Low pay in Northern Ireland: An Update

At the start of this month NISRA published its Annual Survey of Hours and Earnings for April 2020. This data offers us our annual opportunity to have a look at what has been happening in the economy over the year in terms of wages and of course, in the context of this year, it offers us the first opportunity to see the impact of the first lockdown period on pay and hours. This blog is one of a series of blogs which will be published over the next number of weeks which will analyse and comment on different aspects of this data.

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The latest ASHE data shows very starkly that low pay is starkly pervasive across our labour market. It also shows however how the burden of dealing with the Covid-19 public health crisis has not been shared equally across our workforce. Indeed, the ASHE data presented below show the very clear the stark occupational and sectoral nature of the crisis. It also shows how prevalent low pay is amongst some groups of workers – particularly younger workers.

Indeed, the ASHE data show that because many employees who were low paid to begin with  did not have their furlough pay ‘topped up’ beyond the Government subsidy of 80% of usual earnings has resulted in the fact that 10% of employees have hourly earnings which place them below the legal floor.

However, as will be outlined in this blog, the issue of low pay is much more pervasive than this. The reality is that 25% of employees in Northern Ireland have earnings below the real living wage. That is, the wage which is necessary to obtain a minimum acceptable standard of living. This is not a new phenomena. Indeed, it has got precious little to do with the Covid-19 crisis. Rather it has more to do with our longer term failure to take seriously the issue of low pay and ensure that the returns from work are decent and can sustain the livelihoods of workers.  


What is low pay?

This past decade we have seen much policy discussion and political action around the concept and issue of low pay. In this regard, Chancellor Philip Hammond declared over and over again during his time in power that he was going to end ‘low pay’. To achieve this, he has stated that the aim was to have the national living wage reach 66% of median earnings by 2025.

This claim from the Chancellor was probably a mystery to most, and particularly the low-paid, as they pondered why he thought that having the national living wage reach this arbitrary line would solve their problem of low pay. Yet whilst this identification of low pay as being below 66% of earnings is an arbitrary line, it is one of the most commonly utilised measures of low pay. It is utilised by many international organisations such as Eurostat and the OECD to measure, track and compare low pay across countries. In 2020 two-thirds of the UK median gross hourly wage excluding overtime was £9.10, and so by this measure all workers earning below this level would be classified as low paid.

Still however, if the Chancellor is successful in reaching the target of having the national living wage reach 66% of median hourly earnings will he have ended low pay? Of course not. Not least because low-pay is about much more than a statistical artefact or an arbitrary line.

Moreover, low pay is about much more than the hourly wage rate. In this respect, you can have a very high hourly wage rate but still be low paid, if you only work a small number of hours. Consequently, we need to consider much more thoroughly how pay interacts with other aspects of the labour market to fully capture and appreciate what needs to be low paid and in turn what it takes to end low pay. So, while legal wage floors are vital for regulating the bottom of the labour market, they do not by themselves get rid of low pay – or ensure that work pays.

The best attempt at setting a line at which to ensure work pays is carried out by the Living Wage Foundation in their setting of the Real Living Wage. The Real Living Wage is calculated by the Living Wage Foundation and takes account of both increases in the cost of living, and applies to all workers over 18, in recognition that young people face the same living costs as everyone else. The Real Living Wage is based on the cost of a basket of household goods and services considered by the public as necessary to obtain a minimum acceptable standard of living with many analysts agreeing that this is a much more robust indicator of low pay. It is of course, worth remembering however that a central flaw of this measure is that it does not take account of hours worked and assumes in the setting of the rate that a full-time working week.  The Living Wage Foundation have just recently announced the new Real Living Wage national rate for 2020-21 as £9.50 per hour. However, the ASHE earnings data on which this blog is based was collected on 5th April 2020 at which point the Real Living Wage was £9.30.

The extent of low pay

Figure 1 below presents the percentage of all employees who can be classified as being in low-paid employment using the different measures of low-pay identified in the previous section. We also present the proportions of workers below the National Living Wage, as well as the proportions below their appropriate legal wage floor.

The ‘National Living Wage’ was introduced in the 2015 Summer Budget, as the new national minimum wage rate for workers over the age of 25. The introduction of the National Living Wage represented a significant shift in policy in terms of how the legal wage floor was defined and implemented. When implemented the Government set a starting wage of £7.20 and an objective for the National Living Wage to reach 60 per cent of a typical (over-25) worker’s hourly wage excluding overtime by 2020. From 1st April 2020 the National Living Wage rate has been set to £8.72 for over-25s and £8.20 for under 25’s.

