productivity and pay in the north west...of 2002. furthermore, low pay is a significant issue in the...

Productivity and Pay in the North WestStephen Overell, Britta Berger-Voigt and Benjamin Kulka

Final ReportMay 2015

3 | Productivity and Pay in the North West

Executive Summary 4

Acknowledgements 6

1 Introduction 7

2 Economic And Labour Market Context 13

3 Low Pay In The North West 33

4 Potential Routes To Addressing Low Pay 64

5 Data Annex 69

Content

Productivity and Pay in the North West | 4

Executive Summary• Productivity is recognised as one of the fundamental challenges of the British economy as it

picks itself up from the shock of recession. Poor productivity performance underpins growth and is also an important explanation (if not the only one) for why pay has fallen for so many workers over the years of the recovery. This report investigates pay and productivity in the North West.

• Productivity (as measured by gross value added or GVA) in the North West did not fall as abruptly as it did in the UK as a whole. There has also been a more robust recovery in production.However,theNorthWesthasasignificantproductivitygap:GVAperjobintheNorthWest was £39,210 in 2012 compared with £45,100 in the UK as a whole. All sectors, with the exception of manufacturing, lag UK levels in productivity performance.

• Average pay in the North West is below the average for the country as a whole. Workers earn 75p an hour less in the North West for each hour they work than workers in the UK as a whole.

• TherecessionhashadapronouncedeffectonpayintheNorthWest,effectivelyloweringthestandardofliving.In2014,medianpaywasnotjustbelowthelevelof2008,butbelowthelevelof2002.Furthermore,lowpayisasignificantissueintheregion.Some25%ofjobsintheNorthWestregionpaybelowthelevelofthelivingwageof£7.85anhour(approximately650,000jobs)in2014–asharpincreaseon2011,whenjust16%didso.

• Thegenderpaygapremainsasignificantissuewithwomentypicallyearninglessthanmen.However, the years of recession and recovery have seen a narrowing of the gender pay gap. This is a result of men’s pay ‘levelling down’ to that of women. This trend is more acute in the North West than in the UK. Between 2009 and 2014, male median gross hourly pay in the North Westfellby£1.64(£1.51intheUK).Women’spaydropped73panhourintheNorthWest(81pintheUK).However,amongpart-timersthereisa‘reversegenderpaygap’:womenpart-timerstypically earn more than men.

• Thelocalauthoritieswiththelowestmedianpayratesintheregionare:Blackpool,Eden,Rossendale, Preston, Hyndburn, Blackburn with Darwen, Tameside, Carlisle, Oldham and Knowsley.

• Theregion’slowestpaidoccupationsarebarandrestaurantstaff,caterers,nurserynurses,salesand retail personnel.

• Youngpeople(justunder60%ofthejobsheldbyyoungpeopleearnbelowthelowpaythreshold),women,ethnicminoritystaffandpart-timersarethegroupswhoaremostlikelytoexperience low pay.


• The National Minimum Wage (NMW) is likely to have protected the position of the very lowestpaid,butitalsoappearstohavehadtheeffectofbecominga‘goingrate’inthelowerdeciles of the labour market rather than a legal minimum. The lowest paid have not seen their incomedeteriorateasfastasothergroups.Althoughjobsatthe10thpercentileoftheincomedistributionhavehadtoabsorba51panhourpaycutsince2008onceinflationisaccountedfor,in relative terms their pay has not fallen as abruptly as that of other workers.

• Since the recession, the recovery of employment has been broad-based. There has been robustgrowthinprofessionaljobsinparticular.However,thesinglefastestgrowingindustryin the North West is ‘employment activities’ – predominantly temporary work agencies. This isespeciallyconcentratedinthemajorconurbationsoftheregion.Changesinthenatureofworking, including the growing use of employment agencies as a method for resourcing, may also have placed a downward pressure on wages. Whether this trend is structural or a response to the recession is yet to be seen. It is a growing trend particularly within Liverpool City Region and Greater Manchester.

• Skillsareacriticalinfluenceoverproductivity(andindeedpay)andtheNorthWestregionhasseenasignificantincreaseintheproportionofitspopulationqualifiedtolevel4(highereducationlevel).Nevertheless,thereremainsaskillsgap.IntheUKasawhole35%ofthepopulationisqualifiedtolevel4comparedwith31%intheNorthWest.Bycontrast,skillsatlevel3havebeenbroadlyflat.

• However, the report argues that caution needs to be exercised around the assumption that injectingmoreskillsintolowwagesectorswillautomaticallyimprovepaylevels.Theacquisitionofskillsislikelytohavedifferentoutcomesindifferentlinesofwork.Skillacquisitionpatternsarenotnecessarilyreflectedinpayrates.Someoccupationsarerelativelyhighskilled,butlowpaid(inparticularmanytypesofcare,learningsupportandleisurework–65%ofstaffwhoworkinthesectorintheNorthWestarequalifiedabovelevel3).Othersarelowskilledbutoffer‘middling’ sorts of pay (manufacturing and process work). The implication of this is that policies toaddresslowpaywillneedtoconsiderthedifferentdynamicsandstructuresoflowincomeemployment. Raising skills alone without wider changes linked to business models, progression routes and investment in technology is unlikely to help raise pay levels.

• ‘Highpayingoccupations’(definedbymedianincome)-managers,professionalsandassociateprofessionals - have grown at the fastest rates over the last decade by 3.3 percentage points in the North West. The share of employment accounted for by ‘medium paying occupations’ – secretarial and administrative, skilled workers and machine operators – have declined by 4.7 percentage points. ‘Low paying occupations’ – caring, leisure, sales and elementary occupations –haveincreasedslightlyby0.6percentagepoints.Soalthoughlowpayingjobsaremorenumerous than before the recession, the growth of high paying and high skilled employment, coupledwiththedeclineinmediumwageoccupations,remainthemostsignificantoveralltrendin the North West.


AcknowledgementsThroughtheRegionalLeaders’Board,theNorthWest’sfiveLocalEnterprisePartnershipareasare working together on a collaborative research programme, which aims to improve knowledge sharingonissueslikelytoaffectallpartsoftheregion.Oneoftheelementsoftheresearchprogramme is getting a better understanding of the scale and nature of low pay and productivity acrosstheNorthWestandthisreportdetailsthefindingsofthatwork.Theauthorswouldliketothank all those involved in developing this research across the North West.

The authors would also like to thank and acknowledge the work of the Institute for Public Policy Research for help with the analysis of low pay in the North West and in other regions. All errors and omissions remain the responsibility of the authors.


1.1. Low pay is arguably a more pressing issue in the North West than in any other region of the UK. According to the Low Pay Commission (LPC), the tripartite body that advises the government on the level at which to set the National Minimum Wage, the North West is the regionwiththehighestshareof‘minimumwagejobs’nationally–jobsat,beloworwithin5pofthelegalpayfloorof£6.50foradultsovertheageof21–accountingfor169,000jobsor12.7%ofemployment1. This is one measure of the scale of low pay, and, as discussed below,differentmeasuresyielddifferentanglesontheissue:forexample,whiletheNorthWestmayhaveahighshareoftheUK’sminimumwagejobs,itisnottheregionwiththehighestproportionofjobsattheminimumwageinthatregion(theNorthEastis7.5%comparedto6.1%intheNorthWest).

1.2. But regional rankings aside, low pay is also a characteristic of the national labour market as a whole. The Organisation for Economic Co-operation and Development (OECD) ranks its membersbytheshareoflowpayjobs(definedastwothirdsofthemedianwageforfull-timers) and the UK sits among the countries with the highest incidence of low paid work, after the US, Canada, Israel, Ireland, Korea and Poland and more than four percentage points above the OECD average2.TheUKhad20.5%ofitsemploymentinlowwageworkin 2012. Despite economic ups and downs, this position appears to be stable, indicating low pay needs to be seen as a long-term structural issue, albeit one which may have been aggravatedbytheexperienceofthefinancialcrisis,recessionandunprecedentedlyslow-pacedrecovery.Lookingbackto2002,theUKhadthesameproportionoflowpayjobsthenasin2012.TheNorthWesthas,ineffect,aclaimtobealowpayingregionofalowpaying nation.

1.3. There has been an intense focus on wages and the cost of living in the run-up to the General Election of May 2015. Since the recession, the British economy has been characterised by strong employment and weak wages, both underpinned by feeble productivity. Unlike previous recessions for which data is available, output per hour worked had not recovered to pre-recession levels over six years later – which led the Bank of England to call it the ‘productivity puzzle’3 .There has been a lengthy period of wage stagnationwithaboveinflationrisesonlystartingtofeedintowagepacketssincelatesummer 2014. The Prime Minister has resorted exhortation. “Put simply – it’s time Britain had a pay rise,” he told a conference organised by the British Chambers of Commerce. “That’s good for your employees, it’s good for you to have happier and more productive staff,andfranklyit’sgoodforanyonewhowantstomaketheargumentforbusiness.”4

1LowPayCommission,NationalMinimumWage:LowPayCommissionReport,2014,March2014,p22OECDstatistics,incidenceoflowpaidwork.Statisticsavailableathttp://www.oecd.org/employment/emp/onlineoecdemploymentdatabase.htm.GiventheUK’shighproportionofpart-timers,abettermeasuremaybetwothirdsofallemployeesratherthanjustfulltimers

3BankofEngland:TheUKProductivityPuzzle,20144SpeechbyDavidCameron,asquotedinTheSun,10.2.2015,p2

1. Introduction

ProductivityandPayintheNorthWest|8

1.4. Whilstwagefallshavebeenafeatureoftherecessionandrecoveryacrossmanydifferentsocial groups, the magnitude of the fall in earnings appears to have been the greatest among men, young adults and in the private sector. The Institute for Fiscal Studies (IFS) saysrealaverageearningswere7.4%lowerinApril2014thaninApril2008,withlossesshared across the income brackets5.Thelowestpaidgroupsappeartohavesufferedthelargest falls during the early part of the post-recession period between 2009 and 2010; since then, other groups of earners have seen their earnings fall at a faster rate, the IFS claims. The recession and its aftermath have thrown living standards into reverse and it is likelytotakeconsiderabletimefortheseeffectstounwind.

1.5. The UK as a whole can be seen as having struck an unwitting (or at least semi-conscious) bargainaroundemploymentandwagesthattradedquantityofjobsforqualityofwork.UKlabourmarketpolicy,andflagshipinterventionssuchastheWorkProgrammeinparticular,areorientedtowardsgettingpeopleintowork,butthereisgeneralindifferenceastowhether that work matches well with skills, experience and interests. Whether individuals moveeasilyoutoflowpayingworkandupoccupationalandfinancialhierarchiesisalsodebatable, hence the interest there has been in recent policy reports on the opportunities for progression. It is also a mistake to concentrate exclusively on wage levels without consideringthewiderdimensionsoflifeonlowpay–insecurity,insufficienthours,jugglingseveraljobsatonce,childandothercaringresponsibilities,andlackofcontroloverwhenand where work is done - that also tend to be part of the package of low pay. Although someversionsoflabourmarketflexibilityareatwo-waystreet,benefittingbothemployerandemployee,thereareregularcomplaintsthatmuchofitreflectsanabsenceofchoice.

1.6. Inasfarasitispossibletodefine‘low’payobjectively,weusethreemeasuresinthisreport,eachconvertedtoanhourlyrateforeaseofcomparison:thenationallowpaythreshold; the adult rate of the national minimum wage; and the living wage. The levels of these three measures of low pay current in early 2015 are given in the following table and discussedbrieflybelow.

Low Pay Threshold National Minimum Wage (21 year olds and over) Living Wage

£7.74 £6.50 £7.85

1.7. The Low Pay Threshold:Theagreeddefinitionof‘lowpay’istwothirdsofmedianpayforallemployees.Itisimportanttostressthatlowpayisarelativemeasure:ifmedianpayfallstheleveloflowpaywillreducetoo,allotherfactorsbeingequal.Therefore,itcouldappearthat the recession has reduced the incidence of low pay, when what has actually happened isafallinearningsforallsocialgroupsfromwhichthelowpaidhavealsosuffered.Averagescanalsohaveparticularimpactsongivengeographies.Forexample,judgedbythenationalmedianLondonershavearelativelyinsignificantincidenceoflowpaybecausewages are generally higher in the capital. But if we used a London earnings median, the incidence of low pay would be much higher – in fact approximately double that compared

5 Cribb, J and Joyce, R, Earnings Since the Recession, IFS Green Budget, February 2015. This statistic uses the Annual Survey of Hours and Earnings; other data shows the same broad pattern, but falls of a lesser magnitude.


with a national median. In what follows we use the national low pay threshold rather than a regional one.

1.8. The National Minimum Wage (NMW): The NMW is another benchmark that can be used to assess low pay - this time an absolute rather than a relative one. Although it is common to see the NMW used as a measure of low pay, it was never intended to be used for this purpose.TheNMWwasintroducedin1999asalegalfloortoaddressexploitation,whilstaimingtoremainaffordableforemployersandwithoutcreatingadverseconsequencesforemploymentlevelsorcompetitiveness.Ithashadtheeffectofreducingwhatmightbecalled‘extremelowpay’(lessthanhalfthemedian),butithasnotmadesignificantin-roadsintotheproportionaffectedbylowpay.Forthisreason,theNMWishighlyunlikelyevertobe a complete answer to the problem of in-work poverty.

1.9. Before 1997, reports documented cases such as a factory worker earning £1.22 an hour, a residential home worker earning £1.66 an hour, and a chip shop worker in Birmingham whoearnedjust80panhour6. Yet there are some important nuances in using the NMW as a measure of low pay. The LPC uses a measure of ‘up to 5 pence above the NMW’ and withthisconcludesthattheproportionofthenationalworkforceaffectedbylowpayis5%(6.1%intheNorthWest).TheOfficeofNationalStatistics(ONS),meanwhile,calculates‘jobsbelowtheNationalMinimumWage’andarrivesatafigureof1.1%oftheworkforce7 - yet it insists that this estimate cannot be used to assess the scale of illegal employment practicebecauseofthepossibilitythatpeoplemayhavemorethanonejob.ThustwogovernmentorganisationsareproducingverydifferentestimatesofthescaleofthoseaffectedbytheNMWduetodifferentdefinitionsandmethodologicalapproaches.

1.10. DifferentratesoftheNMWapplyforworkersaged18-20(£3.13in2015),for16-17yearolds(£3.79)and(sinceOctober2010)forapprenticesagedbetween16and18,and19yearoldsintheirfirstyearofanapprenticeship(£2.73).Neitheroftheotherlowpaymeasuresusedinthisreportemploydifferentratesfordifferentagegroups.Thisinevitablymeansthatassessingthe‘bite’oftheNMW–howmanypeopleitaffects–ismorecomplexthanmeasuringthescaleoflowpayortheprojectedimpactofalivingwage.

