businesses well to give good notice on shifts and hours; or who are developing better progression routes for part-time employees. Business in the Community has developed a toolkit – Good Work for All – and has some great case studies. The work of the Good Jobs Institute in the US shows how businesses in low-margin sectors can operate in a way that can still deliver good jobs. So what needs to happen for more employers to adopt these business practices?
Will raising productivity help?
Low-wage sectors are a concern not just for poverty but also for our economy. German, French and Dutch workers in these sectors produce more in four days than British workers do in five. The UK’s productivity gap with its competitors in low-wage sectors is not due to a lack of capital investment or workers’ formal skills but how well firms use workers in these sectors. But raising productivity in low-wage sectors and in low-productivity firms is not guaranteed to drive up pay in these sectors and firms. During the post-2008 recovery a 10% increase in firm productivity is estimated to have increased wages by just 0.05% . Recent research on pay setting shows that firms are more concerned by sector norms; attracting and retaining labour and the National Living Wage rather than linking pay to driving or responding to productivity gains.
The discussion on improving productivity and job quality sometimes feels disconnected from the real lives of people on low incomes. Being treated well at work, paid a Real Living Wage, given opportunities to progress and to work the right number of hours should be fundamental aspects of decency at work and should not be seen as a special prize for delivering productivity gains. However, even if our primary focus is raising productivity then we still need to focus on raising job quality. We need to make sure that interventions we design to push up productivity will help create an economy that works for everyone, including low-income households. To raise productivity and drive up pay, productivity strategies for low-wage sectors such as retail and hospitality should focus on increasing the proportion of workers in on-the-job training; improving management practices; increasing the percentage of workers using ICT; and reducing the share of temporary workers.
Can a business or sector really make those productivity gains without thinking about the lives of their employees – who are, after all, key stakeholders? Poverty is estimated to cost the public purse around £78 billion a year and all businesses, like other taxpayers, have to pay part of this cost. Businesses should also be concerned about the impact that poverty has on individual employee performance. How can you give the best customer service or make key performance indicators or support vulnerable clients brilliantly if you are worrying about money or whether you will eat just toast that night to make sure your children get a decent meal? Employers need to start close to home for solutions – helping to address the issues of poverty and unfulfilled potential in their workforce and/or in their supply chain.
Recent research from Strathclyde Business School for JRF has explored the ways that businesses interact with the issue of in-work poverty. These findings, together with concurrent work from the Social Market Foundation on pay progression and the role of corporate decision-making, mean we have a much better understanding of the key levers for influencing employer behaviour change. Good work strategies should be built into business advice services and help start-ups ‘design in’ good work practice from their inception. We can also harness investor pressure to encourage transparency of company reporting on pay progression and training.
Arguably, the public debate on low pay and working conditions might have by-passed the economic case-making on productivity somewhat. Politicians across different UK parties are responding directly to the needs of low-income working households, particularly on the minimum wage and on other aspects of good work. The level of the National Living Wage became an electoral issue with both the two main political parties proposing considerable increases.
Ultimately though, designing business practice and policy solutions to addressing good work and productivity must connect with the everyday lives of people working on a low income and what matters to them most. That’s why at JRF we are also working alongside people with experience of in-work poverty to co-design solutions to improving work for low-income employees. The UK urgently needs to solve the problems of lagging productivity and in-work poverty. There is a real opportunity to drive improvements in both if good jobs become the norm.
- This piece originally appeared in the Can Good Work Solve the Productivity Puzzle essay collection (for all references cited in this blog, please see p.129 of the collection). It does not reflect the view of the Carnegie UK Trust, only the view of the author.
- The Carnegie UK Trust has been active for many years in the push to look beyond purely economic indicators to measure and value social progress. We advocate the use of wellbeing frameworks, which measure the success of society not only in terms of its material wealth but also extend to, for example, indicators on quality of work, health, the environment and our sense of security and cohesion. Solving the productivity puzzle, and unlocking the benefits in living standards this can help deliver, must be addressed within this wider need to rebalance the measures through which we understand and assess our progress.
- You can read JRF’s UK Poverty 2019/2020 report here.