Movements in low pay and incomes

The finding emerges from one of two studies published today. The first, on low pay mobility, was carried out by the Institute for Fiscal Studies (IFS). The second, which charts movements in and out of low household income, was conducted by the ESRC Research Centre on Micro-Social Change at the University of Essex.

Wage mobility

The IFS analysis suggests that had a minimum wage been in force between 1991 and 1994, one in eight men (12.5%) and as many as four out of ten women (42%) might have qualified during one of the four years. This compares with one in 14 men (7%) and fewer than three out of ten women (28%) who would have been eligible in any one year (Based on a minimum wage set at half the mid-point for male earnings). Using data from the British Household Panel Survey (BHPS) to chart pay mobility, it also shows that:

• While 28 per cent of men aged 18 to 60 enjoyed real wage increases of 20 per cent or more over the four year period, another 12 per cent saw their wages fall by 20 per cent or more.
• Fewer than 9 per cent of men were unemployed throughout the four years, but as many as a third spent some of the time out of work. A disproportionate number of those who had been unemployed at some stage also experienced real-terms reductions in pay.
• Low paid workers were at higher risk of losing their jobs than those with above average earnings. While 90 per cent of men among the top quarter of earners in 1991 remained in work for the next three years, the same was true of only 70 per cent of those in the bottom quarter of the distribution.
• More than half the men who were among the lowest quarter of earners in 1991 were still among the bottom quarter in 1994. A further 13 per cent were out of work and just 6 per cent had made it into the top half of the earnings distribution.
• There was slightly more movement in the distribution of women's pay, with 10 per cent moving from the bottom quarter to the top half of the distribution. However, 22 per cent of women in the bottom quarter in 1991 were out of work in 1994. 

The study found an important factor determining movement out of low pay was whether individuals had been with the same employer for long. Men who had been in the same job for five to ten years were 80 per cent more likely to move out of low pay than those who had been in their current job for less than two years.

Persistent low pay was associated with characteristics such as youth, gender and educational qualifications. Women with poor qualifications were especially likely to be trapped. Even so, only half the persistence of low pay could be explained by such factors.

Julian McCrae, a co-author of the report said: "Perhaps the very fact of being low paid tends to trap people in low pay - or else there may be other, unobserved characteristics that help explain this persistence. Either way, the fact that a significant proportion of people on low wages are likely to remain there in future is an important finding from this research."

He added: "Another important issue raised is the way that wage mobility would affect the impact of a statutory minimum wage. Substantially more people would be affected over a three-year period than at any one point in time - including those who are currently unemployed."

Income mobility

A second report, based on data from the same total sample of more than 7,900 people, describes fluctuations in net incomes. Some of the study's headline results were released by the Joseph Rowntree Foundation last autumn. Researchers at the ESRC Research Centre on Micro-Social Change at the University of Essex, found that:

• Although there was considerable 'churning' of household incomes from year to year between 1991 and 1994, there was little long-range movement from being poor to becoming rich or vice versa.
• Variations in income were such that as many as a third of the population experienced low income (below half the national average) during a four-year period. About one twentieth had low incomes throughout the four years.
• Almost a third of those who 'escaped' from low income in one year fell back within that bracket a year later. Ninety per cent of those who were among the poorest tenth of the population remained within the bottom three tenths a year later. 

The study found that fluctuations in household income related to events such as marriage, parenthood, divorce and bereavement as well as changes in pay and employment. Previously unpublished findings are that:

• The incomes of married or cohabiting women who separated from their partners fell by 18 per cent on average in the following year. By contrast, the incomes of separating men increased by an average 2 per cent. Children of parents who separated experienced a 14 per cent drop in household income on average.
• Women who separated were more likely to be looking after children, not doing paid work and receiving social security benefits than separating men. Only one in four with dependent children received child support maintenance from their former partner. 

Prof. Stephen Jenkins, co-author of the study, said: "Relationship breakdown, on the evidence of this research, inflicts more damage on the incomes of women than men. Although the estimated impact of separation on real income depended on which formula was used to calculate household income, women always did worse than men."

He added: "Our findings confirm the overall picture we described last year of a churning of incomes, rather than a one-way ticket out of poverty. People may rise above the low income threshold from one year to the next, but they may find themselves back below it relatively quickly as well."