News Article

WMiC, Issue 18 - Employment, unemployment, income and escaping low pay in the West Midlands

Posted on 24 October 2017 (Permalink)

More jobs as unemployment falls and employment rises

There was good news for the West Midlands in the latest regional labour market figures from the ONS (Office of National Statistics). In the three months between June and August, the region posted the UK’s biggest fall in the unemployment rate and, at 1.4%, the largest increase in the employment rate in the UK. To add to the encouraging picture, the West Midlands also added the most workforce jobs of any region by some distance, with 110,000 added in the past year.

Nonetheless, the ONS figures still show that the region’s unemployment rate is the second worst in the UK and its employment rate is better than only three of the twelve UK nations and regions.  Further tempering the positive figures, the ONS comment that “the employment rate estimates for the West Midlands have been fluctuating quite widely over the last year with the latest estimate only 0.5 percentage points higher compared with the same period last year”. As a result, the ONS say “it is difficult to interpret the underlying picture for the West Midlands, which may be gently increasing or close to flat”.  


Regional grow slow

Nationally, despite increasing employment rates there is some concern that wages and living standards are not significantly improving. The situation is perhaps worse in the West Midlands than many other areas. Research by the IFS (Institute of Fiscal Studies) over the summer showed that the Midlands has seen the “slowest growth in average incomes over the last 40 years”. The worst performing of all the regions, it seems average income in the West Midlands is 9% below the Great Britain average - some 25% behind the South East, which has the highest average income.

Bearing in mind that in the mid 1970s the West and East Midlands, London and the South East were the only regions with incomes higher than the average for Britain, this is precipitous fall. In this context it’s worth highlighting the new report by the non-departmental advisory body, the Social Mobility Commission. Carried out for them by the Resolution Foundation, the report entitled The Great Escape: Low Pay and Progression in the Labour Market, looks at the extent to which workers are able to escape low pay.


The not so great escape

Analysing workers who were classified as low-paid in 2006 and how they fared in the period up to 2016, they worryingly found that for most low paid workers “poorly paid positions are not acting as a first rung on the ladder”, but rather that it is “the only rung”. Tracking these initially low paid employees, defined as earning below two thirds of median hourly pay, they looked at how they progressed, splitting them into three groups:

  • “Stuck”- employees who were in low paid work every year
  • “Escapers” - those who earn above the low pay threshold in each of the final three years of the decade, suggesting a sustained move onto higher wages
  • “Cyclers” - those who fall between the two categories, moving into higher pay at some point, but not consistently out of low pay at the end of the period.

Based on these categories, the analysis showed that only 17% of those in low pay in 2006 were “escapers” by 2016, that 48% were “cyclers” and that 25% were “stuck”. Nonetheless, the report finds that this “negative picture” is an improvement compared to the 1981 cohort for example, when 35% were still “stuck” in low pay ten years later. Looking at the last twenty five years, the report notes that while the proportion of those stuck has fallen, this has generally led to increases in the proportion of “cyclers” rather than “escapers”. 


Stuck in the Midlands

Compared to the national average, the West Midlands fares badly on the proportion of workers who have remained “stuck”, with only the North East and the East Midlands having higher proportions. In contrast the West Midlands has the lowest rate of “cyclers” and is close to the national average for “escapers”.

Looking below the headline figures, the report considers the key factors that contribute to these larger patterns. They note for example, the extent to which “escapers” are increasingly in full-time work, where once this group was much more evenly split with part-time workers. Among other things, it also considers the impact of students, the role of central and local government jobs in offering structured progression, and the absence of well-paid part-time roles, “especially for mothers with young children”. As such, the report finds that women are more likely to be low paid than men and are also far more likely to get stuck there. Indeed, it seems that it is particularly hard for women in their early twenties to escape low pay, with the lack of good-quality, flexible work to fit alongside childcare responsibilities identified as the most likely barrier. Even so, the picture has been improving for women. On the other hand, while the situation is better for men, it is deteriorating, with the risk of low pay growing, as men are increasingly employed in low-paid and part-time positions.

The report also identifies age as an important factor, with older workers far less likely to escape low pay than younger ones. For example, the report finds that 23% of low-paid workers aged 25 or under escaped low pay over the following decade, compared to 15% of those aged 46 to 55.

The report in concluding, suggests that the Government’s industrial strategy should emphasise reducing low-pay “in sectors where it is endemic, such as hospitality and retail” alongside its high employment objectives. They say that “focusing on these parts of the economy will be essential if low pay is to become a springboard to higher earnings”.