Press Release

The big challenge on living standards is to boost incomes for those in work

Date: 19 July 2016
Authors:

Recent years have seen a truly remarkable transformation in patterns of low income in the UK. One great success is that pensioner incomes have grown so much and, after housing costs, they are now the least likely major demographic group to be in income poverty. Another is that more people are in work than ever before. The proportion of children living in a household where no-one works has fallen from nearly one in four in 1994–95 to less than one in six in 2014–15. 

The “new poor” tend to live in households where there is someone in work. Only a third of children below the government’s absolute poverty line now live in a workless household – two thirds of those classified as poor are poor despite the fact that at least one of their parents is in work. So if the new Prime Minister takes forward the ‘life chances’ strategy started by her predecessor, that strategy needs to focus on lifting the incomes of working households.

These are among the findings of a new report by IFS researchers published today: Living Standards, Poverty and Inequality in the UK: 2016, funded by the Joseph Rowntree Foundation. The research uses data on household incomes from the government’s Households Below Average Income series, recently made available up to and including the financial year 2014–15.

The falls in household worklessness have important implications:

  • The incomes of poor households are increasingly sensitive to what happens in the labour market. Income from employment made up half of income for the poorest fifth of households in 2014–15 (excluding pensioners), up from less than a third 20 years ago. While this is good news it does mean that the poorest are now more vulnerable to any downturn in the labour market than they would have been in the past.
  • Further falls in worklessness have much less scope to reduce child poverty than in the past. The falls in worklessness that we’ve already seen, plus the fact that rates of poverty rates among working families have risen, mean that only one third of children in income poverty now live in workless households.

Other key findings include:

  • Median income overall has finally moved 2% above pre-crisis (2007–08) levels, but for adults aged 31 to 59 it is at its pre-crisis level and for those aged 22 to 30 it is still 7% lower. It is highly unusual to see no growth in working-age incomes over a seven-year period.
  • Inequality in workers’ weekly earnings has fallen during the recovery. This was the result of a recovery in the number of hours worked by those with low hourly wages. Between 2011–12 and 2014–15, real weekly earnings grew by 4.4% at the 10th percentile, but fell by 1.2% at the 90th percentile.
  • Strong employment growth and weak earnings growth have combined to hold down inequality in recent years. Since 2011–12, falls in household worklessness and increases in the number of second earners both mainly boosted the incomes of poorer households. Meanwhile weak pay growth has held back the incomes of higher income households.
  • In key respects middle income families with children now more closely resemble poor families than in the past. Half are now renters rather than owner occupiers and, while poorer families have become less reliant on benefits as employment has risen, middle- income households with children now get 30% of their income from benefits and tax credits, up from 22% 20 years ago.
  • Mothers’ earnings are increasingly important for households with children. For middle-income children the fraction of household income coming from women’s earnings rose from less than a fifth in 1994–95 to more than a quarter in 2014–15; and it doubled from 7% to 15% for the poorest fifth. 

 

Robert Joyce, an author of the report and an Associate Director at IFS said:


“Tackling low income is increasingly about tackling the problems faced by low-earning working households. In the short term this would be aided by a continued recovery in the number of hours worked by those on low wages or by more second earners entering work. Ultimately substantial progress will depend crucially on economic policies that push up productivity. Economic uncertainty following the Brexit vote will only serve to make these challenges all the tougher”.


Andrew Hood, an author of the report and a Research Economist at IFS said:


“Given the economic recovery and cuts to benefits over the last few years we might have expected inequality to rise. But the combination of strong employment growth, some earnings growth for low-paid workers, and a lack of earnings growth for others, has kept inequality below its pre-recession level”.

______________________________________________________________________ENDS


Notes to Editors:


1. For embargoed copies of the “Living Standards, Poverty and Inequality in the UK: 2016” report or other queries, contact: Bonnie Brimstone or Emma Hyman at IFS: 020 7291 4800 / 07730 667 013, emma_h@ifs.org.uk, bonnie_b@ifs.org.uk;


2. This report will go live on the IFS website at 00.01 Tuesday 19 July. Authors will then present the findings at a launch event at 10am: http://www.ifs.org.uk/events/1320. To reserve your place, please complete a booking form: http://www.ifs.org.uk/events/booking


3. The Joseph Rowntree Foundation is an independent organisation working to inspire social change through research, policy and practice. For more information visit www.jrf.org.uk JRF is on Twitter. Keep up to date with news and comments @jrf_uk. For press releases, blogs and responses follow@jrfmedia