From this we see that significant proportions of workers earn below all of the thresholds under examination.

  • 25.3% of employees earn below the Real Living wage;
  • 20.6% earn below two-thirds of UK median hourly earnings excluding overtime;
  • 17% earn below the National Living Wage - these include those exempted by the structure of the minimum wage and so include workers aged under 25 years old and apprentices.
  • 10% of all employees had hourly earnings below the national legal floor for their age group.
Percentage of all employees below selected low pay thresholds, 2020

Who are the low paid?

Some workers are more likely to be low paid than others and concentrations of low paying jobs are found in particular sectors.

An examination of the data shows a presented in Figure 2 below shows, irrespective of which measure of low pay we look at, the extremely high proportions of low paid workers amongst those employed in the ‘Accommodation and Food Services’, ‘Arts, Entertainment, and Recreation’ and ‘Wholesale, Retail trade’ sectors.

- 80% of workers in the ‘Accommodation and Food Services’ sector earned below the Real Living Wage;

- 45% of workers in the Wholesale, Retail trade’ sector earned below the Real Living Wage; 

- 40% of those in the Arts, Entertainment, and Recreation sector earned below the Real Living Wage.

Of course, whilst these are the sectors which have been most hardly hit by the lockdown restrictions, it is worth remembering that these same sectors faced high rates of low-pay before the Covid-19 crisis.

Figure 2: Percentage of employees below selected low pay thresholds, by sector, 2020

The data also show that workers with particular characteristics face increased likelihood of being low paid. Younger workers and part-time workers are particularly likely to be low paid. Furthermore, whilst females are more likely to be low paid than males this increased prevalence is not as high here as it is in other UK regions.

Specifically, 1 in 4 part-time workers earn below the National Living Wage and almost 40% below the Real Living Wage. Full-time work is not a guaranteed escape from low pay however with 1 in 10 earning below the National Living Wage and close to 1 in 5 earning below the Real Living Wage.

70% of workers aged between 18-21 earned below the Real Living Wage. Of course, this greater prevalence is partly related to the fact that the legal wage floor for these workers at £8.20 is below the national living wage threshold of £8.72. It is also related to the fact that younger workers were significantly more likely to be furloughed than older workers and not have their earnings topped up beyond the Government subsidy of 80% of their usual earnings. However, it also goes beyond this.

Indeed, as is clear from Figure 3 low pay is rife across all age groups. Almost 1 in 4 of those aged between 30-39 earn below the real living wage, and almost 1 in 16 of those aged between 40-49 do so. Obviously, this is partly related to the lockdown period, furlough and significant proportions of employees not having their usual earnings topped up, but we need not forget that it’s more got to do with the fact that low pay was such a prevalent part of our labour market to begin with.

Figure 3: Percentage of employees below selected low pay thresholds, by gender, age and working arrangement, 2020

Policy consequences

Low pay should be concerning to policy makers in Northern Ireland not only because of its pervasiveness right across our economy and its impact on that, but also because of the negative impact it has for the living standards of individual workers and their families. 

Policies directed at increasing the wage levels of those groups of workers who are most likely to be low paid will be particularly beneficial to ensuring that work pays. Legal wage floors do provide one valuable tool for protecting and sustaining the wages of some of the most vulnerable workers.

That said, rather than only dice up this year high proportions of workers being below the legal wage floor as being the failure of the furlough scheme, more needs to be done to tackle the problem of low pay. In particular, efforts must be made to reduce the proportion of workers earning below the Real Living Wage and providing a minimum acceptable floor below which no worker should fall. Serious consideration needs to be given to using collective bargaining agreements and sectoral orders as an avenue to ensure decent pay and a decent livelihood for all workers.

 

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Dr Lisa Wilson


Lisa Wilson is a Senior Economist at the Nevin Economic Research Institute and is based in the Belfast office. Her main research interests lie in the areas of labour markets, income distribution, poverty, public expenditure, living standards and well-being. 

Since taking up her position in the NERI Lisa has been among other things carrying out work concerned with job quality and its economic and social importance, the future of work, the gendered nature of employment, and housing and its impact for living standards in Northern Ireland.

Lisa is a native of Donegal, and a graduate of Ulster University and Queens University, Belfast. Lisa completed her PhD in Queen’s University, Belfast focusing on income inequality and well-being.

Contact: [email protected] or 00 44 28 9024 6214.