Number of workers paid less than the Living Wage passes 5 million

The problem of in-work poverty has been underlined today by new research which estimates that there are now 5.24 million people being paid less than the Living Wage, an increase of around 400,000 from an estimated 4.82 million in last year’s report. This highlights the fact that whilst the Living Wage has grown rapidly and successfully as a concept, wider take-up is needed if more people are to earn a wage that supports a basic standard of living.

The research, conducted for KPMG by Markit, suggests that 21% of employees are being paid less than the Living Wage, up from 20% a year ago. This has largely been driven by living costs outstripping earnings growth – median hourly wages have risen by just 1.1%, while the Living Wage rate increased last year by 3.5% nationally and 3% in London (also less than the rise in the cost of essential goods).

Unsurprisingly, the proportion of jobs paying below the Living Wage is highest among the younger age groups, with 72% of 18-21 year olds receiving less than the Living Wage, which then falls to 27% of 22-29 year olds. Women are also significantly more affected than men (27% compared to 16%), while part-time workers are far more likely to receive low pay than full-time workers (43% compared to 12%).

The research also finds that sub-Living Wage pay is less prevalent for direct employees in the public sector (less than 10% of the workforce) than it is in the private sector (27%), largely due to differing job types. In addition, many low paid workers in the public sector are employed by private contractors.

The Living Wage is a voluntary rate of pay designed to enable workers to afford a basic but acceptable standard of living. The rate is currently £8.55 an hour in London and £7.45 outside – compared to the national minimum wage which stands at £6.31.

The Living Wage has been growing rapidly as a concept, with over 400 organisations now accredited payers of the rate compared to just sixty this time last year. This week is ‘Living Wage Week’ with new Living Wage rates for London and the rest of the country due to be announced today, Monday 4 November.

Commenting on the findings Marianne Fallon, Head of Corporate Affairs at KPMG, said:

“Low pay is a real problem in Britain, particularly at a time when the cost of living is rising at a faster rate than earnings. This was underlined by the Social Mobility and Child Poverty Commission recently. People on less than the Living Wage can seriously struggle to make ends meet. Whilst it is still not easy, earning a Living Wage can make a huge difference to individuals and their families, enabling them to afford a basic standard of life.

“For many businesses, paying the Living Wage rate need not actually cost any more. At KPMG, we have found that better staff performance and motivation combined with lower absenteeism and turnover cancels out the extra salary costs.

“Living Wage Week is the perfect opportunity for employers to consider whether they can make the move. It may not be possible or practical for everyone, but all employers need to do what they can to address the problem of low pay. In practice, transition to the Living Wage is a phased programme that does not happen overnight. Making an initial assessment is an important first step.”

Regional analysis
The research finds that Northern Ireland has the highest proportion of workers paid less than the Living Wage at 26% (2012 report: 24%) followed by Wales at 25% (2012: 23%). The lowest proportions are in London at 17% (2012: 16%) and the South East at 18% (2012: 16%). However, by number of people the North West, London, and the South East are the three most affected areas.

By proportion* By number*
Northern Ireland – 26% North West – 600,000
Wales – 25% London – 586,000
East Midlands – 24% South East – 567,000
Yorkshire & Humberside – 24% West Midlands – 502,000
West Midlands – 23% East – 497,000

*Source: Markit estimates, based on ONS data

Job sector analysis
Low-skilled service sector jobs predominate in terms of having the greatest proportion of workers paid less than the Living Wage. The two worst-affected occupations are bar staff and waiters/waitresses – though an obvious caveat here is these workers will often earn discretionary tips on top of their wage (information not covered by the ONS data from which this analysis is drawn). By number of workers, however, sales and retail assistants are the worst affected – with over 800,000 of them earning less than the Living Wage – followed by cleaners (450,000).

By proportion* By number*
Bar staff – 85% Sales and retail assistants – 810,000
Waiters and waitresses – 85% Cleaners and domestics – 450,000
Kitchen and catering assistants – 80% Kitchen and catering assistants – 370,000
Vehicle valeters and cleaners – 75% Care workers and home carers – 270,000
Launderers and dry cleaners – 70% Storage/warehouse occupations – 170,000

*Source: Markit estimates, based on ONS data

Impact of low pay on personal finances

Analysis drawn by Markit for KPMG from their Household Finance Index underlines the strain that earning less than the Living Wage puts on individuals’ finances:
38% of respondents earning less than the Living Wage have seen a deterioration in their financial health over the last month
51% of them expect their finances to worsen over the coming year
This compares to 23% and 36% respectively of those earning more than the Living Wage
Nearly a quarter (22%) of those earning less than the Living Wage reported an increase in debt over the past month

Across the board (those earning both above and below the Living Wage) there is a clear perception that the cost of living has risen and will continue to rise.

One of the only bright spots in the analysis was that respondents felt less downbeat about their job security than they did a year ago – an indication that underlying economic conditions are more favourable now than in October 2012.

Rhys Moore, director of the Living Wage Foundation, said:
“The Living Wage has grown rapidly as a concept in the last year and has attracted considerable support. I would like to thank all 400 organisations that are accredited payers and, with Living Wage Week now upon us, call on more organisations to look to the welfare of their lowest paid staff and move to the Living Wage.

“The research is a timely reminder of the size of the challenge of low pay in Britain. The growth in part time employment is a feature of the economy that is here to stay and employers must consider wage differentials with full time workers. However, this is not to undermine the real progress made elsewhere.”