Lots more people are working, but in jobs that keep them in poverty

There has, for good reason, been much recent concern over the “great retirement” — the withdrawal of hundreds of thousands of older workers from the labour market. That does, though, need to be set in the context of one of the great longer-term successes of welfare and labour market policy over the past quarter-century: getting people into jobs.

Employment rates have been at or near record highs, the number of workless households has halved since the mid-1990s, and the fraction of lone parents in work has pretty much doubled. Worklessness and associated poverty have by no means gone away, but they are a smaller problem than they once were. Today’s big problems are different — not so much the number of jobs, but the quality of those jobs, and the rates of poverty now faced by people in work.

Back in the 1990s just over a third of those living in poverty (or to put it another way, towards the very bottom of the income distribution) were living in a household in which someone was in work. That fraction has now reached something like 60 per cent. The majority of the poor are in work or live in a household where someone is working.

So as well as a continuing focus on making sure people can get into work, we also need to look at the quality of work. That’s much harder to define than the quantity. A few exhibits, then, to illustrate my point.

First, the huge increase in the number of the self-employed, many of them “gig economy” workers. Employees may have had a torrid time, but the self-employed have fared worse. They are a very diverse bunch, but on average their incomes have fallen. They make up more than a quarter of the lowest-earning tenth. And, of course, they don’t enjoy the rights and protections that have been extended to employees.

Second, the amount of training that employees receive appears to have fallen; remarkable when you consider the needs of the economy. Those with the lowest formal qualifications get the least training — less than half that directed at graduates.

Third, and associated, if you enter the labour market with poor qualifications you are likely to struggle to progress, with your earnings likely to peak by the time you hit your early thirties. Graduates continue to pull away for a decade or two after that. Too many people are left with little scope to progress to better paid or more fulfilling work.

Fourth, much of the success in getting people into work has been a success in getting people into part-time and low-paid work. The plight of lone parents exemplifies this perfectly. Successive changes to the benefit system have made receipt of benefits increasingly dependent on looking for work. Lone parents have responded by looking for, and finding, work. But all of that additional work is part-time and low paid. And part-time, low-paid work offers virtually no long-term reward — you just don’t progress any further. This is a problem not just for lone parents but for many mothers who start working part-time once they have children, and then see their earnings fall further and further behind those of their peers. It is also, by the way, a problem for the Exchequer, which has gained virtually nothing from these big increases in lone parents’ employment rates.

Fifth, many low-paid jobs don’t come with any of the benefits and flexibilities those of us in better paying and professional jobs have come to expect. If I’m off work sick for a week I get my full pay, as do almost all higher earners. Less than a quarter of those earning less than £20,000 a year enjoy the same privilege. Low earners are also much more likely to report volatile hours or an insecure contract. The growth of zero-hours contracts has been one manifestation of this increasing insecurity.

Some of this has been an unintended consequence of the very welfare reforms that have encouraged people into work. We now have a system which gives you a much bigger financial boost as you move from unemployment into part-time work than used to be the case. But it penalises you more than it used to if you then move up to full-time work. There is also some evidence that rules around automatic enrolment into pensions make some firms reluctant to increase the hours of part-timers so as to prevent them from becoming eligible for pension contributions.

The polarisation between good and bad jobs also reflects a polarisation between good and bad firms, as well as regional polarisation. Those who start with low skills in lower-paid roles do better if they work in the most productive firms and also if they work in a mixed environment with higher-skilled colleagues. Such firms, and such opportunities, are much less prevalent outside London and the southeast.

For a long time now, labour market policy has focused on just three things: getting people into work, supporting low earners through the in-work benefit system and raising the minimum wage. But beyond that it feels like policymakers are out of ideas. A new strategy will be more complex than the one we have been running with for the past quarter-century. It needs to do more to facilitate, and less to discourage full-time hours; it should support more training and help to develop more “soft” skills such as teamwork, which do lead to more successful outcomes for those with low levels of formal qualifications; it must foster more, and more geographically spread, high-productivity firms.

Not easy to achieve, but these must be the building blocks not just of employment policy but of economic policy over the next quarter-century.