1.11. The phenomenon of minimum wage employment is heavily concentrated among certain social groups. Individuals within the following groups have a higher likelihood of being on theminimumwage:youngpeople,females,part-timeemployees,temporaryemployees,thosewhohaveheldajobforlessthanayear,andthoseworkinginasmallfirmintheprivate sector. This is particularly the case for those also working in one of the ‘low paying industries’, which, according to the LPC, include hospitality, retail, social care, cleaning and agency work8. We discuss sectors in further detail below, but even a cursory glance at theselinesofworkisenoughtoknowthatmanyareexpandingandaccountforsignificantlevels of overall employment.

6MargaretBeckett,NationalMinimumWageBill,Hansard16thDecember1997,availableat:http://hansard.millbanksystems.com/commons/1997/dec/16/national-minimum-wage-bill

7OfficeforNationalStatistics,LowPay,April2014, http://www.ons.gov.uk/ons/rel/ashe/low-pay/april-2014/stb-2014-low-pay-estimates.html#tab-Low-pay-by-region

8SeeLPC,ibid,p44.Hospitalityandretailaccountfor45%ofminimumwagejobs,whilesocialcare,cleaningandemploymentagenciesfor6or7%.Justathirdofhairdressingjobsareminimumwagejobsandaquarterofjobsinhospitality.


1.12. The Living Wage:ThelivingwageisaverydifferentconcepttotheNMWbecauseitaimsexplicitly to provide enough from wages for people to make ends meet rather than what isaffordableforemployers–a‘basicbutacceptable’standardofliving.Italsotakesnoaccount of age or competence (there is no ‘apprentice living wage’). For these reasons thecaseforitisoftenadvancedinmoralterms:accordingtotheChurchofEngland,“itrepresents the basic principle that people are not commodities and that their lives cannot adaptinfinitelyinresponsetomarketpressures.”9 There are actually two living wages – one calculated by the Greater London Authority (for London) and the other by the Centre for Research in Social Policy at the University of Loughborough (for regions outside London). The rate depends on an assessment of the real costs of living. New Economy researchexaminingGreaterManchesterfoundthat21.8%ofpeoplewhoworkinGreaterManchestercouldbenefitwerethelivingwagetobeintroduced–andinsomeareastheproportionwasashighas30%10-whiletheResolutionFoundationhasfound20%of people nationally earn less than a living wage11. The concept has caught on relatively quicklyandhasreceivedbackingfromsomeprominentbusinessesaswellasbeingtakenupbysomelocalauthoritiesfortheirownstaff.Supplementingthemoralarguments,thecase for it is sometimes expressed in terms of a business case. Guy Stallard, Head of Facilities at KPMG, has argued “a living wage makes sense for business because to have anefficientandeffectiveoperation,firmsrequirestaffwhoaremotivated,rewardedandincentivised to go that extra mile in servicing customer needs.”12 However, it is notable that many of the businesses which have championed the living wage pride themselves on having ethical brands, do not operate in low wage sectors, and tend to have small numbers oflowpaidstaff13 who are typically contracted out. Some surveys suggest large numbers of local authorities have either introduced or are thinking of introducing it14. In a novel twist, theLondonBoroughofBrenthasbecomethefirsttoincentivisebusinessestopayitwiththe promise of reductions on business rates. A further distinction to bear in mind is that most people talk of the living wage as a ‘voluntary’ choice for employers, but there have been arguments made that the living wage ought to be made statutory – ie that the living wage become the new minimum wage15.

1.13. Much has been made of the extent to which working is not necessarily a route out of poverty, with an important psychological milestone in the nation’s relationship with work being passed in 2013 with more than half of those in poverty living in a household in which someone worked.16 If poverty was once associated with the absence of work, now there is a general recognition that employment is no panacea. In Greater Manchester, for example, more is paid in tax credits to families in work than out-of-work. Yet the relationship between earningsandpovertyiscomplex,withinsufficienthoursandfamilystructurealsobeingrelevant. A low paid working couple without children may earn enough to avoid poverty, as

9AsreportedontheBBCWebsite,February23,2014,seehttp://www.bbc.co.uk/news/uk-3158152410NewEconomy,RaisingFloors:EstimatingtheEffectonGreaterManchesterofThreeDifferentLowPayFloors,June2014;thisresearchused2013data.ASHEdatafrom2014suggestsahigherproportioncouldbenefit.

11 See Corlett, A. and Whittaker, M. Low Pay Britain, 2014, Resolution Foundation, 201412See,Sweeney,E,MakingWorkBetter,AnAgendaforGovernment,IndependentInquiryIntotheWorldofWork,SmithInstitute,2014,p5113AnexceptiontothiswastheannouncementbytheCoopthatitintendedtopaythelivingwage.Seehttp://www.co-operativecreditunion.coop/blog/news/2015/supporting-the-living-wage-campaign/

14AsurveybyUnisonclaims41%oflocalauthoritiesintheNorthWesthaveintroducedit.Seehttp://www.lgcplus.com/news/third-of-authorities-adopt-living-wage/5067052.article

15 See, for example, Reed, H The Economic Impact of Extending the Living Wage to All Employees in the UK, Landman Economics for Unison, October 2013

16 MacInnes, T. et al, Monitoring Poverty and Social Exclusion, Joseph Rowntree Foundation, November 2014


might a young person who lives with their parents and pools household incomes. On the otherhand,asingleearnerinadecentlypaidjobmightsufferin-workpovertyifheorshehas one or more non-working dependents. For many young people, meanwhile, a period of low-paid employment is followed by progression to better paid work. Nonetheless, one infivelow-tomiddle-incomehouseholdsarereliantonamainearnerinlow-paidwork,and one in three low-paid workers are aged 31–5017. So while low pay per se may not be the sole determinant of in-work poverty, and not all people who are low paid will always be lowpaid,itisclearlyaverysignificantcontributoryfactor,andforasubstantialnumberofpeople it can be a life-time experience. For the sake of simplicity, in this report we focus on individualmeasuresoflowpayinpreferencetodiscussingthepovertyline(60%ofmedianhousehold income, according to the European Commission).

1.14. It is worth noting in passing, however, that although the research culture of our age values measurementhighly,adefinitionisnotnecessarilythesameasameasurement.Forexample,theJosephRowntreeFoundationusesadefinitionofpovertythatcannotitselfbemeasuredwithoutfurtherexplicationandproxies.Itdefinespovertyas:“Whenaperson’sresources(mainlytheirmaterialresources)arenotsufficienttomeettheirminimumneeds(including social participation).”18Giventhatneedsandresourcesareshapednotjustbyprices, but by social norms, inevitably the understanding of poverty will change with the economiccontext.Thisisinfactwhatoccurredrecently:perceptionsofneedduringtherecession and its immediate aftermath showed that people were expected to ‘need’19 less. Assessing low pay is not an exact science. So although in this report we talk about low pay thresholds, it is important to remember that people can still be ‘low paid’ in relative and absolute terms without necessarily meeting the three measurement criteria we use here.

1.15. This report uses two principal sources to examine the scale of low pay.

• The Annual Survey of Hours and Earnings (ASHE): TheOfficeforNationalStatisticsregards the Annual Survey of Hours and Earnings as the best source of information on individualearningsintheUK.ASHEisanannualsurveyofemployeejobsbasedona1%sampleofallemployeesonHMRevenue&CustomsPay-As-You-Earn(PAYE)register and provides hourly, weekly and annual earnings measures. This information is reported by employers from their records and covers the individual’s gender, age, industry,occupation,homepostcode,workpostcodeandsizeoffirm.However,ASHEdoesnotcontaininformationonethnicity,qualificationsordisability.Thepubliclyavailabledataisfurtherlimitedwhenexaminingspecificregionaltrends;forexample,there is no regional breakdown of pay by age, so the very important issue of the earnings of young people in the North West cannot be investigated with this source. Furthermore, the ASHE does not count anybody outside the PAYE system – so the self-employed are excludedandsoaretemporaryworkerswhoarenotonofficialpayrolls;thesegroupsare likely to have sizeable volumes of people on low incomes. The ASHE data relates to income distributions rather than employees; since one person could have more than one job,identifyingproportionsaffectedbytheNMWpresentsachallenge.Becauseofsuchissues, the publicly available data on ASHE probably undercounts the scale of low pay.

17Pennycook,M&Whittaker,M(2012)LowPayBritain2012.London:ResolutionFoundation,September.18Goulden,GandD’ArcyC,ADefinitionofPoverty,JosephRowntreeFoundation,September201419 Ibid, p3


Inaddition,itrecordstheinformationinjustonemonth(April)–whichmeansitcouldbeaffectedbyseasonaltrends–andreportsitseveralmonthslater(December).Dependingontheanalysis,resultsalsohavetobeadjustedforinflationandmethodologicalchanges in data collection20.

• The Labour Force Survey (LFS): The LFS is a large household survey that is used primarilytomeasureemploymentandunemployment,butalsoasksquestionsaboutearnings.AkeypointofdifferencewithASHEisthattheLFScontainsself-reportedinformation from employees rather than employers - and it also contains information from the self-employed. The LFS earnings data is generally regarded as less reliable due toamuchsmallersamplecomparedtoASHE.Onlyoneoutoffivesurveywavesinonequarterwillaskquestionsrelatedtoearnings,withsomerespondentsansweringthesequestionswithoutreferencetopaydocumentation,meaningtheymaynotaccuratelyreport their weekly, hourly or annual pay. According to the LPC, this is likely to lead to an overestimate of people earning below and up to the NMW and low pay21. There is also a tendency to round earnings. ASHE is regarded as containing less measurement error than the LFS, but it may be less representative of the low paid in general.

• Tocompareincomesovertime,itiscommonpracticetotakeinflationintoaccounttobetter be able to compare the spending power of individuals at a given point in time. The LPC compares the impact of both the Retail Price Index (RPI) and Consumer Price Index (CPI) to establish pay trends over time. This comparison shows that both indices have similarimpactswhenusedtoadjustearningstoidentifythemostrecentspendingpowerof wages over time22.TheONSusestheCPItoreflectthechangeofpricesovertimeand with it peoples’ spending power23.Theanalysiswithinthisreportadaptstheinflationapproach of the ONS and thus uses CPI as the respective measure.

1.16. Thereportisstructuredasfollows:

• Chapter2setsthesceneforthefindingsonlowpaybyexaminingproductivity,employment trends, skills and growth sectors in the North West.

• Chapter 3 presents our analysis of the scale of low pay in the North West using the measures and datasets outlined in this introduction. It examines low pay by hours, age, gender, ethnicity, occupation and industry. It goes on to ask whether there has been a shift to low paying work in the North West.

• Chapter4discussessomeofthemainissuesaffectingproposalstoaddresslowpay

20TheCPImeasureofinflationisusedtoadjustASHEthroughoutthisreport21LowPayCommissionReport2014,https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/288847/The_National_Minimum_Wage_LPC_Report_2014.pdf,P.22and271

22LowPayCommission,LowPayCommissionReport2014,https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/288847/The_National_Minimum_Wage_LPC_Report_2014.pdf,p12and97.

23OfficeforNationalStatistics,GDPandtheLabourMarket-Q42014QuarterlyUpdate,http://www.ons.gov.uk/ons/dcp171780_395985.pdf,p.2.

Economic and Labour Market Context


2. Economic and Labour Market Context

2.1. This chapter provides context by examining some of the causes and conditions that surround low pay. In particular, we focus here on productivity, labour supply, skills, and sectoral change.

The productivity puzzle

2.2. In terms of explaining low pay, economists would typically begin their answer by pointing to productivity–thequantityofgoodsandservicesproducedperunitoffactorinput(inthiscase labour). Productivity during the recovery has been exceptionally weak and remains below its pre-recessionary level, returning more slowly than in other recoveries; growth has also been slower than in other advanced economies. The Bank of England has calculated that if the pre-recession productivity growth trend had been maintained it would have been 16%higherbythesecondquarterof201424whiletheOfficeforBudgetResponsibilitynotes that “productivity growth is the only sustainable source of real income growth in the long term”25.Thechartbelowshowsoutputremained4%belowitspeaklevelsixyearsafter the start of the recession.

Figure1: UK Productivity Levels, Output Per Worker During UK Recessions26

Source:ONS

24 Barnett,A,etal,TheUKProductivityPuzzle,BankofEngland,QuarterlyBulletin,Q2,2014,http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q201.pdf

25OfficeforBudgetResponsibility,EconomicandFiscalOutlook,December2013,p526 Chart has been indexed to 100

2008 Q1 1990 Q2 1979 Q4 1973 Q2

90

95

100

105

110

115

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Quarter after pre-recession peak


2.3. But the productivity puzzle has short-term and longer-term dimensions. The Bank of England regards the short-term explanations (labour hoarding in the recession, increased labour supply) as less powerful than longer-term ones, such as low investment in physical and intangible capital, the cost of capital and a surprisingly high rate of survival ofunproductivefirms.Asaconsequenceofthis,manyfirmsaredependingonlabourintensive production because they have few incentives to invest in new technology. Put simply, if people are cheaper than new kit, why invest?

2.4. Research by Nesta presents this situation more as a paradox than a puzzle. Even before the recession,‘good’,highproductivityfirmsweregoingoutofbusinessand‘bad’inefficientones were surviving – the exact opposite of the expected process of Schumpeterian creativedestructioninwhichefficientfirmsgainmomentumbyattractingmorelabourandcapitalinputsandinefficientfirmsarediminishedordrivenoutofthemarket.Aprojectwhichexaminedproductivitygrowthatfirmlevelbetween1998and2007foundthatwhilenewfirmshelpedjobcreation,theirproductivitycontributionwasnegligibleandveryfewevergrewbigger:outofallthenewfirmscreatedinBritainin1998,only37.5%survivedforadecadeandonly3.9%reached10ormoreemployees27. Instead, it was the incumbents thatcontributedwellover90%towardsproductivity.Yetthemysteryherewasthatfirmswithhighproductivityalsofoldedaswellaslowproductivityfirms;iftheyhadsurvived,productivity would be considerably higher. The result was that “more people [are] working inlowerproductivityfirmswithineachsector.”28Muchofthedeclineinefficiencywasconcentrated in service sectors such as the retail, wholesale, hotels and catering and post andtelecommunications.Inshort,theauthorsconclude,theUKdoesnotofferthebestenvironment for good businesses to scale up.

2.5. Afterall,injectingproductivityintoservicesectors–thesectorsonwhichmanylocalitiesarepinningtheirhopesofjobgrowthinthefuture-isadecades-oldchallenge.Thereappear to be intrinsic barriers to productivity growth in some service sectors. The classic exampleineconomicstextbooksofthisprobleminvokesmusicians:theonlywaytoincrease the output of the concert violinist is to play the concerto faster. But the same pointappliestomanyothertypesofworkthatarelesssusceptibletotheeffectsoftechnologicalenhancementorsubstitution:increasingtheproductivityofteachersishardto envisage without larger class sizes; boosting the ‘output’ of care workers would seem to point to shorter domestic visits and thus potentially declining standards of patient care. The implication is that where there are concentrations of employment in labour intensive, ‘people-facing’ service sectors, the challenge of productivity growth – and thus wage growth - is likely to be harder.

