Low pay, household resources and poverty
An exploration of the extent to which low-paid workers manage to avoid poverty, and if so, how this is achieved.
Although low pay is associated with an increased risk of poverty, not all people in low-paid jobs are poor. This report looks at the relationship between low pay, other sources of household income, and poverty. It covers four main topics:
- The extent of low pay in the UK;
- the overlap between individual low pay and household poverty;
- how people avoid poverty;
- and the policy issues and implications.
Using data from the annual Family Expenditure Survey, it examines households' various sources of income - earnings, income from other household members, and benefits/tax credits - to build up a picture of how some low-paid people avoid poverty.
The authors found that most manage to avoid poverty because they live in households with employed partners or with other adults in work. Couples with just one low-paid earner have a high poverty risk. Lone parents are the most likely to have been helped out of poverty by tax credits supplementing their wages.
Since 1997, the Government has been pursuing a policy agenda to promote paid work, to make work possible and to make work pay. Wages play a major part, but are not the only factor, in lifting working households out of poverty. This study, by Jane Millar and Karen Gardiner, investigates the extent of low pay in the UK, and explores the relationship between individual low pay and household poverty, hours of work, benefits and tax credits and other sources of household income. The analysis, based on the latest available figures from 2000/01, shows that:
- About 23 per cent of workers have gross hourly pay below two-thirds of the median. This has not been much affected by the National Minimum Wage, which is set below this low pay threshold.
- Almost 30 per cent of female employees are hourly low paid compared with about 18 per cent of male employees. However, since the late 1960s, the risk of low pay has been falling for women and rising for men.
- Those most at risk of hourly low pay are young and single people. But half of low-paid people are aged between 21 and 49, half are married or living with a partner, and a third have dependent children.
- About 14 per cent of low-paid employees live in poor households (less than 60 per cent of median income). The remainder escape household poverty in various ways:
- Just 8 per cent of low-paid people have wages that on their own are enough to avoid household poverty; this compares with 53 per cent of all employees.
- Among single people on low pay, the incomes of other people in the household, typically parents, are most likely to prevent them being poor.
- Low-paid people in dual-earner couples most commonly avoid poverty because of their partners' earnings. Where partners do not work, tax credits and benefits can help, if the couple has children. However, a couple with a single earner on low pay remains at very high risk of poverty.
- Low-paid lone mothers are more likely than other groups to escape poverty by means of tax credits and benefits. Living with others, typically adult children, is also important. Poverty among low-paid lone mothers has fallen since the mid-1990s.