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UK low-paid workers decline but self-employed low-earners rise

·4-min read
While the number of low-paid workers has fallen, the number of low-earning self-employed has risen. Photo: Getty
While the number of low-paid workers has fallen, the number of low-earning self-employed has risen. Photo: Getty

The share of low-paid workers in the UK hit a record low and is on track to be "eliminated" by 2024 but the number of low-earning self-employed has gone up, a new report suggests.

New analysis from the Resolution Foundation published on Wednesday found that the introduction and elevation of the minimum wage has helped to reduce low pay this year to a joint record low of 13% in 2021.

Among women, low pay has more than halved over the same time period — from 31% in 1997 to 14% last year.

Low pay is defined as earning less than two-thirds of the typical hourly pay. As of 1 April 2022 this is £9.50 per hour for those aged 23 and over.

The report, in collaboration with the LSE and funded by Nuffield Foundation, explores how low-paid work has changed in the last 25 years and examines the biggest challenges facing low earners during the 2020s.

The foundation indicates that this has been achieved without causing job losses. Unemployment among low-paid workers has almost returned to pre-pandemic levels at 5.1%.

That means the government is on track to "eliminate" low pay by raising the national living wage up to the low pay threshold by 2024, it said.

Economists say Britain "still has a problem with the quality of work for low earners".

"Short hours hold back household living standards, while insecurity of those hours and widespread use of atypical contracts remain ever present," said Nye Cominetti, senior economist at the Resolution Foundation. "The policy response to tackling these issues lies beyond the minimum wage."

Read more: UK wages fall sharply despite record low unemployment rate

Last year, around a quarter of employees had low weekly pay, down from a 29% peak in the 2000s.

The foundation argues, with 62% of these workers not classified as low paid on an hourly basis, they cannot be lifted out of low pay simply by raising the minimum wage.

Over three-quarters of weekly low-paid employees are women, although this share is falling over time.

Additionally, many low-paid staff face insecurity from "destabilising, volatile working hours", the think tank said. It found that one-in-five low-paid workers are either working on a zero-hours contract, doing temporary or agency work, or experience variable hours in their job, which affects how much they’re paid.

The research notes that while the number of low-paid employees has fallen, the number of low-earning self-employed workers has grown at an alarming rate.

On the eve of the pandemic, almost two-in-five self-employed workers were low-paid — if their earnings were declared on an hourly basis — nearly three times the risk of being low paid as employees.

"This is an issue that goes well beyond the rise of the gig economy", the foundation said, noting that currently there are as few as 350,000 "gig workers" across the UK, compared to the 1.6 million low-paid self-employed workforce.

Read more: Skills shortfall and inflation drive up UK wages to record highs

"With these workers completely outside the legal framework of the minimum wage and the tax system encouraging employers to use self-employed labour, a new approach will be needed to reduce low pay among the self-employed," it added.

Alex Beer, welfare programme head at the Nuffield Foundation, added that a "more holistic approach" is needed to tackle inadequate hours, insecure work and the spread of low earning self-employment.

"These issues are being made all the more acute by the cost of living crisis," he said. "Unstable jobs with variable hours and pay do not improve people’s chances of finding a job and can discourage people from entering the labour market."

Separate data from the ONS showed average wages continued to fall behind the rate of inflation in March.

Earnings in the month shot up by 9.9% on the year, regular earnings excluding bonuses fell by 1.9%, although wages excluding bonuses jumped 4.2% in the first quarter. Unemployment was 3.7%, its lowest rate since 1974, while vacancies rose to nearly 1.3 million.

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