Do employers or markets set wages?

2.6. Yet while productivity has to be seen as fundamental to the ‘solution’ to making work pay more, it is a mistake to think it is the only relevant consideration – for example, bargaining powerandtheretreatoftradeunionscanaffectthedivisionsofrewards.Determining

27Bravo-Biosca,AandWestlake,S,TheOtherProductivityPuzzle:BusinessDynamismandProductivityGrowthBeforetheCrisis,Nesta,October2014

28 Ibid, p5


theappropriatelevelofaminimumwagerestsonpreciselythisquestion.Beforemovingonwiththediscussionofregionalproductivityperformanceitisworthpausingbrieflytoconsider some useful concepts from labour economics that help to illuminate pay rates and potential interventions in labour markets.

2.7. Acentralquestionhereiswhetheritismarketsoremployersthatdeterminewages.Inorthodox economics, in conditions of perfect competition and where information is freely shared, employers have to pay the market wage and employees receive a wage that is equaltotheir‘marginalproduct’.Whatthismeansisthattheemployerneedstodecidehow many employees they need to generate the right level of output and the highest level ofprofits.Themarginalproductisdefinedastheadditionalvaluecreatedbyoneadditionalemployee minus the cost of recruiting that employee (in other words the wage that is paid). The incentive for the employer to recruit the worker is if the extra output produced equatestoatleastthewagestobepaid,therebyguaranteeingaprofit.Centraltothisunderstandingisthenotionthattheemployerdoesnotdeterminewages–thatjobisdoneby the laws of supply and demand operating in a free market. If an employer pays less than the rate the market sets then the employees will look for better paid work elsewhere. But do labour markets behave in practice in the way that theory predicts that they should?

2.8. Real-world labour markets seldom have perfect competition with perfect information. Employment contracts are typically characterised by an imbalance of power, with the opportunities for employees to negotiate the terms of the exchange very limited; in general, they are expected to take it or leave it. In addition, there is an asymmetry of information. It isgenerallyeasierforanemployertorecruitworkersthanitisforworkerstofindanotherjob:theemployerknowshowmuchitcoststorecruitandtrainanemployeeandtypicallywheretofindthem.Theemployee,however,maynotbeawareofjobopportunities,evenafterspendingsomeconsiderabletimelookingforwork,andtheymayalsofinditpracticallyimpossibletomovelocationstowherenewjobsareavailable(economistssometimescallsuchissues‘frictions’).Thismeansthattheemployerhasmoreinfluenceover the level of wages than is allowed for by the conventional theory. In other words, it is employers, as well as markets, that determine the level at which wages can be paid.

2.9. The set of economic arguments that highlight the power of employers in labour markets where less than perfect competition and information prevail has come to be known as ‘monopsony’ (in Greek, ‘monos’ means single and ‘opsonia’ purchase). What the concept originally referred to was the situation where would-be sellers face only one buyer and the buyer thus has the power to determine the level of wages. The textbook example is a company town where only one employer exists and they can pay the wage they choose because workers have nowhere else to go – or a ‘many nurses and one hospital’ type scenario. Obviously, this is an unlikely situation. But a variant on monopsony of a limited number of employers colluding to set wages (oligopsony) is perhaps not so impossible to imagine. Yet the argument of some economists is that most low paying labour markets –eventhosewithmanydifferentemployers-havelargeelementsofmonopsonywhichmeanthatthelabourmarkethasinadequatecompetition.Asaresultemployershaveconsiderableinfluenceoverwages,employmentandskillsformation,andworkersface


veryconsiderablecoststochangingjobs29. In what has become a famous phrase, the high degreeofdiscretionthatemployersenjoyoverwagelevelsmeanthatwagesettingisnotaprecisemirroringofmarginalproductivity,butissubjectto‘arangeofindeterminacy’30.

Productivity Performance in the North West

2.10. The chart below presents data on productivity (as measured by GVA) since 2004. It shows productivitygoingnegativein2008andthattheregionsufferedadoublediprecessionin2010-11 – in contrast to the UK as a whole which in the end managed to escape the double dip despite widespread fears and speculation. The North West experienced a slightly less severefallinoutputthantheUKasawhole–forexample,between2008and2009,GVAintheUKfellby3.9%,butintheNorthWestbyjust1.2%.Since2011,productivityhasstabilized and since 2012 the rate of increase in the North West has outpaced the national recovery in output. Some LEP areas, such as Cumbria, have seen especially large swings in GVA.

Figure 2: % annual change in GVA, North West LEPS, North West, and UK 2004-2008

Source:GMFM,2014

2.11. Given this background, the North West’s sectoral mix is a central point of reference in trying to understand the patterns in productivity. The table below presents data on the numbersinemploymentindifferentsectorsandacalculationofGVAperheaddelivered

29SeeManning,A.,MonopsonyinMotion:ImperfectCompetitioninLabourMarkets,Princeton,200530 Card, D. and Krueger, A., Myth and Measurement. The New Economics of the Minimum Wage, Princeton (1995); see also Card, D. and Krueger,

A., Minimum Wages and Employment. A case study of the fast-food industry in New Jersey and Pennsylvania. Reply, American Economic Review 90 (2000)

Greater Manchester

Liverpool LEP

Cheshire andWarrington LEP

Lancashire LEP

Cumbria LEP

North West

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


by these sectors. The North West has employment concentrations in the public sector, in business and professional services and in retail and wholesale. The table shows that some productive sectors (such as advanced manufacturing and utilities) that are technology intensive and increasingly less labour intensive have GVA per head at a level that is almost three times as large as other sectors such as health and social care and business services thatarelesssusceptibletoreplacinghumaneffortwithtechnology.Largevolumesofemploymentinsectorswithrelativelylowproductivitywillobviouslyinfluencethewagelevelsthatthesejobscommand.Acasethatwillariseforfurtherdiscussionlateristhecontrastbetweenmanufacturingandcareandpersonalservices:jobsinmanufacturing,although sometimes low skilled and by no means well paid, are notably better paid than jobsincareandpersonalserviceseventhoughskillrequirementsandqualificationlevelsofstaffarehigherintheselattersectors.

Table 1: Employment and GVA in the North West, by sector, 2014

North West Employment, 2014

Gross value added, 2014

GVA per employee

Primary industries 60,500 £3,477,400,000 £57,477.69

Agriculture,forestryandfishing 19,300 £429,500,000 £22,253.89

Miningandquarrying 1,300 £88,600,000 £68,153.85

Utilities 39,900 £2,959,300,000 £74,167.92

Construction 164,000 £5,954,900,000 £36,310.37

Manufacturing 389,700 £24,216,000,000 £62,140.11

Advanced manufacturing 178,800 £12,016,600,000 £67,206.94

Food and drink manufacturing 57,300 £3,244,000,000 £56,614.31

Textile manufacturing 26,100 £1,320,400,000 £50,590.04

Other manufacturing 127,500 £7,635,000,000 £59,882.35

Transport and storage (including postal)

176,200 £6,157,000,000 £34,943.25

Wholesale and retail trade 584,400 £23,158,600,000 £39,627.99

Motor trades 59,500 £2,499,600,000 £42,010.08

Wholesale 160,900 £3,780,000,000 £23,492.85

Retail 364,000 £16,879,000,000 £46,370.88

Personal services 36,800 £1,305,600,000 £35,478.26

Business, financial and professional services

683,600 £32,907,500,000 £48,138.53

Business services 210,200 £5,423,700,000 £25,802.57


Employment activities 109,500 £2,765,500,000 £25,255.71

Financial services 121,800 £8,438,000,000 £69,277.50

Professional services 242,100 £16,280,300,000 £67,246.18

Cultural and creative 442,100 £12,297,500,000 £27,816.10

Creative industries 70,400 £2,286,700,000 £32,481.53

Digital 65,700 £4,341,800,000 £66,085.24

Sport 48,100 £865,000,000 £17,983.37

Tourism and culture 257,900 £4,804,000,000 £18,627.37

Science and R&D 42,200 £1,206,200,000 £28,582.94

Public sector 1,003,500 £29,810,300,000 £29,706.33

Education 311,600 £10,615,600,000 £34,068.04

Health and social care 529,100 £12,746,300,000 £24,090.53

Public administration 162,800 £6,448,400,000 £39,609.34

Total 3,583,000 £140,492,600,000 £39,210.88

Source:GMFM,2014

So is the answer ‘more skills’?

2.12. Skillsisasubjectthatisoftenlinkedtoproductivityinarathermechanisticway,withany increase in skill assumed to be a reliable spur to productivity growth, especially at ‘higher’ levels. Actually, the relationship is more ambiguous than is widely realised. A skill is a subtle concept that includes elements of an individual’s experience, their educational qualificationsandtheirpersonalcharacteristics–andproxies(typicallyqualificationoroccupation) are needed when trying to measure it. Proxies are invariably highly inexact phenomena, meaning that the elements of ‘skill’ that are susceptible to measurement attractdisproportionateattentionandthosethatarelesseasilyquantifiable,butmaybejustas, if not more, important, get routinely ignored as irrelevant. It is also worth remembering that in some low paying labour markets employers tend to recruit on ‘attitude’ or ‘motivation’ and argue that skills can often be learnt relatively easily.

2.13. Still,inasfarasitispossibletomeasureskills,qualifications(orratherqualificationlevelsbyNVQequivalence)areapopularproxy.Thestrongestevidenceoftheimpactofskillsonregional productivity is at level 4, where those regions with the higher proportions of level 4 plusworkerstendtoenjoyhigherproductivity.However,thereislittleornorelationshipatlevel 3 and even negative correlations at level 2 and below31. Elsewhere, it has been noted that while the idea of investing in skills is not without economic logic, there have been

31Oguz,S.andKnight,J.,RegionalEconomicIndicators,EconomicandLabourMarketReview,OfficeforNationalStatistics,February2011


decadesofinvestmentinskillssupplyintheUK(oratleastqualifications),butthisappearsto have had little impact on productivity, which continues to follow its historical growth path32. So how does the North West fare?

2.14. Thechartshowsthegrowthoflevel4qualificationsamongtheemployedrisingstronglyandoutstrippingthegrowthofotherqualifications.Therehasbeenparticularlystronggrowth at level 4 since 2010. All the LEP areas of the North West exhibit the same broad patterns, with minor variations. Meanwhile, there has been a decline among level two skills, whilelevel3growthhasbeenverymodestoverthedecade,butflatforthelastfewyears.Theproportionoftheworkforcewithnoqualificationshasdeclined.

Figure 3: Qualifications of employed people in the North West (thousands), 2004-2014

Source:GMFM,2014

2.15. Despitetheimpressiverecenthistoryofimprovement,theskills‘gap’withbetterqualifiedpartsoftheUKhoweverremainstobeclosed,asshowninTable2below.In2013,31%hadskillsatlevel4oraboveintheNorthWest,52%atlevel3and70%hadatleastlevel2;justunder30%wereatlevel2orbelow.ThiscompareswiththeUKasawholewhere35%havealevelfourqualification.

32 See Keep, E., Mayhew, K., and Payne, J., From Skills Revolution to Productivity Miracle – Not as Easy as it Sounds?, Oxford Review of Economic Policy, Vol 22, No 4, 2006

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

NVQ 4+

NVQ 3

NVQ 2

NVQ 1

Other

No quals

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Table 2: Skill Levels of UK Regions, 2014

Region/Country % with highest attainment at level 4+

% with highest attainment up to level 2

London 49.1 24.4

Scotland 39.4 26.3

South East 38.3 23.5

United Kingdom 35.0 27.7

South West 34.1 24.2

East 33.2 27.3

Wales 31.4 28.8

North West 31.0 29.8

East Midlands 30.1 30.3

Yorkshire and The Humber 30.0 30.5

West Midlands 28.4 33.1

North East 28.1 29.6

Northern Ireland 28.1 33.4

Source:AnnualPopulationSurvey/Nomis

2.16. Animportantquestionthatfollowsfromhavinganincreasinglywell-qualifiedworkforceis whether there has been a shift towards high skilled or low skilled work. A number of prominent reports have highlighted the issue of polarisation as economies evolve, with declining intermediate skilled work and growing numbers in high and low skilled work, part of the thinking being that the expansion of a well-educated, but time-poor workforce expand the need for a range of services involving caring, leisure and ‘lifestyle support’ at lower skill levels33. The pattern is sometimes referred to as an ‘hourglass’ shape of change andhasprofoundsocialimplicationsthathaveyettobefullydevelopedandspecified.The decline among ‘middling’ kinds of work may in theory make it harder for workers to progressuptheskillshierarchyandintohigherskilledandbetterpayingwork,effectivelyconstraining their opportunities. Is there a similar pattern evident in the North West?

2.17. The table below uses the Labour Force Survey to examine changes in the occupational structure over the period between 2004 and 2013 - in other words, over a longer time period than the years of recession and recovery. (We look at the impact of the aftermath of the recession on the industrial structure in this chapter below.) One of the important argumentsinthisreportisthatpayhasnotneatlyfollowedtrendsonskillacquisitionand

33See,forexample,ClaytonN.,Williams,M.andHowell,A.,UnequalOpportunity:HowJobsareChanginginCities,CentreforCities,September2014


we return to this point in the next chapter (see paragraph 3.27 below). For now, though, we can see some of the broad patterns of occupational change. The table uses the traditional rule-of-thumb for categorizing the skill levels of occupations; it suggests there has indeed been a decline in ‘intermediate’ or ‘medium’ skilled work – the workers who fall into the categories of the skilled trades, caring leisure and other service workers, and administrative and secretarial work. Of these, the administrative and secretarial workers and the skilled trades are driving the decrease, while caring, leisure and other service work has risen. However, while there is evidence of a declining middle of the occupational skills spectrum in the North West, we are less convinced on other aspects of the hourglass argument. Themoststrikingtrendisthathighskilledworkhasseenthestrongestgrowth–a3.3%increase overall in the data period. But low skilled work has declined, albeit by fractionally lessthanmediumskilledwork.Inshort,thehourglassmetaphordoesnotfittheevidencewell:growthatthetop,declinesinthemiddle,andsmallerdeclinesatthebottomhasbeenthe pattern.

