Can parents work their way out of poverty?

14th Mar 2012

Are the rewards of employment enough to keep parents in work and out of poverty?

Politicians are fond of stating that 'work is the best route out of poverty', as we heard from both Iain Duncan Smith and Stephen Timms this week, but this truism faces two challenges. First, today's essentially unchanged unemployment figures show that there's a serious lack of jobs. Second, while work reduces the risk of family poverty, over half of all poor children now have an employed parent. Improving the options for part-time work is a promising way to tackle in-work poverty, but currently politicians show little interest in this task.

Economic conditions have a huge impact on the likelihood of parents being in work. The proportion of families with children in which no-one was working fell steadily between 1996 and 2007 before rising sharply in 2008. Today's unemployment figures failed to provide much hope for a rapid turnaround in parents’ employment prospects.

The reason why 'work is the best route out of poverty' has become a truism is at least partly because it's correct. The risk of being in poverty if you’re a child in a family with two non-working parents is 62 per cent compared with 3 per cent where both parents are in work. This isn't surprising when you look at the level of support for those out of work; benefit levels for working-age people with children are well below the poverty line.

If work is a necessary condition for an escape from poverty, it's far from a sufficient one. As JRF's Monitoring Poverty and Social Exclusion (MPSE) report has highlighted, most children in poverty live with at least one working adult. While tackling the problems of these 'hard working families' might be politically attractive, policy solutions seem much less forthcoming.

Analysis of changes in the make-up of the 'working poor' might offer some pointers. The IFS examined falls in child poverty between 1998/9 and 2008/9, looking at changes in the risk of poverty by parental working status, and changes in the numbers who worked. For children whose parents were all working full-time, poverty risk grew over this period.

This seems consistent with an analysis of a problem with wages – of 'growth without gain' as the Resolution Foundation put it, whereby low and middle income earners have seen their earnings flat line. However, children with full-time working parents make up just 6 per cent of those in poverty. Those whose parents work fewer hours make up 34 per cent. Risks of poverty for children in this group actually fell over the decade; most notably for part-time lone parents, but also for couple parents working less than full-time. This is likely to be due to the work that tax credits were doing in boosting these families' incomes.

As MPSE has shown, the number of families reliant on tax credits to escape poverty increased during this period. There’s a debate about the extent to which this subsidy to low wages is desirable. As Gavin Kelly, Chief Executive of the Resolution Foundation, pointed out, any transition to a situation in which tax credits become less necessary is likely to be slow.

Breaking down the in-work poverty figures further suggests that part of the answer lies in an increase in part-time working among couples. Children who have one parent working full-time but the other not working at all make up 15 per cent of all children in poverty (the third largest group after children of workless lone parents and workless couples) and face a 19 per cent risk of poverty. With one parent moving into part-time work, the risk falls substantially – to just 4 per cent.

New JRF research from Women Like Us suggests that increasing the number of quality part-time jobs available will require a significant shift in workplace culture. Childcare will also be key, and a decision would need to be made by politicians (not to mention parents) that a 'one and a half earner' model is desirable.

Currently there’s no evidence that politicians believe this. As the IFS show, Universal Credit prioritises single earner families, with reduced incentives for second earners to work. Tackling unemployment will be vital to tackling child poverty. But it won't be enough until we decide who exactly we think should be employed and what the rewards for that employment should be.