Poverty, economic status and skills: what are the links?

Income poverty is set to rise by 2020, and two key policy strategies to increase household incomes are reducing worklessness and improving prospects for those trapped in low-wage, low-skilled work. This study examined the economic activity and skills levels of households with different incomes and identified various types of households with common combinations of economic activity status and skill levels.

Key points

• Families with children in poverty had a high concentration of unemployment, with one or both parents out of work.
• Skill levels varied more widely among families with children in the lower half of income distribution, mainly because of non-working mothers caring for children.
• There were four types of households with children in poverty. Most common was male breadwinner couples, where the father was working and the mother was looking after children or working part-time.
• There were five types of families with children on low-to-medium incomes. The largest group was mid-skilled working couples, where the father predominantly worked full-time, with some working mothers but some mothers caring for children.
• In households without children, those in poverty were more likely to be workless, less likely to be in full-time work, and more likely to have no qualifications.
• Five types of households without children were in poverty. Most common were workless households, who tended to have no-to-medium qualifications. They were mainly single people who tended to be younger and were disproportionately likely to have a health problem.
• There were five types of households without children on low-to-middle incomes. Most prevalent was medium-skilled working singles, who were mostly middle-aged; just over half were single men. They were mainly in routine or manual work.

Background

With income poverty set to rise by 2020, it is necessary to understand the circumstances that households face, to better target employment and skills interventions and reduce poverty. This study used Family Resources Survey data to examine the main economic activity and skills levels of households with different incomes, focusing on the bottom half of income distribution: those in poverty and more at risk of poverty. It looked at families with children and households without children separately.

Families with children

Families with children in poverty had a high concentration of unemployment, with one or both parents out of work. As would be expected from this, workless families were disproportionately likely to experience poverty. Nonetheless, this group also included a large number of working families: 6 per cent were full-time working couples. In contrast, however, the figure for full-time working couples rose to nearly half of families with children in the highest income group. There was more variation in skills than in economic activity status for families with children in the lower half of income distribution compared with the upper half. Part of the explanation was parents (usually mothers) not being in employment in order to care for children, which disproportionately placed their family in the lower-income groups, despite them often having good skill levels. This reconfirmed that other factors, such as the desire to care for children, the availability of childcare and the complexities of balancing work and family life, can be barriers to work alongside skills or employability. In analysing the relationship between economic activity and skills levels for families with children in poverty, the study identified four family types:

• The most common was male breadwinner couples – families where the father was working and the mother was looking after children or working part-time.
• The second most common family type was out-of-work, low-skilled single parents. They were not in work for a variety of reasons and tended to have no or mid-range qualifications.
• The third most prevalent was out-of-work couples with low-to-medium skills. These families were workless for a variety of reasons, such as the mother caring for children and the father looking for work; skills levels tended to be in the middle range.
• The final activity/skills type among families with children in poverty was low and no-skilled families. Work status was mixed, and the majority had no qualifications.

There were five types of families with children on low-to-medium incomes:

• The largest group was mid-skilled working couples, where the father predominantly worked full-time, with some working mothers, but some staying at home to look after children.
• A similar, but smaller group was mid-skilled working singles. These tended to be single mothers working at least 16 hours per week, with many working full-time. They tended to rely on benefits and tax credits to supplement their earnings.
• A similar-sized group was low and no-skilled workless families. Again, they tended to be single mothers, but some were workless couples who have never worked.
• Of the two smaller groups, non-working couples were out of work for a variety of reasons, but in most the father was sick or disabled.
• The other small group was no-skilled working couples. These families had no qualifications, but at least one parent working full time, most often the father.

Households without children

As with families with children, households without children showed differences in economic activity status across income distribution. Whereas a quarter of men in poverty were in full-time work, over nine in ten men worked full-time in the highest-income households. Nearly two-thirds of all households without children in poverty were workless, compared with under 3 per cent of households in the highest-income group being workless. In terms of skills levels, people without children were more likely to have no qualifications than parents were. This was partly because of them being older and not benefiting from more recent changes to the education system. However, as with families with children, some households without children in poverty had relatively high skills levels. For example, nearly one in five households in poverty contained at least one adult with a degree, although nearly two-thirds of the highest-income households contained someone with a degree. Five types of households without children were in poverty:

• The most common type was workless households, who tended to have no-to-medium qualifications. They were mainly single people who tended to be younger and were disproportionately likely to have a health problem.
• The second most common type was medium-skilled working singles, who tended to work full-time in routine, manual or intermediate jobs; the majority had GCSE qualifications at best.
• The third most prevalent type was medium-skilled working couples. These were similar to working singles, with most having GCSE qualifications at best, and one or both partners in full-time work.
• Medium-skilled early retirees were the fourth type. They were older, non-working and not looking for employment. However, they were disproportionately likely to have an illness and hence their main source of income was from benefits.
• The final group was no-skilled one-worker couples. The man was likely to be in routine or manual work. Most women in this group did not work, although some worked part-time.

Five types of households without children were on low-to-middle incomes:

• The most prevalent type was medium-skilled working singles, who were mostly middle-aged; just over half were single men. They had low or medium levels of savings, and were mainly in routine or manual work.
• The next most prevalent group was low and no-skilled early retirees. These were mostly nonworking singles, although some were couples; they tended to be older and not looking for work.
• The third most common type was medium-skilled working couples. They were disproportionately younger and received almost all their income from earnings.
• Medium-skilled early-retired couples were the fourth most common type. They were older, nonworking couples who disproportionately had health problems and were not looking for work.
• The final type was no-skilled working couples, who were mainly in routine or manual work and tended to have lower housing costs.

Conclusions

The analysis shows that households containing individuals with no skills and/or no work are at particular risk of poverty. These characteristics barely feature in medium-to-high and high-income households. However, beyond this generalisation circumstances vary widely. One striking feature of the different types of households is that many of them contain people who are working. Hence the question of what sort of policy intervention might be appropriate to increase household income would depend on whether there is scope to increase the number of hours being worked, the rate of pay people receive, or to support a second earner to take up or increase the amount they work. However, for people to increase their working hours, jobs offering more hours need to be available; this is a problem in the current labour market, which has high rates of underemployment. Other potential barriers to work, such as caring responsibilities, would also need addressing. Across the types of households where people are working, many have low or no skills. Where this is the case, skills enhancement could assist people to progress in the labour market and increase their earnings. However, training would need to fit with their working lives, suggesting that employer-driven training is likely to be the best option. It would also need to be appropriate for the sort of jobs to which they could realistically progress. Given the great variety of household circumstances identified in this study, a wide range of potential interventions could be considered. Relating interventions to specific household circumstances would help to inform a more targeted approach to policy solutions designed to address household poverty and risk of poverty. However, for policy-makers to be able to do this effectively would require considerable improvements in the quality and availability of household data at local level. Data collected as part of the Universal Credit application process could be important here, if it were shared at a local level.

About the project

The study analysed data from the Family Resources Survey to illustrate the main economic activity status and skills levels of households with different income levels. These were defined as: poverty (below 60 per cent median equivalised income, before housing costs); low-to-medium income (between 60 per cent median and median income); medium-to-high income (between median and top 20 per cent incomes); and high income (top 20 per cent incomes). The study focused particularly on the bottom half of the income distribution.