Table 3: Occupational change in the North West, 2004-2013

SOC Code

% in 2004

% in 2013

% change 2004-13

% change Occupations 2004-13

North West total 99.9% 99.1%

Managers, directors and senior officials

1 9.3% 9.6% 0.3% High skill occupations (SOC 1,2,3)

Professional occupations 2 15.5% 18.2% 2.7%

Associate professional and technical

3 11.9% 12.2% 0.3% 3.3%

Administrative and secretarial 4 13.4% 11.7% -1.7% Medium skill occupations (SOC 4,5,6)

Skilled trades occupations 5 11.9% 10.6% -1.3%

Caring, leisure and other service 6 8.7% 9.6% 0.9% -2.1%

Sales and customer service 7 9.0% 9.0% 0.0% Low skill occupations (SOC7,8.9)

Process, plant and machine operatives

8 8.5% 6.8% -1.7%

Elementary occupations 9 11.7% 11.4% -0.3% -2.0%

Source:LabourForceSurvey


2.18. The Labour Force Survey is regarded as the best source of information on the skills of the workforcesooffersthemostreliabledata.Butwecancross-checkthesefindingsthroughtheAnnualSurveyofHoursandEarnings,albeitforaslightlydifferenttimeperiod(2002-2011). ASHE suggests very similar patterns to the LFS, but with rather more dramatic changes. Once again, high skilled work (as measured by the top three broad occupational sectors)hasrisenthefastest(by4.3%).Intermediateskilledworkhasdeclinedby-3.1%andlowskilledworkhasdeclinedby-1%intheNorthWest.BothdatasourcesconfirmthefindingthattheNorthWesthasseenamodestdeclineintheproportionsoftheworkforceundertaking low skilled work and a trend towards more high skilled work. However, as we discuss in the next chapter (see paragraph 3.39), patterns of change in occupations by skilllevelarenotnecessarilymirroredbywhathashappenedtopay:theNorthWesthasdeclining proportions in low skilled work, but not in low paid work.

Labour supply, unemployment and employment

2.19. One of obvious ways in which wages would be suppressed, especially at the lower paying end of the labour market, is if there has been an expansion of the labour supply. If there aremorepeoplewillingtoworkatanygivenwage,thereismorecompetitionforjobsand people may also attach greater priority to staying in work (because it will take longer tofindanotherjob)thanimprovingtheirpay.Sourcesofthisexpansioncouldbewelfarepolicy, migration, and changes in behaviour, such as people deciding to work for longer duetochangesinpensionageorbecausetheysuffered‘wealthshocks’.Ingeneral,labourmarket performance in the UK is regarded as one of the minor miracles of the period of therecessionandrecovery:onthepatternsetbypreviousrecessions,manymorepeopleoughttohavelosttheirjobsasoutputfell.Thusarguably,therecessionmayhavebeenpaidforwithlowerwagesratherthanthelossofjobs.

2.20. The growth of employment has risen at a faster pace than the growth of the population in the North West since 2004. The total population of the North West is lower than it was in 2011, but up on the decade. All LEP areas of the North West have seen population falls since 2011. Employment growth has been especially strong in 2014 with employment growthup4.5%on2013,whichappearstobeapositiveauguryforfuturelabourmarketperformance.34 Net migration into the region has also been falling since 2011, but this pattern is driven by an increase in international migration into the region and a movement of UK-born people out of it. Migration into the region was rising prior to the recession, but has been falling following the recession.

2.21. Unemploymentamongpeopleagedbetween16and64intheNorthWestfellto6.5%inDecember 2014, meaning 229,000 people were unemployed across the region. This was abovetheUKlevelof6.1%,butasignificantimprovementonthesamemonthin2009,whenunemploymentwas8.5%(theNorthEastofEnglandistheregionwiththehighestunemploymentrateat8%,withtheNorthWestsecondhighest).However,thenumberofpeople in employment, as well as the employment rate in the North West, have remained

34ByLEPareagrowthintotalemploymentis4.8%higherinGreaterManchester,3.6%inLiverpoolCityRegion,4.0%inCheshireandWarringtonand4.2%inCumbria


below their pre-recession and at the time of writing have some way to go until the labour market can be said to have ‘recovered’.

2.22. Unemploymentamong16-19yearoldsishigherthantheUKlevel(29.2%comparedwith25.6%),butisbroadlythesameasnationallevelsfor20and24yearolds.Similarly,theemploymentrateamong16-19yearoldsislowerthanthenationallevel(30.8%comparedwith33.6%)andisslightlybelowthenationallevelamong20-24yearolds(62.7%comparedwith63.2%nationally).

2.23. Maleandfemaleemploymenthasbehavedratherdifferentlysince2008.TheemploymentrateamongmenistwopercentagepointsbelowitslevelinSeptember2008(73%inSeptember2014comparedwith75.1%inSeptember2008).Strikingly,thefemaleemployment rate has actually increased throughout the period of the recession in the North West.

2.24. In 2014, workers in the North West had a slightly greater tendency to work full time than the restoftheUK(74.6%intheNorthWestcomparedwith74.3%intheUK),andalowerrateofpart-timework(24.8%comparedwith25.3%).35 But this is due to the division of labour between the genders in the region. Female employment in the North West is higher than thenationalnorm–60%ofwomenarefulltimecomparedwith58.1%intheUK-andareless likely to be part-time. And what is more, the proportion of females working full time in the North West has risen since 2009 while the proportion of females working part-timer has fallen (the proportions have been broadly static nationally).

2.25. By contrast, male workers in the North West were slightly more likely to be part-time in 2014thanelsewhere(11.7%comparedwith11%nationally)–andthisproportionwentashighas12.3%in2012-andtheywereslightlylesslikelytobefulltime(87.8%inthenorthwestcomparedwith88.5%intheUK).Inshort,theNorthWestisanareawherethe traditional stereotypes about working patterns are less in evidence than elsewhere in 2014. However, the lower rate of full-time work among men is unlikely to be a natural tendency:backin2009,forexample,menintheNorthWesthadahigherrateoffull-timework compared to the national average. The likely explanation is that male full-time work intheNorthWesthasbeenparticularlybadlyaffectedbytherecession,whilewomenhaveincreasingly taken on the role of being a full-time earner. Nationally, it has been argued that therisingfemaleemploymentratehasbeendriveninpartbybenefitreform36.

2.26. The chart shows the impact of the recession and recovery in the make-up of the labour market in the North West – at least temporarily. It looks at the period between March 2008andSeptember2014,indexedtozeroinordertoshowtheextentofchangesincethestartoftherecession.Mostobviously,unemploymentwas30%higherthanatthestart of the recession, but was falling at the end of the data period. Full-time employment was2%belowitslevelinMarch2008,buthadbeguntoriseagaininthethreemonthstoSeptember2014,whilepart-timeemploymentwas2%higher,buthadbeguntofall.BySeptember2014,self-employmentwasaverystriking17%upandhasgrownconsistently

35 Part-time here means fewer than 30 hours a week36 See Cribb,J. and Joyce, R. Earnings Since the Recession, in Emmerson, C., Johnson, P., and Joyce, R. (eds), The IFS Green Budget, Institute of

Fiscal Studies, February 2015


throughoutthetimeperiod,whiletemporarywork–withsomemajorfluctuations-isalso two per cent up on the level prior to the recession. In general, the pattern can be interpreted as being in line with a degree of casualization in the labour market over the period of recession and recovery. However, full-time work was increasing at the end of the period – a sign, perhaps, of the recovery of more ‘normal’ employment conditions.

Figure 4: Labour Market Change in the North West, 2008-2014

Source:AnnualPopulationSurvey/Nomis

2.27. UnemploymentontheofficialInternationalLabourOrganisationcompatiblemeasurehasfallen at a far slower rate than the Job Seekers Allowance (JSA) claimant count, underlining the point that JSA is an increasingly doubtful measure of unemployment – and especially in theNorthWestduetotheroll-outofUniversalCreditinmanyjobcentresintheregionpriorto national expansion of the scheme. Arguably, what the claimant count actually measures isthefluctuatinggenerosityofwelfareregimesratherthanthehealthofthelabourmarket.JSAhasseenverydramaticfallsof39%intheyeartoDecember2014intheNorthWestsothat94,500peoplewereclaimingJSA,comparedwithastillencouraging15.3%fallforILOunemploymentonaslightlydifferentdataperiod.Thegapbetweenthetwomeasuresraisessomeobviousquestionsaboutwhatunemployedpeoplewhodonotclaimbenefitssubsist on.

Self employed Unemployed Full-time employment

Part-time Employment Flexible Employment

Mar

08

Jun

08Se

p 08

Dec

08

Mar

09

Jun

09Se

p 09

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09

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10

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10Se

p 10

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p 13

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p 14


2.28. Figure5belowshowsthetrendsinclaimingthekeywork-relatedbenefitsfortheNorthWest for the decade between February 2004 and February 2014. Most notable is the fall inthetotalnumberofbenefitclaimantsintheregion,whichfellfrom671,980downto567,060, but which topped 700,000 in February 2010. Claimants of employment support allowance (ESA) were the most numerous in February 2014 (360,250). Welfare reform policy hasbeenorientedtoexpandingthelaboursupplywithincreasinglystringentjobsearchconditionsattachedtobenefitsclaimedbytheunemployed,peoplewithdisabilitiesandlone parents (in addition to a recent rise in the pension age among women), underscored by a regime of sanctioning37.

Figure 5: Out of work benefit claimants, 2004-2014

Source:DWP/Nomis

What are the key growth sectors since the recession?

2.29. Havingexaminedoccupationalchangeoverthepastdecadeormore,aquestionthatarisesiswhateffecttherecessionhashadintermsofthekindsofworkthatpeopleintheNorth West undertake. One way of understanding this issue is to analyse the sectors that haveexperiencedthelargestrisesinemployeejobs.

37Itisworthnotingherethatslightlyunder8%ofJSAclaimantsgetsanctionedinareassuchasGreaterManchester,whichwillleadtoareducedclaimantcount.SanctioningalsotendstobehighinjobcentresoperatingUniversalCredit,buttherelationshipisunclear.SeeNewEconomy,BenefitSanctioninginGreaterManchester,September2014

Feb

04

Aug

04

Feb

05

Aug

05

Feb

06

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06

Feb

07

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Feb

08

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08

Feb

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10

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Feb

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Feb

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Feb

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Aug

13

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14

Aug

14

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Job seeker ESA and incapacity benefits Lone parent Others on income related benefit


2.30. According to the Business Register and Employment Survey (BRES), the 15 sectors that experienced the largest growth in the four years between 2009 and 201338, broken down by hours, in the North West are shown in the table below. It is important to remember, however, that although these are the sectors that account for the largest employment growth, they are not necessarily the most important in terms of total employment in the region.

2.31. One very striking result is that the ’employment activities’ category is the largest single growth sector, adding 26,295 employees between 2009 and 2013. There are clearly some high productivity sectors – and indeed highly skilled and relatively well paid sectors - that have grown strongly through the recovery, as well (legal and accounting activities, civilengineering,professionalandscientific,managementconsultancy,architectureandengineering); growth in such sectors would be consistent with the patterns of skill formation and occupational change we observed earlier. Also noteworthy is the split between full time andpart-timework:scientificroleshaveseenaverysubstantialshifttowardsfulltimeworkand away from part-time; legal and accounting is also a sector with a preponderance of its employment growth among full timers. This pattern of growth – albeit over a relatively short period of time – arguably carries some encouraging signs for the future of the North West’s labour market as a location of high skill, high productivity employment. Alongside this growth, it is also clear that there are many sectors that are adding employment that are typically associated with lower pay, such as residential care, distribution and logistics, officesupport,salesandaccommodation.

38 BRES data is only publicly available back to 2009


Table 4: Employee Growth Sectors in the North West, 2009-201339

2009 2013 Difference Full Time Part-time

Employment activities 69,200 96,160 26,925 12,597 14,327

Legal and accounting activities 58,013 80,424 22,411 21,124 1,287

Human health activities 235,937 254,128 18,191 5,706 12,485

Wholesale trade, except of motor vehicles and motorcycles

117,623 133,630 16,007 12,089 3,918

Warehousing and support activities for transportation

42,075 53,801 11,726 9,815 1,910

Otherprofessional,scientificand technical activities

9,036 18,237 9,201 10,789 -1,588

Officeadministrative,officesupport and business support

33,084 42,103 9,019 7,404 1,615

Residential care activities 72,849 81,370 8,521 3,637 4,884

Architectural and engineering activities

41,419 49,774 8,355 7,541 814

Activitiesofheadoffices;management consultancy activities

49,418 57,509 8,091 4,314 3,776

Waste collection, treatment and disposal activities

10,608 16,969 6,361 5,550 811

Accommodation 40,256 45,300 5,044 562 4,482

Activities of membership organisations

18,022 22,988 4,966 1,839 3,126

Civil engineering 26,351 30,787 4,436 3,814 621

Postal and courier activities 28,091 31,521 3,430 3,539 -109

Source:BusinessRegisterandEmploymentSurvey/Nomis

39 A full list of growing and declining sectors by employees in the North West is available in the data annex of this report


2.32. The prominence of the employment activities category is arguably a less optimistic sign ofthehealthofthelabourmarketandislikelytoexertsomedownwardinfluenceonpaylevels40. It is worth thinking about this sector in some detail. Employment activities was the largest growth sector for the North West between 2009 and 2013, but was also the number one in two of the individual LEP areas of the North West (Greater Manchester and Liverpool City region), number two in Cheshire and Warrington, number three in Lancashire, and declined in Cumbria. Broadly, the more ‘urban’ LEP areas appear to have seen the largest rises in the employment activities workforce. The employment activities category comprises four subsectors, shown in the table below. The part of the overall sector that is responsible for the largest growth is temporary agencies, but those where the individual workers supplied to clients are employees of the agency41 rather than supplied on a ‘contract for services’ basis. In other words, they are temporary workers with ‘permanent’ contracts that in practice are unlikely to be so.

Table 5: Employment Activities in the North West by sub-sector, 2009-2013

2009 2010 2011 2012 2013 Difference

Employment activities (two digit SIC)

69,250 79,250 75,000 88,600 96,100 26,900

Motion picture, television and other theatrical casting

0 0 0 14 0 0

Activities of employment placement agencies

10,700 14,000 11,000 17,500 13 2,000

Temporary employment agency activities

58,400 64,900 63,500 69,800 80,700 22,200

Other human resources provision

50 300 500 1,300 2,600 2,500

Source:BRES/Nomis

2.33. Why has there been such strong growth in the temporary agency workforce? A reasonable interpretationofthispatternofjobcreationcouldbethatemployerslackedtheconfidencetotakeonpermanentstaffandsolookedtoagenciestofillrecruitmentneeds,pendinggrowthandmoreeconomicstability.Itisimpossibletotellfromofficialdatawhichsectorstheseemployeesendupbeingdeployedinultimately:thereisa26,000strongshadowworkforcedeployedacrosstheNorthWestthatismissingfromtheofficialindustrialrecord.However, according to the Recruitment and Employment Federation, which represents the interests of employment businesses, there is a concentration in industrial ‘blue collar’ work, manufacturing, engineering and technical trades as well secretarial and administrative

40Employeesinthisindustryhavemedianpayof£8.73–whichmakesthemrelativelylowpaid,butworkersatmanydifferentskilllevelsandfrommanydifferentoccupationscansharethesameindustry.Atthe10thpercentilepayis£6.31,atthe20th£6.50,30th£7.08and40th£7.80.

