Kathleen Henehan, Research and Policy Analyst, the Resolution Foundation

Before Covid-19 and Brexit 

Two Big Successes

The time period that began after the financial crisis and ran until the onset of the coronavirus was, in part, characterised by two big successes in the UK labour market. The first was a continued rise in employment. The second was a continued fall in the proportion of people classed as low paid.

Rising Employment

As of December 2019, workforce participation among 18-69-year-olds reached a record high of 76.6%, with employment rising among most demographics, including those who had historically been furthest from the labour market. All in all, the number of people in work in the UK rose from 29 million in 2008 to 32 million by 2019.

Fewer Classed as Low Paid

The share of 16+ employees that were low paid - defined as being paid less than twothirds the UK’s median hourly rate) -  fell gradually below 23% during the mid-2000s, as the UK’s minimum wage took hold, and fell sharply after the National Living Wage came into force in 2016. By 2019, the share of employees in low pay had fallen to a record low 15%.  

But not all forms of employment were equal

And yet, the past decade was not without challenges. While most of the employment growth between 2008 and 2018 came in the form of fulltime employees (+1.2 million), the number of self-employed workers grew by nearly 1 million, the number on zero hours contracts grew by nearly 0.7 million, and together, the number of agency workers and people on temporary contracts grew by nearly 0.4m.

The Rise of Atypical Employment

The share of workers in these ‘atypical’ modes of employment - including part-time ) was unevenly spread, with agency and zero-hours contract working being more prominent in labour intensive, and often lower-paid, sectors like hotels and restaurants, health and social work, wholesale and retail, transport, storage and communications, and arts and entertainment. 

And although a large share of atypical workers indicate that they prefer their mode of work, a substantial proportion indicate otherwise. In 2018, 28% of workers on temporary contracts said they were temporary because they could not find a permanent role; just over 10% of part-time workers said they wanted to work on a full-time basis and 10% of those who were self-employed said they became self-employed because they were unable to find other work.

Many on low pay wanted more security and more paid work

Even among employees, underemployment (wanting to work more hours than currently allocated) is unsurprisingly correlated with pay. As of 2019, only 3% of employees in the top pay decile reported being underemployed, as compared to 6% of employees in the middle decile and 15% of those in the bottom. The implication is that lower-paid workers (unsurprisingly) struggle to make ends meet, and thereby would like to work more hours in order to bring home more income.

Low Pay Coincides with Atypical Employment

And in fact, low-pay among employees is more prevalent in those labour intensive sectors that also tend to feature higher rates of atypical work. While overall, 15% of employees in Great Britain were paid two-thirds or more below the minimum wage in 2019, more than half (52%) of those working in hotels and restaurants were low-paid. So were nearly one-third (30%) in agriculture, more than one in-four (28%) employees in wholesale and retail, and 26% of those in arts and recreation. 

Progressing from Low paid Employment to Low paid Employment

Or, to put it another way, while median hourly pay for employees age 16+ was £13.21 during 2019, it was only £8.17 in hotels and restaurants, £9.76 in agriculture, £9.96 in wholesale and retail, and £10.17 in arts and entertainment. The chances of a person moving out of low pay are slim and, in fact, previous Resolution Foundation research shows that workers who do leave low-paying sectors like retail and hospitality are highly likely to shift into another low paid role. 

The Era of Covid-19 and Brexit 

Skills-Based Immigration

Before the economic effects of the coronavirus came into play, many were concerned that the UK Government’s proposed post-Brexit migration regime would result in a fall in the number of workers willing, and able, to take on these low paid and often atypical roles. These concerns were particularly strong when it came to sectors including construction (13% of workers born outside the UK, wholesale and retail (15%), health and social work (17%) and hotels and restaurants (26%). 

Too Few Migrant Workers?

Since the coronavirus took effect, and an economic crisis has taken hold, some of the concerns around labour allocation that predominated earlier this year feel a world away. Low paid, labour intensive sectors like retail and hospitality have been shut down, with few expecting them to rebound to pre-coronavirus levels of trading for a long time yet. Compared to March of this year, the number of vacancies posted during April and May were down by over 90% in hospitality and in arts and recreation; they were also down by roughly 70% in retail.

Mass Unemployment

In other words, concerns about whether there would be enough British nationals to replace migrant labour in these sectors have been replaced by the extent to which these sectors will shed jobs once the Job Retention Scheme comes to an end this autumn. Already, huge swathes of the labour force appear at risk – with those who have the lowest levels of education so far having been most affected. 

Taking a sectoral approach shows that more than 1.6 million jobs in wholesale and retail have been furloughed, in addition to roughly 1.5 million in hotels and restaurants. Given concerns about many firms’ survival, it’s widely expected that, absent any substantial new intervention, we’ll see unemployment – particularly in these highly affected sectors – spike once the furlough scheme draws to a close.

Issues for Post-16 Policy Makers

Given the expected rise in unemployment, and the general malaise that’s predicted to strike many sectors characterised by low pay, policy should now turn to how best it can support that inevitably large group of soon-to-be unemployed. 

Employment Measures

Of course, there needs to be heavy-lifting on the employment side. Policies to encourage employment (including raising the threshold at which employers pay NICs for new hires) are necessary. So too are policies that help create better paying, more secured roles for yesterday’s low paid workers to train and transition into. That could mean sector-specific incentives for job creation, a huge ramping up in job matching capabilities, and of course an intensive effort to help adults train up for these roles. 

Skills Measures

And yet, these same workers are more likely than most to struggle to support themselves while studying. Having come from low paid and often insecure roles, they will have little savings to draw back on. Those that do find some form of work will – as they would have been before the virus – be more likely to prioritise earning enough money to sustain both themselves and their family rather than spend their time studying and away from earning. 

To that end, Government should consider options to allow adults to be able to support their living costs while studying, even if they do so outside of full-time education. Alongside this, we need better evidence on the types of education and training that are most effective in helping lower-qualified adults to transition into stable, better paid careers – breaking the cycle of moving from one low paid role to another.

Kathleen Henehan, Research and Policy Analyst, the Resolution Foundation

'Revolutionary Forces'

In the immediate aftermath of the Covid-19 pandemic, it is easy to forget that there were wider revolutionary forces at work on the UK’s economy before the virus outbreak.

With issues such as Brexit, the rise of automation in the workplace, longer working lives, and poor UK productivity brought into even sharper focus, education and skills organisations, NCFE and Campaign for Learning (CfL), jointly commissioned the ‘Revolutionary Forces’ discussion paper.

Published on 6 July 2020, the collection of articles, penned by experts from the FE sector, as well as labour market economics, employment and mental health, urges Government to ensure that the plans outlined in the forthcoming post-16 white paper are sufficiently flexible to meet the immense changes faced by the UK economy throughout the 2020s. The authors explore some of the key challenges facing the nation throughout the 2020s which the DfE needs to take into consideration when writing their recommendations:

The authors are:

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