Labour Market

The ‘cold, hard, facts’ about in-work poverty

Following an article I wrote about last week’s IPPR Commission on Economic Justice report, a correspondent argued that we should concentrate on the ‘cold, hard facts’ in discussing these issues. This used to be the theme of the old TV programme Dragnet, where the cops always seemed to want to know “Just the facts, ma’am”. It’s what people ask me at parties: “What are the facts about Brexit?” And our Buckingham students always want to know ‘the facts’ for their exams.

There are two major problems with this approach to economic policy.

Firstly, facts need interpretation. Secondly, there is almost always another fact that qualifies or offsets the first.

Take the IPPR’s statement that ‘more people in poverty now live in working households than in non-working ones’. This is then used to support their proposal to raise the National Living Wage by 20%.

The first thing to say is that the IPPR is correct. According to recent Nuffield Foundation Research: ‘60% of people of all ages living in poverty were living in working households’.

However, this derives partly from two favourable developments in recent years – that poverty in retirement has been hugely reduced, and that the proportion of people of working age in employment has increased. Thus, the chances of being poor and in a working household have almost inevitably increased, given that poverty is a relative measure (‘poor’ households being those with incomes below 60% of the median).

If we had more poor pensioners and more unemployed or economically inactive people, we would have a smaller proportion of working households amongst the poor.

More importantly, we need to see what a ‘working household’ means in practice. If one adult in a household works even a few hours a week, that is enough to qualify that household as ‘working’. Yet a household with two adults and two children, say, is unlikely ever to be out of poverty if only one adult is working part-time.

As the Nuffield researchers point out, ‘People living in one earner households face a very significantly elevated risk of in-work poverty, and account for almost six in ten people experiencing working poverty’.

Here, the IPPR’s recommended hike in the National Living Wage would do very little for these poor working households unless both partners worked, preferably full-time. Less than half of those experiencing in-work poverty have a low-paid member in their household. The problem isn’t low hourly pay as such, it’s that the adults aren’t working enough hours. This may be because of caring responsibilities, or health problems, or a variety of specific issues which are better catered for by some form of welfare payment or assistance with child care or elder care, rather than higher pay for hours which they can’t work.

Just to emphasise this, here is another important ‘fact’ – most low-paid workers are not poor. This is because they live in households with additional earners or other resources. Think of low-paid students living at home, or second earners with a well-paid partner.

In-work poverty, then, is an issue requiring closer study – not the seizing of apparently ‘killer’ facts to justify policies which are likely to harm output and employment.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

2 thoughts on “The ‘cold, hard, facts’ about in-work poverty”

  1. Posted 11/09/2018 at 20:09 | Permalink

    People have, I think, become far too used to regarding themselves as poor or rather, being regarded as poor using the relative measure. If you are someone who is unemployed, receiving Universal Credit to pay for your rent and £300 on top or £600 and Personal Independence Payment for those that have a qualifying disability in their body, they still remain in the top few % of earners on the planet! Absolute poverty i something eliminated bar a very few exceptions in the UK and we should celebrate not berate our Governments.

  2. Posted 24/09/2018 at 08:31 | Permalink

    I do not understand why the definition of poverty is not being challenged as currently defined it is statistically impossible to eliminate poverty.

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