41The2007StandardIndustrialClassificationdefinesthefivedigitdetailedsubsectoroftemporaryemploymentagencyactivities(78200)thus:“This class includes the activities of supplying workers to clients’ businesses for limited periods of time to temporarily replace or supplement the workforce of the client, where the individuals provided are employees of the temporary help service unit.”


work42. A further explanation for the pattern could be changes to the way employment agenciesareregulatedthathasledmoreagenciestotakestaffontotheirbooksastheirownstaff43. The incentive for the clients of the agencies to hire through an agency, rather thanrecruitdirectly(asidefromtheobviousadvantageoflabourflexibility),isthattheyarenotobligedtoofferthemthesametermsandconditionsregardingovertime,holidaysandsickpayastheirownstaff44. This is the phenomenon sometimes described as the ‘two tier’workforce.Theincentivefortheclientmustbesufficientlycompellingasaworkforcemanagement strategy to accommodate the fees that the agencies need to charge for providing the service.

2.34. Thischapteroffersamixedeconomicbackgroundfortheanalysisofpaythatwillfollow.Onthepositiveside,robustgrowthofskillsatlevel4,agoodrecordofjobcreationinhighproductivity sectors and a growth in high skilled work all suggest some optimistic signs for wagegrowthinthefuture.Ontheotherhand,theNorthWesthasasignificantskillsgapand has, since the recession, seen moves towards casualistion in its labour market that are likely to result in widespread feelings of insecurity for many workers.

42DatasuppliedbytheRecruitmentandEmploymentConfederation,availableonrequest43 The EU Agency Workers Regulations, which came into force in October 2011, entitles agency workers to the same basic pay and conditions as comparableemployeesaftera12weekqualifyingperiod.Butthereistheoptionofsomethingcalledthe‘SwedishDerogation’,whichmeanstheyarenotentitledtoequaltreatment,aslongas(i)thisisexplainedtothem;(ii)theyhaveapermanentcontractofemployment;and(iii)arepaidbetween assignments. Zero hours contracts do not count as a derogation contract, but contracts for a small number of hours do. Provided an agency worker has this type of ‘pay between assignment’ (PBA) contract, employers are not obliged to pay them the same as their permanent staff,thoughotherrights(egholidays)aretheoreticallycovered.Thepaybetweenassignmentsmustbeeitheratleast50%ofthepayreceivedonthelastjoborthenationalminimumwagerateforthehoursworkedonthelastjob,whicheveristhegreater.DataislimitedontheuseofPBAcontracts, but a survey by BIS , which attracted only a small number of responses, suggested about a third of agencies used them and often employedsignificantnumbersofpeopleonthem,sometimesemployingpeoplethroughanintermediaryumbrellafirmoftheagencyratherthandirectly.

44 See Report of the Use of 7 Hours Mobility Worker Agreements by Prime Time Recruitment, Employment, Enterprise and Skills Select Committee, LiverpoolCityCouncil,March2014,availableathttp://councillors.liverpool.gov.uk/documents/s139836/low%20hours%20report%20final%20draft.pdf

Low Pay in the North West


3. Low Pay in the North West

3.1. This chapter examines what has happened to pay in the North West since the recession. It isorganisedinthefollowingway.Weturnfirsttolookataveragepay,andseektoanalysetheeffectthattherecessionhashad.Second,weexaminetheextentoflowpay,usingthedefinitionsoutlinedintheintroductionandseekingtopinpointaspreciselyasispossiblewhothelowpaidworkersare.Third,weconsiderthequestionofwhethertherehasbeenashifttolowpayingworkinthestructureoftheeconomy.Andfinallywelookattheissueofprogression:towhatextentareworkersabletomoveoutoflowpayingworkandintobetter paying roles?

North West wages – what effect has the recession had?

3.2. AveragepayintheNorthWestisbelowtheaverageforthecountryasawhole:thetypicalhourlywageintheregionis93.5%ofthenationalnorm;putanotherway,workersearn75pan hour less in the North West for each hour they work than workers in the UK as a whole.

3.3. Oncepayhasbeenadjustedfortheeffectofinflation,thefallinrealpaythatworkersintheNorthWesthaveexperiencedasaconsequenceofthefinancialcrisisandrecessioncanvery clearly be seen. Average hourly wages actually peaked during the recession in 2009 at £11.93,buthavesincefallento£10.86inthethirdquarterof2014.

3.4. Strikingly,averagehourlypayistodaynotjustbelowwhereitwaspriortotherecession,butbelowthelevelitwasin2002.Althoughthedifferenceisslightthisisnotthecaseforthe rest of the country, where the sense of ‘going backwards’ in material terms has not beenquiteaslongorassevere.Whathappensinthelabourmarketcanoftenlagbyanumber of years what happens to other economic indicators, but the return of ‘growth’ towardstheendof2009wasanythingbutfortheworkforce:theirwageshavebeendecreasing throughout the recovery. The chart below compares trends in average pay adjustedforCPIinflationbetween2002and2014.Itsuggeststherecessionhascompletelywiped out the advances in living standards experienced by employees in the North West generated in the early years of the 21st century.


Figure 6: Average hourly pay, North West and UK, 2002-2014

Source:ASHE2014,adjustedforCPIinflation

3.5. The table below compares average pay in the UK and in the North West, showing hourly payaswellasweeklypay.Thetablealsoshowsfiguresforthemean–totalofvaluesdivided by number of values - as well as the median (median earnings refer to the earnings of someone earning more than half of employees and less than the other half). It is therefore a useful measure of ‘average’ earnings because it is not sensitive to changes at the extremesofthedistribution,whichcaninfluencethemean.Finally,thetableshowshoursworked (at the mean and median), which links the hourly and weekly earnings measures. IntheNorthWest,medianweeklypayfellbetween2008and2014by13%,whichisfractionallylessthanthecomparableUKfigure(13.3%).Toputthatasanannualfigure,itamountstoalossof£3,068.37forthetypicalworkerintheNorthWestbetween2008and2014.

£9.50

£10.00

£10.50

£11.00

£11.50

£12.00

£12.50

£13.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

NW UK

Period of recession = Q2 2008-Q3 2009


Table 6: Mean and Median Pay, North West and UK, 2002-2014

NORTH WEST Average Annual Change

Real Weekly Earnings

2002 2008 2014

2002to2008 2008to2014

Weekly Earnings (£)

Mean £484.90 £537.18 £467.40 1.8% -2.2%

Median £412.85 £453.81 £394.80 1.7% -2.2%

Total Hours Worked (basic)

Mean 32.9 32.6 32.2 -0.2% -0.2%

Median 37.0 37.0 36.9 0.0% 0.0%

Hourly Wages (£)

Mean £14.06 £15.81 £14.05 2.1% -1.9%

Median £10.98 £12.25 £10.86 1.9% -1.9%

UK Average Annual Change

Real Weekly Earnings

2002 2008 2014

2002to2008 2008to2014

Weekly Earnings (£)

Mean £525.28 £578.51 £501.00 1.7% -2.2%

Median £435.79 £475.32 £417.90 1.5% -2.0%

Total Hours Worked (basic)

Mean 33.0 32.6 32.1 -0.2% -0.2%

Median 37.0 37.0 36.9 0.0% 0.0%

Hourly Wages (£)

Mean £15.23 £17.04 £15.11 2.0% -1.9%

Median £11.57 £12.98 £11.61 2.0% -1.8%

Source:ASHE2014,adjustedforCPIinflation

3.6. TheNorthWestis,ofcourse,anareawithsignificantvariationinearningslevels.WhiletheoverallmedianfortheNorthWestwas£10.86inthethirdquarterof2004,bylocalauthoritymedianpayratesvariedfrom£14.44inthewealthiestareasdownto£8.88inthelowestpaying areas. The table below shows the areas of the North West with the highest and the


lowest median pay rates. The table gives an indication of where the concentrations of low paid work are in the North West.

Table 7: Median Pay by Local Authority in the North West, 2014

Local Authority 2014 Local Authority 2014

1 Copeland £14.44 20 Pendle £10.68

2 Trafford £13.26 21 Manchester £10.66

3 Ribble Valley £12.72 22 Rochdale £10.65

4 Warrington £12.29 23 Barrow-in-Furness £10.62

5 Fylde £12.24 24 Halton £10.60

6 West Lancashire £11.94 25 St. Helens £10.57

7 Stockport £11.77 26 Allerdale £10.51

8 Cheshire East £11.66 27 Salford £10.50

9 Bury £11.63 28 Burnley £10.46

United Kingdom £11.61 29 Bolton £10.43

10 Cheshire West and Chester £11.60 30 Knowsley £10.24

11 Wirral £11.40 31 Oldham £10.12

12 Wyre £11.35 32 Carlisle £10.00

13 Chorley £11.11 33 Tameside £10.00

14 Sefton £11.04 34 Blackburn with Darwen £9.88

15 South Ribble £10.92 35 Hyndburn £9.74

North West £10.86 36 Preston £9.74

16 Liverpool £10.83 37 Rossendale £9.69

17 Wigan £10.76 38 Eden £9.15

18 South Lakeland £10.74 39 Blackpool £8.88

19 Lancaster £10.71

Source:ASHE2014,unadjusted


How have the lowest paid workers fared?

3.7. Figure6belowshowsthatifCPIinflationistakenintoaccount,payforthe10%oflowestpayingjobshasfallenbyaslightlylowerpercentagethantheaveragesince2009(7.91%comparedwith9%forthemedianacrosstheNorthWest),probablyduetotherelativedegreeofprotectionaffordedbytheNMW.Butthe51pperhourfallcomparing2014with2009 is likely to have been harder for the low paid to absorb than other types of workers with severe impacts on family and personal budgets. Working for less as the years go by is harder on a below average income.

3.8. It is noteworthy that the gap between the NMW and the 10th percentile (ie. the hourly wage at10%ofthepaydistribution–thelowestpointthattheASHEcaptures)hasnarrowedoverthecourseoftherecovery.In2014,thebottom10%ofjobspaidexactlythesameastheadultrateoftheNMW(£6.50),whereasin2003,thebottom10%earnedwellover50pmorethanthelegalpayflooronceinflationistakenintoaccount.Ineffectoneimportantandunder-reportedimpactoftherecoveryhasbeentoshiftthelowestpaid10%towardstheminimumwage.Thereisnowverysignificantclusteringofpayratesaroundthelevelofthelegalpayfloor,leadingtothephenomenonwherebylowpayhascometobeunderstood less in terms of a ‘low pay threshold’ and more in terms of the absolute legal minimumpayrate.In2003,therewasa9%differencebetweentheNMWandtheearningsofthebottom10%.Whileithasfluctuatedslightlyintheyearssince,in2014thehourlyearnings of the bottom decile of earnings was exactly the same as the adult NMW. Thus the‘bite’oftheNMWisnowrathermoresubstantialthanitusedtobeandhasbenefitedthe lowest paid workers in the labour market more than prior to the recession. However, thelegalpayfloorwasneverintendedtobecomethe‘goingrate’forsomanylowpaidworkers.


Figure 7: Relationship Between Low Pay and the Median in the North West, 2003-2014Source:

ASHEadjustedforCPIinflation

3.9. To provide regional context, the chart below shows the scale of low pay in the North West as well as in other broadly comparable regions45 in the Midlands and North of England. To enable a longer view than could be obtained from a single year’s statistics, LFS data for the years2008-2014hasbeenmerged.Itrevealsthat24.15%ofemployeesintheNorthWestearn wages below the low pay threshold of two thirds of median earnings. This is above the UKaverage(21.3%),butslightlylowerthanotherregions.SouthYorkshireistheregionwiththelargestproportionofpeoplewhoarelowpaidonthisdefinition(27.1%)andTyneandWearhasoveraquarter(25.4%)ofitslabourforcewhoearnbelowthethreshold46.

45TheregionsthatareusedherearethegovernmentofficeregionsintheLFS46ThisshowsthatwhenadifferentdefinitionoflowpayisappliedtotheLFSdata–namelyincomespayinglessthantwothirdsofthenational

average–adifferentpictureoflowpayemerges.TheLowPayCommission’sdefinitionoflowpayas‘peopleearningupto5pencemorethanthe NMW’ puts the North East at the top of such a ranking, followed by the North West.

National Minimum Wage 10 percentile

Medium gross hourly pay Low Pay (2/3 of Median Pay)

20 percentile

£5.50

£6.00

£7.50

£8.50

£9.50

£10.50

£11.50

£12.50

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Figure 8: % of Workers Below National Low Pay Threshold in Selected UK regions

Source:LFS

3.10. Thefindingthatjustunderaquarteroftheworkforceislowpaidcanalsobeverifiedagainst the estimates contained in ASHE. Caution needs to be exercised here because thefiguresforjobnumberscontainedinASHEaredifferentfromotherdesignatedofficialnational statistics (for example BRES). Nevertheless, according to ASHE, an estimate of 24%ofjobsintheNorthWestpayuptoorbelowthe£7.74lowpaythreshold.Thusbothofthe data sources used in this report strongly reinforce the conclusion that slightly less than aquarterofthejobsintheNorthWestpaylessthanthelowpaythresholdoftwothirdsofthe median (£7.74 in 2014).

3.11. The2014levelofthelivingwage(£7.85)isslightlyabovethelowpaythreshold.AccordingtotheASHEgrosshourlypayatthe25thpercentileintheNorthWestin2014was£7.83.Therefore,asabroadestimate,itisalsopossibletosaythatapproximatelyaquarterofjobsintheNorthWestearnlessthanthelivingwage.Expressedasanestimateofthenumberofjobsaffected,thismeansthatapproximately650,000jobsearnlessthantheliving wage in the North West.

3.12. Itisstrikingthataboutaquarteroftheworkforceearneduptoorbelowtheleveloftheliving wage in the North West in 2014. Even more startling is the sharp rise in the number whoseincomehasfallenbelowalivingwagesince2011.In2014theproportionwas25%.Butgobackafewshortyearsandjust16%earnedbelowthelevelofthelivingwage.Thissuggests that rather than those who are earning the very lowest pay rates (earning at or very close to the NMW), those whose economic position has been most worsened by the recession are really earners between the 15th and 25th percentiles of the pay distribution. IntheNorthWest,thisgrouphasgrownveryquickly–by9%between2011and2014.Thiscompareswitha7%increasenationally(from15%ofjobsupto22%).Thechartbelowshowstheproportionsofjobswhichpaylessthanthelivingwagebetween2011(thefirstyear the living wage was calculated) and 2014 both in the North West and UK.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

UK London Tyne& Wear

SouthYorks

WestYorks

West MidsMet County

NorthWest


Figure 9: Trends in the Proportions of Jobs Paying up to the Living Wage, 2011-2014.

Source:ASHE,2014

3.13. Estimatinghowmanyjobspaybelowourthirdpayfloor,theNMW,istechnicallymoredifficultthaneitherthelowpaythresholdorthelivingwagebecauseoftheyoungperson’sand apprentice rates; as we shall see shortly, most young workers are low paid and caution isrequiredwhenitcomestoassessingtheimpactofpayfloors.Becausepaydataisnotpubliclyavailablefordifferentagesbyregion,wecandonomoreherethanestimatetherough proportions in scope of the NMW adult rate. This means that the results are likely tooverestimatetheproportionaffectedbytheNMWbecauseitcountsyoungpeopleasearning below the minimum wage when they may be getting the appropriate NMW for their age.Notwithstandingthesecaveats,weestimateslightlyunder10%ofthejobsintheNorth West pay the NMW or below.

2011 2012 2013 201414%

16%

18%

20%

22%

24%

26%

£6.80

£7.00

£7.20

£7.40

£7.60

£7.80

£8.00£7.85

£7.20

16%

25%

22%

15%

Proportion earning up to the NMW - North WestProportion earning up to the NMW - NationalNational Minimum Wage (not accounting for inflation)


Figure 10: Proportions of Jobs Earning up to the National Minimum Wage (all ages), 2003-2014

Source:ASHE,2014

3.14. Averyimportantquestionistheextenttowhichtheexperienceoftherecessionhasworsened the position of the low paid in society. As we saw, in absolute monetary terms it clearlyhas:onceinflationisaccountedfor,the10thpercentileearned51panhourlessin2014 than they did in 2009. But what about in relative terms? The chart below compares inflationadjustedgrosshourlypayatthe10thand25thpercentileswiththelowpaythreshold. It shows that wages did worsen for people both at the very bottom and for the bottomquarterofthewagedistributionintheperiodbetween2009-2011,inrelationtothe low pay threshold; since then, the gap between them has returned to approximately thesamelevelasin2003forjobsatthe25thpercentileofearnings.However,forjobsatthe10thpercentile,thedifferencebetweentheirpositionandthelowpaythresholddoes appear to have narrowed, albeit modestly. In 2014, the 10th percentile earned £1.24 beneath the low pay threshold; a decade earlier, there was a typical gap of around £1.40 anhour.Thisfindingwouldseemtosupporttheconclusionthattheverybottomofthedistributionhasbeenrelativelyprotectedfromtheworsteffectsoftherecession,butworkers at the 25th percentile – who still earn what most people would call low wages – sawasharpfallintheirrelativepositionfollowedbyagradualreturntothestatusquoante.Inotherwords,thelowpaidsufferedalongwitheveryoneelse,butthelowestpaidsufferedabitlessinrelativeterms.Itisthusdifficulttosupporttheargumentthat‘thepoorhavegotpoorer’ in relative terms.

Proportion earning up to the NMW - North WestProportion earning up to the NMW - NationalNational Minimum Wage (not accounting for inflation)

7.5

7.0

6.5

8.0

8.5

9.0

9.5

10.0

10.5

£4.00

£4.50

£5.00

£5.50

£6.00

£6.50

£7.00

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Figure 11: Relationship Between Low Paid Workers and the Low Pay Threshold, 2003-2014

Source:ASHE,adjustedforCPIinflation

3.15. However, while the lowest paid workers have not experienced greater falls than others, what is noticeable is that they appear to be getting more numerous, albeit with considerableannualfluctuations.Asnotedpreviously,cautionisnecessarywiththeASHEjobnumberdata,butthetrendofagrowingnumberofjobswhichpayatorbelowthe25thpercentileisapparent.Table8belowpresentsASHEestimatesofgrosshourlypayatthe25thand20thpercentile,alongwithestimatesofthenumberofjobs.Comparing2014figuresonthenumbersofjobsearninguptothe25thpercentilewithdatafrom2003showsthattherehasbeena10.87%rise.In2014thesejobspaidpeoplelessthanthelivingwage.

10 percentile (£) Low pay threshold (2/3 of Median Pay) (£)

25 percentile (£)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

7.5

7.0

6.5

6.0

8.0

8.5

9.0


Table 8: Numbers of jobs estimated up to the 25th Percentile, 2003-2014

North West Low Pay (2/3 of Median Pay)

20 percentile 25 percentile Number of Jobs estimated up to the 25th percentile

2003 £7.90 7.53 8.02 589,000

2004 £8.06 7.61 8.16 582,250

2005 £8.16 7.69 8.31 626,250

2006 £8.27 7.82 8.38 633,750

2007 £8.34 7.95 8.56 642,000

2008 £8.35 7.92 8.52 651,000

2009 £8.49 8.03 8.59 640,250

2010 £8.30 7.83 8.40 641,000

2011 £7.95 7.49 7.99 652,000

2012 £7.83 7.48 7.99 643,000

2013 £7.84 7.41 7.91 642,500

2014 £7.74 7.35 7.83 653,250

Source:ASHEadjustedforCPIinflation

The concentration of low pay among women

3.16. Womenaremorelikelytobelowpaidthanmen.Examininginflationadjustedmedianpay for men and women in the North West shows that the gender pay gap has been consistently above £2 an hour in gross hourly pay – and in 2009 the gap was almost £3. The gap at the bottom of the pay distribution tends to be narrower where the legal pay floorservestomakepaymoreequal;ineffect,thenationalminimumwagehasnotonlyserved to address extreme low pay, but has also served the separate but related policy goal of reducing the gender pay gap. But even so, a self-evident gap still remains. At the 10th percentile of the distribution, women eared £6.40 an hour in 2014, whereas men earned £6.80.Andatthemedian,menintheNorthWestearned£11.96in2014andwomenearned£9.89.


Table 9: Median Gross Hourly Pay in the North West by gender, 2009-2014

Male (NW) Female (NW)

Differencein Pay (NW)

Male (UK) Female (UK)

Differencein Pay (UK)

2002 £12.96 £9.22 41% £13.48 £9.78 38%

2003 £13.13 £9.68 36% £13.70 £10.17 35%

2004 £13.44 £9.80 37% £13.92 £10.41 34%

2005 £13.34 £10.28 30% £13.96 £10.69 31%

2006 £13.46 £10.35 30% £14.09 £10.86 30%

2007 £13.56 £10.51 29% £14.16 £10.98 29%

2008 £13.57 £10.39 31% £14.25 £10.97 30%

2009 £13.60 £10.62 28% £14.43 £11.18 29%

2010 £13.10 £10.58 24% £13.94 £11.07 26%

2011 £12.20 £10.10 21% £13.38 £10.61 26%

2012 £12.23 £9.97 23% £13.11 £10.47 25%

2013 £12.22 £9.99 22% £13.16 £10.48 26%

2014 £11.96 £9.89 21% £12.92 £10.37 25%


3.17. The years of recession and recovery have seen a continuation of the narrowing gender pay gap. However, this does not appear to be the result of women catching up with male earnings as men levelling down to women. Although women earn less than men, it appears to have been men who have seen the sharpest falls in their earnings over the period – and this is particularly the case for men in the North West. Comparing 2009 with 2014, male median gross hourly pay in the North West has fallen by £1.64 compared with £1.51 in the UK. In the early period of the recovery, men’s pay fell steeply before stabilising. Women, meanwhile, whose pay was already lower, have seen drops of 73p in the North West and 81pintheUKbetween2009and2014.Thechartbelowshowsthepatternsince2002.


Figure 12: Difference in Hourly Pay for Men and Women, 2002-2014

ASHE,adjustedforCPIinflation

3.18. Examining the regional picture in greater detail on gender pay, the ASHE shows that the North West has a less pronounced gender pay gap than other regions. In 2014, the North Westhadapaygapofjustover20%,butthisplacestheregiontowardsthebottomofthepay gap table. Eastern areas of England – both in the south and in the north, but with the important exception of London – appear to have the most extreme gaps in the pay of men and women, at least according to the ASHE.

Male (NW) Female (NW) Male (UK) Female (UK)

£9.00

£10.00

£11.00

£12.00

£13.00

£14.00

£15.00

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Table 10: Hourly Pay by region in 2014

Hourly Pay by Region and Gender (accounted for CPI inflation)

Male Female DifferenceinPay

South East £14.74 £11.24 31.14%

East £13.6 £10.4 30.77%

North East £12.21 £9.66 26.40%

East Midlands £12.08 £9.58 26.10%

South West £12.4 £9.85 25.89%

Yorkshire and The Humber

£11.85 £9.5 24.74%

United Kingdom £12.92 £10.37 24.59%

West Midlands £12 £9.65 24.35%

Scotland £12.92 £10.58 22.12%

Wales £11.98 £9.85 21.62%

North West £11.96 £9.89 20.93%

London £15.44 £13.61 13.45%

Northern Ireland £10.72 £9.57 12.02%


3.19. However,turningtolookattheLFSpresentsaslightlydifferentsetoffindings.Thegenderpaygapoverallisemphaticallyconfirmed:womenundertakelowpaidworktoafargreaterextentthanmeninallregions.IntheUKasawhole,morethanaquarterofwomenarelowpaid(26.4%),whileformenthefigureis16.4%.AndintheNorthWest,29.2%ofwomenearnbelowthelowpaythresholdwhileformenthefigureis19.2%.SouthYorkshireappears to be the extreme case, here, with over a third of the female workforce in low paid work(33.6%).However,theNorthWesthasalargerpaygapthanwassuggestedbyASHE– in line with the national average.


Figure 13: Incidence of Low Paid Work by Gender (selected regions), 2008-2014


The part-time work penalty

3.20. Ofcourse,manywomenworkpart-timeandthelackofhighqualitypart-timeworkintheUKlabourmarketisasignificantexplanationbothfortheincidenceoflowpayandforthe gender pay gap – a problem that is exacerbated by expensive and patchy childcare support.Aswesawinchapter2,someofthetrendsinworkingpatternsofferimportantcontextforstudyinglowpay.Mensufferedlargefallsintheiremploymentintherecessionand many appear to have moved back into work in a part-time capacity, driving part-time work up among men and full-time work lower. However, women have not seen such dramatic shifts, with the trend towards more women taking full-time work in the North West continuing broadly uninterrupted; more women may also have increased their hours after theirpartnerslosttheirjobsorcuttheirhours.Sohowcloseisthelinkbetweenpart-timework and low pay?

3.21. The LFS decisively shows that part-time work and low pay go together. The chart shows thatintheUKasawholemorethan40%ofpart-timeworkfallsbelowthelowpaythresholdandintheNorthWestthefigureisabove45%.Forfulltimers,therateoflowpaidworkis17.3%comparedwith14.7%intheUKasawhole.AgainitisSouthYorkshirethattheLFSpinpointsasacentreoflowpaidpart-timeworkwith48.1%ofemployeeswhowork part time saying their income is beneath the low pay threshold.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

40.0

35.0

UK London(Nationallow pay)

Tyne& Wear

SouthYorks

WestYorks

West MidsMet County

NorthWest

Male (%) Female (%)


Figure 14: Incidence of Low Pay Among Part-time and Full-time Workers in Selected Regions, 2008-2014

Source:LFS

3.22. TheASHEdataconfirmsthisfinding.Itsuggeststhat45.6%ofpart-timersearnlessthanthelowpaythreshold,whileastartling47%earnlessthanthelivingwage.Intermsofjobs,this implies an estimated 351,560 part-timers earn less than the living wage in the North West.

3.23. Interestingly, however, the traditional gender stereotypes are confounded when considering whether male or female part-timers earn more. It is generally women part-timers who earn morethanmen–oratleastwiththeexceptionoftheveryworstpayingjobsinthelabourmarket(itisthesameformaleandfemaleparttimersatthe10thpercentile:£6.31)orinthebestpayingtypesofpart-timework(maleparttimersbegintoearnmorebeyond75%of the pay distribution). Between the 20th percentile and the 75th, women make more per hour from part-time work. So although there are fewer men working part-time in the North West than women, those who do are often earning low rates of pay that are typically lower than women 47. In other words, there is a reverse gender pay gap among part-timers. This is the opposite of the situation among full-timers where men earn more across the pay range; the gender pay gap increases the further up the pay distribution that one goes.

3.24. Regarding the gap between full timers and part timers in terms of average hourly pay, according to ASHE, the North West is ‘mid-table’ and below the level that is typical for the country as a whole. Average median gross hourly pay for part-timers in the North West was £7.99 and for full timers £12.30 in 2014. However, the decade to 2014 has seen some narrowing of the gap between the median pay of full-timers and part-timers, as if there is some ‘catch-up’ taking place. In 2002, full timers typically earned £5.09 more per hour than part-timers. In the years to 2014, this has reduced steadily. In 2014 median pay for full timers was £4.31 per hour more than that of part-timers.

47Itisworthremembering,however,thattherateofpart-timeworkamongmenintheNorthWestisslightlyabovethatoftheUK(11.7%comparedwith11%in2014)

0

10

20

30

40

50

60

Full-time Part-time


Tyne& Wear

SouthYorks

WestYorks

West MidsMet County

NorthWest


Table 11: Hourly Pay Among Full time and Part-timers in UK Regions, 2014

REGIONS 2014

Hourly Pay by Full and Part Time and Regions

Full Time Part Time Pay Difference

London £16.13 £9.07 78%

East £13.70 £8.39 63%

South East £14.47 £8.94 62%

United Kingdom £13.15 £8.35 57%

North East £12.14 £7.87 54%

North West £12.30 £7.99 54%

East Midlands £12.10 £8.00 51%

Scotland £13.17 £8.72 51%

Wales £12.10 £8.03 51%

Yorkshire and The Humber £11.92 £7.98 49%

South West £12.47 £8.35 49%

West Midlands £12.07 £8.18 48%

Northern Ireland £11.39 £7.95 43%

Source:ASHE2014

3.25. As with the gender gap, it is the pay of full-timers that has ‘levelled down’ rather than the payofpart-timersthathas‘levelledup’.Thetablebelowshowstheinflationadjustedmedians for full and part-timers and reveals that part-time pay – although clearly lower than beforetherecession-hasnotsufferedtheextentofthefallsoffull-timehourlypay.


Figure 15: Part-time and Full-time Pay, 2006-2014 (£)


Young workers are much more likely to be low paid

3.26. Young people are far more likely than other types of workers to be low paid. In fact, most workersundertheageof24earnbelowthelowpaythreshold,accordingtotheLFS:lowpaid work is the norm. Young workers are the group for whom there are the most obvious spikesinlowpayasthechartbelowshows.IntheUKasawhole,thewagesof53%of16-24yearoldsfallbelowthelowpaythreshold.FortheNorthWest,theproportionis58%.The age cohort with the next highest incidence of low pay are those between the ages of 55-64. The age group with the lowest incidence of low pay are people between the ages of 35 and 44.

Full time Part time

7.50

13.50

14.50

12.50

11.50

8.50

9.50

10.50

13.61

8.62

12.30

7.99

13.19

8.38

2006 2007 2008 2009 2010 2011 2012 2013 2014


Figure 16: Proportion falling below the low pay threshold by age, 2008-2014


3.27. Only national level data is available on the ASHE broken down by age. Figure 17 below showstheproportionofjobsbyagepayingtheNMWorbelow.Toproducethechartan assumption has been made that there is a linear increase of earnings between the percentileswhichmightnotnecessarilyreflecttherealityofwagedistributions.Thus,thechart below paints a broad picture of earning trends for young workers – North West wages areingeneralslightlybelownationallevels-butdoesnotreflecttheexactproportionsofjobsduetodatarestrictions.Nevertheless,thechartillustratesthatyoungpeopleareparticularlyaffectedbypaybelowandthattheyhavebeenimpactedmorethanotherlowpaidworkersbyeffectsoftherecession.


Tyne& Wear

SouthYorks

WestYorks

West MidsMet County

All North West

16‐24 24‐34 35‐44 45‐54 55‐64

0

10

20

30

40

50

60

70


Figure 17: Proportion of Jobs Earning up to the NMW by Age, 2008-2014

Ethnicity

3.28. In the UK as a whole, the gap between the incidence of low pay between workers from an ethnic minority background and those from a non-BME background is a reality, but is relatively modest – at 3 percentage points (pp). However, in many other regions, the concentration of low pay among ethnic minority workers is much higher. Outside London andtheWestMidlands,otherregionsoftheUKhavemorethan10ppdifferencebetweenthe incidence of workers from an ethnic minority background and workers from a non-BME background falling below the low pay threshold. This is the case in the North West too.Some35.9%ofworkersfromanethnicminoritybackgroundearnbelowthelowpaythreshold;thiscompareswith23.5%fromanon-BMEbackground.YorkshireandTyneandWear have the greatest gap between the incidence of low pay between workers from an ethnic minority background and workers from a non-BME background at 13 pp.

8.9

9.1

9.3

9.5

9.7

9.9

10.1

10.3

16 - 17 years old 18-21 years old 22 years old and over

2008 2009 2010 2011 2012 2013 2014


Figure 18: Incidence of Low Pay among BME and non BME Workers 2008-2014


The low pay occupations

3.29. It is possible to identify the ‘low paying occupations’ relatively easily. By broad occupational group – using one digit SOC codes48 – low pay is generally concentrated in threeoccupationalgroups:salesandcustomerservice;caring,leisureandotherserviceworkers;andelementaryoccupations.Lowpayisoftenlinkedtojobsthatinvolveselling,labouring and looking after others. From a North West perspective, it appears that sales andcustomerservicejobsareparticularlylowpaidwith55.3%ofthepeoplewhoworkintheseoccupationalareasfallingbelowthelowpaythreshold–afindingweconfirmbelow,using our other data source, the ASHE. By contrast, caring and leisure occupations are in line with national norms. The chart below shows the occupations most likely to fall below the low pay threshold.

48 Note about SOC codes here

UK London(Nationalthreshold)

Tyne& Wear

SouthYorks

WestYorks

West MidsMet County

North West

0

5

10

15

20

25

30

40

35

Non - BME BME)


Figure 19: Occupations Paying Below the Low Pay Threshold by One Digit SOC code, 2008-2014


3.30. However, a familiar criticism of these broad categories is that they tend to obscure more than they illuminate about the nature of the work involved. In order to get more detail about the lines of work that make up these categories, and the kinds of skills they involve we need to understand something of the structure of occupations. For the purposes of what follows we divide occupations into three groups by their median pay rates on the ASHE. The table below shows pay rates by occupation, giving an indication of where the occupational hotspots of low pay are concentrated. For example, among elementary occupations, even at the 60th percentile of the wage distribution, pay is below the low paythreshold(£7.74);inotherwords,evenwell-paidlabouringjobsarelowpaid.Thepinkshaded areas of the table are the occupations with the highest incidence of low pay.

• High pay occupations:‘managers,directorsandseniorofficials’(SOC1;medianhourlypayin2014intheNorthWest:£16.84);‘professionaloccupations’(SOC2;medianhourlypay:£18.49);and‘associateprofessionalandtechnicaloccupations’(SOC3;medianhourlypay:£14.25).

• Medium pay occupations: ‘administrative and secretarial occupations (SOC 4; median hourlypay:£9.86);‘skilledtradesoccupations’(SOC5;medianhourlypay:£10.86);and‘process,plantandmachineoperatives’(SOC8;medianhourlypay:£9.67).

• Low pay occupations: ‘caring, leisure and other service occupations’ (SOC 6; median hourlypay:£8.16);‘salesandcustomerserviceoccupations’(SOC7;medianhourlypay:£7.24);and‘elementaryoccupations’(SOC9;medianhourlypay:£7.07).

010203040506070

Man

ager

s

Prof

essi

onal

Occ

upat

ions

Asso

ciat

e Pr

ofes

sion

alO

ccup

atio

ns

Adm

inis

trativ

e an

dSe

cret

aria

l Occ

upat

ions

Sale

s, C

usto

mer

Serv

ice

Occ

upat

ion s

Skille

d Tr

ades

Car

ing,

Lei

sure

Occ

upat

ions

Proc

ess,

Pla

nt a

ndM

achi

ne O

pera

tors

Elem

enta

ryO

ccup

atio

ns

UK London (National low pay threshold)Tyne & Wear South YorksWest Yorks West Mids Met CountyNorth West


Table 12: Wage Levels of Broad Occupational Groups, 2014

Description Soc Code

Number of jobs (thousnds)

Median Percentiles

10 20 25 30 40 60 70 75 80 90

North West total

2,633 10.84 6.50 7.32 7.80 8.34 9.55 12.63 14.86 16.37 18.05 23.11

Managers, directors and seniorofficials

1 212 16.84 8.00 10.07 11.44 12.46 14.49 20.24 23.49 25.62 28.74 37.47

Professional occupations

2 533 18.49 11.78 13.80 14.51 15.35 17.02 20.61 22.28 23.72 25.34 30.74

Associate professional and technical occupations

3 356 14.25 8.66 10.23 10.94 11.57 12.91 15.62 17.41 18.46 19.74 23.83

Administrative and secretarial occupations

4 332 9.86 7.14 7.97 8.32 8.66 9.24 10.46 11.34 11.97 12.81 15.09

Skilled trades occupations

5 201 10.86 7.00 7.89 8.34 8.99 9.95 11.85 13.01 13.70 14.55 17.65

North West, Caring, leisure and other service occupations

6 255 8.16 6.41 6.75 6.98 7.22 7.63 8.75 9.51 9.96 10.50 12.20

Sales and customer service occupations

7 250 7.24 6.31 6.37 6.50 6.60 6.93 7.82 8.64 9.13 9.65 11.44

Process, plant and machine operatives

8 163 9.67 6.71 7.50 7.91 8.24 8.98 10.52 11.43 11.89 12.89 16.11

Elementary occupations

9 332 7.07 6.26 6.31 6.32 6.43 6.68 7.55 8.24 8.66 9.27 10.83

High pay occupationsMedium pay occuapationsLow pay occupationsHourlypaybelowlowpaythreshhold(£7.74/hour)CooefficientofVariation>5%,i.e.datanotrebust

Source:ASHE,unadjustedforinflation


3.31. It is important to note that this grouping relates to pay levels and not to skill levels. Although oftenconflatedsothatahighskilloccupationisassumedtobeahighpayoccupation,this does not necessarily follow at all skill levels. Some occupational groups fall into the medium pay bracket, but have relatively low skill levels - for example the process, plant and machineoperativesoccupations.Andconversely,othersrequireskillsinexcessofwhatmight be expected for their pay – for example, the caring and leisure occupations sector. Put crudely, these workers could be said to be under or over-paid, if our criterion is skill level. The problem of underpayment appears to be particularly strong in the caring and leisuresectorandweexaminethissectorfirst.

Low Pay Sector I: Caring and Leisure Occupations49

3.32. Researchers seem divided about how to categorise the caring and leisure occupations. Some place them in the lower skills band; but others locate them in a more ‘middling’ position on the skills spectrum50. Yet people who work in these areas are numerically significant–representingjustunder10%ofthelabourforceoftheNorthWestandoneinthreelowpaidworkers.Howtheyarecategorisedcanprofoundlyaffecttheunderstandingoflocaleconomies.Althoughtheyareclearlylowpaid,wewouldarguethesejobsarenot necessarily low skilled, and we would prefer to categorise them as medium skilled occupations. There are three principal reasons for this.

3.33. First,whenassessingformaleducationalrequirementsforemploymentinthecareandleisureoccupations,manyrequireminimumentrylevel2qualifications,aswellastrainingprogressiontowardsalevel3qualificationwhilstonthejobs(forexample,teachingassistants51, nursery nurses52, veterinary nurses53 or dental nurses54. Second,asmightbeexpectedforagroupofoccupationswiththeseentryrequirements,overall educational attainment levels of workers in these occupations suggests relatively highlevelsofqualification.Asthetablebelowmakesclear55nearlytwothirdsor64.5%of the employees in caring, leisure and other service occupations (SOC code 6) are either educatedtodegreelevel,holdotherhighereducationqualificationsorhavealevel3equivalentqualification(13.4%degreeorequivalent,11.3%highereducation,39.8%level3).Thiscontrastsstronglywithprocess,plantandmachineoperatives(SOCcode8),whereonlyoneinfour(27.4%)holdlevel3orabovequalifications.Comparedwithothermedium pay occupations, carers and leisure workers exhibit a higher proportion of Level 3 orabovequalificationsthantheadministrativeandsecretarialworkers(SOCcode4).Oneshould bear in mind though, that there are relatively fewer employees than in the secretarial andadministrativegroupwhoareeducatedtodegreelevel(alevel6qualification),asthemajorityofcarersandleisureworkersholdLevel3and4qualifications.

49 A full list of all the occupations in SOC Code 6 Caring, Leisure and Other Service occupations, please see the data annex – annex II50Contrast,forexample,Holmes(2014):WhyistheDeclineofRoutineJobsAcrossEuropesoUneven?SKOPEIssuesPaper33andIPPR,

Employee Progression in European Labour Markets, IPPR 201551NationalcareerService(2015):https://nationalcareersservice.direct.gov.uk/advice/planning/jobprofiles/Pages/teachingassistant.aspx52NationalCareersService(2015):https://nationalcareersservice.direct.gov.uk/advice/planning/jobprofiles/Pages/nurseryworker.aspx53NationalCareersService(2015):https://nationalcareersservice.direct.gov.uk/advice/planning/jobprofiles/Pages/veterinarynurse.aspx54NationalCareersServicehttps://nationalcareersservice.direct.gov.uk/advice/planning/jobprofiles/Pages/dentalnurse.aspx55ONS(2014):QuarterlyLabourForceSurvey,July-September,2014


Table 13: Highest qualification by broad occupational group, 2014

Highest qualification (detailed grouping)

Degree or equivalent

Higher education

GCE, A-level or equivalent

GCSE grades A*-C or equivalent

Other qualifications

No qualification

Did not know

1 'Managers, Directors And SeniorOfficials'

34.8% 13.8% 23.0% 18.3% 6.2% 2.9% 1.0%

2 'Professional Occupations'

72.2% 12.6% 8.7% 4.9% 1.1% 0.1% 0.3%

3 'Associate Professional And Technical Occupations'

39.2% 12.7% 22.5% 19.9% 2.9% 1.4% 1.3%

4 Administrative And Secretarial Occupations'

21.0% 8.1% 27.3% 35.3% 4.9% 1.9% 1.5%

5 'Skilled Trades Occupations'

4.9% 6.6% 46.5% 24.1% 8.6% 8.0% 1.1%

6 'Caring, Lisure And Other Service Occupations'

13.4% 11.3% 39.8% 24.0% 7.6% 3.3% 0.5%

7 'Sales And Customer Service Occupations'

13.7% 4.4% 29.7% 32.7% 8.4% 8.6% 2.5%

8'Process,Plant And Machine Operatives'

5.9% 4.4% 17.1% 33.2% 25.7% 11.4% 2.4%

9 'Elementary Occupations'

8.1% 3.3% 23.9% 31.4% 17.1% 15.8% 0.5%

Total 28.7% 9.1% 25.1% 22.8% 7.9% 5.2% 1.1%

Source:ONS/L§FS

Third,andamorequalitativeargument,duetothenatureofcareandleisureoccupations,therelationshipbetweenworkinputsandoutputsisnotasfixed,limitedandmechanicasmay be the case for activities commonly related to low skill work; there are very few ‘if then do’ type rules when it comes to dealing with people. While holding a level 6 (educated to degreelevel)engineeringdegreewillprobablynotleadtoasignificantlydifferentoutputforanassemblylineworker,thismightbedifferentforateachingassistantwithlevel6qualifications,whoseroleentailssupportingthesocialandcognitivedevelopmentofchildren, often working with a group of students who struggle to follow the class. Higher levels of skills will – on an aggregate level – enable an employee working in a setting with


some degree of autonomy, to perform better, while in many low skill occupations the extent to which this can be realised can be considered to be of very limited in scope.

3.34. Leisure and care occupations are also the occupational grouping with the highest proportionofwomen.Some81.7%ofemployeesinthesectorintheNorthWestarefemale(thiscompareswith9.3%oftheskilledtradeworkersofSOCcode5,whoareonaveragelower skilled, but better paid). Additionally, almost half of the workers in care and leisure occupationsworkers(46.6%)arepart-timeemployees.Whatismore,onlyoneinsix(7.8%)oftheparttimeemployeesinthesectorstatedthatpart-timeworkwasinvoluntary,as they were not able to secure a full-time position. One of the reasons could be that the employees in the caring and leisure sector are among the most likely of all the occupational groupstohavedependentchildrenyoungerthan19.Around47%havechildren,comparedtotheaverageof42%acrossallemployees56.

3.35. However, while it seems more appropriate to allocate the caring and leisure occupational group to the medium skills grouping, the sector is clearly low paid (if not the lowest paid). While median pay for employees in caring and leisure occupations is above the low pay thresholdof£7.74perhour,morethan40%oftheworkforceearnslessthanthislevel.Thisclearly sets it apart from both the skilled trades occupations and the administrative and secretarial occupations – where the 20th percentile earns more than the low pay threshold – as well as the process plant and machine operatives, where this is the case for the 30th percentile.

Low Pay Sector II: Sales and Customer Service Occupations

3.36. The median hourly wage for employees in the sales and customer service occupations (SOC:7)intheNorthWestis£7.24–inotherwordsbelowthelowpaythresholdatthemedian.Salesoccupationsearnmuchless:£6.98.Thismakesthemthelowestofalltheoccupations on a two digit SOC code basis. For workers in customer service occupations, meanwhile, the median is £9.20. The 90th percentile of sales and customer service occupationworkers–meaning90%employeesinthissectorareremuneratedless–earnless than UK overall median pay.

3.37. Lowpayinthisoccupationmightbeexacerbatedbythefactthatalmosthalf(48.8%)oftheemployeesinthissectorintheNorthWestworkparttime–12.6%involuntarily,meaningmore than one in four part time employees would like to work more, but do not because theycannotfindajobwithmorehours.

56 The details about the skill levels of occupations are derived from the LFS


Low Pay Sector III: Elementary Occupations

3.38. Almosthalf(49.9%)ofelementaryoccupationemploymentisparttime(comparedto74.1%ofallemployeesintheNorthWest),and14.9%ofallemployeesaresoinvoluntary.This means, almost one in three employees in these occupations would like to work full time but cannot do so, due to a lack of labour market demand for full time positions in this occupational group.

3.39. The large share of part-time employment is a particular feature of the low pay sector, not in evidence either among medium pay or high pay occupations. Apart from secretarial occupations–where30.6%workparttime–allothernon-lowpayoccupationsrecordaparttimeshareof17%(forprofessionals)orlower.Whilesomeparttimeworkmightbevoluntary,andofferanadditionalincometothosewhocannotorwouldnotliketoworkfulltime,thegroupofoccupationslooksto,thisappeartobeasignificantissueamongtheelementaryoccupations:workerswhocouldbeseentobemostinneedofworkingfulltimedue to their low hourly wage are at the same time the least likely to achieve this due to the relative dominance of part-time work in their sector.

So which are the lowest paying occupations in the North West?

3.40. The table below provides an overview of all 17 lowest paid occupations in the North West, onathreeandfourdigitSOCcodelevel,whicharepaidbelowthelivingwageof£7.85per hour. The occupations which employ fewer than 10,000 workers were excluded as well as those, who only employ part-time workers (e.g. school crossing guards) or where there were data limitations due to low sample size. When assessing the data in this chart, one should bear in mind that the median is the pay that the 50th percentile earns – half oftheemployeesearnlessthanthehourlywagestated.Whilethemajorityofthelist’soccupations are contained in the three broad low pay sectors mentioned above, some are from skilled trades occupations (e.g. cooks and chefs) which on an aggregate level are regarded as medium pay occupations. What seems to stand out in terms of the concentrationoflowpayisthepub/barandrestaurantindustry.Thethreeworstpaidoccupations as well as the worst paid medium pay occupations – aforementioned cooks and chefs – are employed in this sector.


Figure 20: Occupations with a median hourly wage below the living wage , 201457

Source:ONS,LabourForceSurvey

Changes in the occupational structure over time in the North West

3.41. Having looked at the low pay occupations in greater detail, we can now return to the discussion about the evolution of the occupational structure begun in chapter 2 (see 2.15 above). This found that when analysed by skill level, there has been a growth in the top three ‘high skill’ groups of occupations, decline in the medium occupations and decline in the lower skilled occupations. But does this pattern also apply to pay? Using the group of occupations into high, medium and low paying occupations we outlined earlier, the table belowfindstherehasbeenanincreaseinhighpayingemployment,adecreaseinmedium

57 Chart includes employees aged below 21 years old

£6.31

£6.31

£6.46

£6.47

£6.49

£6.73

£6.74

£6.76

£6.77

£6.87

£6.92

£7.23

£7.35

£7.40

£7.60

£7.62

£7.84

£6.00 £6.20 £6.40 £6.60 £6.80 £7.00 £7.20 £7.40 £7.60 £7.80 £8.00

Waiters and waitresses

Bar staff

Kitchen and catering assistants

Launderers, dry cleaners and pressers

Elementary administration occupations n.e.c.

Nursery nurses and assistants Cleaners and

domestics Sales and

retail assistants Elementary cleaning

occupations Sales assistants and

retail cashiers Retail cashiers and

check-out operators Elementary security

occupations Packers, bottlers,

canners and fillers

Cooks

Chefs

Care workers and home carers

Elementary process plant occupations

Median hourly wage

Over 21 National Minimum Wage

Living Wage: £7.85


paying and a much smaller rise in low paying occupations. As well as the degree of change, itisalsoworthnotingtheproportionsofemploymentinthedifferentgroups–30%ofthelabour force is in occupations associated with low pay, slightly less with medium pay, and 40%withhighpay.

Table 14: Employment change by pay levels, 2004-201358

North West 2004 2007 2013 % point change 2004-13

%Highpayemployment 36.7 38.2 40.0 3.3

%Mediumpayemployment 33.8 32.3 29.1 -4.7

%Lowpayemployment 29.4 29.2 30.0 0.6

Sum (missing values due to rounding and sample size)

99.9 99.7 99.1 -0.8

Source:ONS,LabourForceSurvey

3.42. Over the last 20 years, the North West has witnessed a decline in the share of middle wage occupations at the expense of both high pay employment occupational groups as well as low pay occupations. While high wage occupations have increased their share by 3.3 percentage points from 2004 to 2013, the share of low pay employment has risen by 0.6 percentage points. This is contrasted by the decline of 4.7 percentage points in medium pay employment. To reiterate, this does not mean that the share of people earning a low wage has risen by 0.6 percentage points but rather that the share of people working in occupations in which a disproportionate share of people earning low wage has risen. From this data, we cannot make any inferences about the development of wages of individuals. In addition, one should bear in mind that the changes reported above relate to the share of employment,nottheactualnumberofjobsinthedifferentoccupationalpaysegments.

3.43. Puttingthisinformationalongsidetheearlierfindingsaboutskilllevelrevealsthathighskill work and high pay work have expanded to the same extent. However, medium paid occupations have decreased by substantially more than occupations involving medium skilled work. And low paid occupationns has increased, while employment in low skilled workhasdecreasedinrelativeterms.Whatthismeans,inshort,is,first,thatitconfirmslow paying occupations are indeed growing (albeit not as powerfully as high paying occupations); and, second, that skill levels in the bottom half of the labour market do not precisely determine pay levels. The implication is that additional skill inputs for some occupationalgroupsmaynotsignificantlyhelptoraisepaylevels.

58 Data for each individual LEP area is available in the data annexe


Figure 21: Change in occupations, by pay and skill, 2004-2013


3.44. Theconsequencesofthedecliningmiddleoftheoccupationalpayspectrummaybeparticularly important for the notion of progression from low paid work. Some sectors, such as retail and wholesale, have large numbers of roles in low skilled and low paid work with few opportunities to move up into supervisory or managerial work. Progression within retail may therefore be inherently less likely than in other sectors. Depending on the sectoral mix of a region or nation, the share of the economy that is accounted for by these kinds of sectorswillaffecttheoccupationalstructure.Inarecentreport59, the IPPR postulates that the decline in the share of medium skill occupations, potentially poses a risk for employee progression. The typical pattern of workers – advancing from a low skill (and in most cases low paid) position into a medium skill (and mostly paid) position – becomes unviable, as few manage to leapfrog medium skill occupations into a high skill occupation. While between 2004-2011around15%ofUKworkersinlowskilloccupationswereabletoprogresstoamiddleskillsoccupation,only5%managedtoprogressintoahighskilljob.Thedeclineinmanufacturing is also related to the ‘hollowing out’ of intermediate skilled and paid work60. Many of the medium pay occupations are associated with the manufacturing sector – SOC 5(Skilledtrades)andSOC8(Process,plantandmachineoperatives)–whichrepresentedaround17.5%ofemploymentintheNorthWest61in2013–downfrom20.3%in2004.Thisrepresentsadeclineof13.3%inthenumberofjobsinthesetwooccupationalgroupingsin2013 compared to 1997.

3.45. Finally, it is worth touching on the industries that are most likely to generate low pay. We have concentrated in this chapter on occupations – in preference to focusing on industries. The reason for this is that industries typically have highly varied pay rates within them – afterall,thechiefexecutiveandtheofficejuniorshareanindustry-whereasoccupations

59Thompson,S.andHatfield,I.,EmployeeProgressioninEuropeanLabourMarkets,IPPR,201560 See Centre for Cities, ibid, 2014, p1261ONS(2014):AnnualPopulationSurvey

3.3%

3.3%

-4.7%

-2.1%

0.6%

-2.0%

-6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

High pay occupations (SOC 1,2,3)

High skill occupations (SOC 1,2,3)

Medium pay occupations (SOC 4,5,8)

Medium skill occupations (SOC 4,5,6)

Low pay occupations (SOC 6,7,9)

Low skill occupations (SOC 7,8.9)


tendtobemorespecific.However,itispossibletogainsomeinsightintotheindustriesthatpay the least from the ASHE. The table below shows the 15 lowest paying industries in the NorthWestandanestimateofthenumbersofjobsthatfallbelowthelowpaythreshold.Consistent with the data previously on occupations, people who work in bars and pubs seemtobeattheverybottomthelowpayleaguewiththevastmajoritybeinglowpaid.However care workers and agency workers are also prominent in the list.

Table 15: Estimate of Jobs Below Low Pay Threshold by Industry, North West, 2014

Industry % jobs below threshold

Food and beverage service activities 76

Accommodation and food service activities 72

Accommodation 60

Gambling and betting activities 58

Retail trade, except of motor vehicles and motorcycles 53

Services to buildings and landscape activities 53

Residential care activities 53

Other personal service activities 49

Security and investigation activities 48

Sports activities and amusement and recreation activities 44

Wholesale and retail trade; repaid of motor vehicles and motorcycles 43

Social work activities without accommodation 43

Arts, entertainment and recreation 43

Employment activities 39

Administrative and support service activities 37

Source:ASHE,2014

3.46. Although the very lowest paid in the North West have been somewhat protected from the worsteffectsoftherecessionbytheNMW,thischapterhasshownwhatveryprofoundeffectstherecessionhashadonincomelevels.Averagepayislowerthanin2008.Rathermorenoteworthy,though,isthatitislowerthanin2002.Therecessionhaseffectivelywiped out more than a decade of improving living standards. There have been particularly debilitatingeffectsonmen,whohavelostfulltimeworkandtakenlargerpaycuts.Women,meanwhile, are doing more full-time work and their part-time work generally appears to pay better than men’s part-time work (though female part-timers vastly outnumber men). Family budgets are likely to have been under strain and family life likely to have seen some abruptchanges.Thereisnoperfectdefinitionofwhatbeing‘lowpaid’actuallymeans;butifpersuadedbythedefinitionswehaveadopted,approximatelyaquarterofthe


workforcefitsthebill(fallsbelowthelivingwage).Lowpayisclearlyconcentratedamongyoungpeople;mostare‘lowpaid’onthedefinitionsweusehere.Howevertheextenttowhichthisisaproblemrequiringsomekindofpolicyinterventionremainstobeseen.Lowpaidworkcanbeagatewayoraculdesacandadjudicatingthebalancerequiresfurtherresearch. Low pay is heavily concentrated in certain broad occupational groups – sales and customer service, elementary work, and care and leisure. Tempting as it is to believe theseconcentrationsreflectskill,theevidencesuggestsitisnotsosimple.Sometypesofpeople-facing,interactionalworkincare,learningsupportandleisureappeartorequireintermediate skills, but remain relatively low paying. The underlying conditions and business modelsthatinformpayindifferentsectorsalsoneedcarefulanalysiswhencontemplatingpolicy responses.

Potential Routes to Addressing Low Pay


4. Potential Routes to Addressing Low Pay

4.1. If there is such a thing as a national business model, Britain has one that generates a lot of lowpayingwork.IntheNorthWestapproximatelyaquarterofjobspaylessthanalivingwage. This proportion has been exacerbated by the recession; yet the very lowest paid (those who earn at or close to the NMW) have not seen their income deteriorate more than othersasaresultdueinparttotheprotectionofferedbythelegalpayfloor.Thereismuchmoretotheissueofin-workpovertythanhourlypayalone:risinglivingcosts,inadequatehours,insecurity,skillsdeficienciesandpooruseofskillsarealsorelevant.Inwhatfollowswe sketch some possible avenues for how government – local, national and regional – may opt to respond to low pay in the future.

Pay Floors

4.2. The NMW may be set to rise more sharply in the near future. Spurred by evidence of employment growth, including in low paying sectors, in February 2015, the Low Pay CommissionrecommendedtheadultrateoftheNMWshouldriseby3%to£6.70anhourfrom October 2015. If the government accepts this recommendation (history suggests it will),itwillrepresentthelargestreal-termsincreaseintheNMWsince2007,benefitingabout1.4millionjobsnationally62. The Conservative Party also said in its manifesto for the May2015electionthatitwishedtoseeaNMWof£8anhourbytheendofthedecade,implyingatypicalincreaseintheNMWof26pforthenextfiveyears–significantlylargerthantherecentnorm.Thisrestorationofthe‘bite’oftheNMWmeansthelegalpayfloorwillbeworthjustunder55%ofmedianearnings(itisworth80%ofthemedianinlowpayingsectors).ThestrategyofliftingthepayfloorinrelationtothemedianissimilartothatusedincountriessuchasFranceandNewZealand(atargetof60%ofthemedianhasbeensuggested63).Obviously,whilehelpingmanypeople,thiswillnotmakesignificantinroadsintotheproportionwhoarelowpaidonthetwothirdsofthemediandefinition.

4.3. Some reports have argued local authorities should introduce local or regional minimum wages, as do some states of the US as a supplement to the federal minimum64. The Scottish government has also expressed a wish to determine the level of the NMW in Scotland.Buttherearedifficultargumentstosquarebeforethissuggestiongainsgreatertraction.First,regionalorlocalpayfloorscouldunderminetheconceptofanationalpayfloorwhichiseasytounderstandandcommunicate,eventhoughenforcementisnotalways straightforward. Second, it is hard to imagine how there could not be distorting boundaryeffectswithregionalpayfloors;localauthoritiesmaytrytoundercutrivalsbyattractingbusinesseswith‘competitive’wagerates.Andifenforcinganationalpayflooris

62SeeLPCPressRelease,23rdFebruary2015,https://www.gov.uk/government/news/low-pay-commission-recommends-3-increase-in-the-national-minimum-wage-to-670

63Manning,A.,MinimumWage:MaximumImpact,ResolutionFoundation,April201264SeeCityGrowthCommission,HumanCapitals:DrivingUKMetroGrowthThroughWorkforceInvestment,July2014


patchy when administered by a relatively powerful national bureaucracy (HMRC), enforcing regionalpayfloorsinasmallcountrywithlesswell-knownandresourcedagenciesisunlikely to be easier.

4.4. Encouraging more employers to pay the living wage is a further possible avenue – one advocated by increasing numbers of local authorities. Previous New Economy research into a possible Manchester Living Wage found that a living wage “is likely to have a positive impact on wages for some of the lowest paid, with negligible negative economic impacts”65. It argued that as well as raising incomes, local authorities also needed to reduce living coststhroughexpandinghousebuildingandtransportschemesthatbenefitedthelowestearnersandopenedmoreopportunitiesforworkfurtherafield.Thereportfound:“Theimpact of Manchester adopting a living wage policy to address low pay is, in isolation, not likelytobesufficientortargetedenoughtodealwiththeacutechallengesfacedbymanyatthe bottom end of the earnings scale. It is also likely to fall short of raising annual incomes sufficiently,andfailstotackleon-goingrisesincostsfacingthelowestpaid.”Oneoftheattractionsofalivingwageisthatthereisafiscalandeconomiccaseforit,aswellasthefinancialandpsychologicalbenefitstoindividualsderivedfromadditional(earned)income.One report estimated public spending savings from a living wage could be £3.6 billion66 due to additional taxes and tax credit savings. Economic theory implies there is a point at whichpayfloorswouldcauseunemployment,principallyinlowpayingsectors.ResearchundertakenbytheResolutionFoundationandIPPRhasputthejoblossesnationallyat160,000,werealivingwagetobeintroducedwithimmediateeffect–arelativelysmallnumber, but by no means trivial67.Furthermore,recentresearchonwagefloorshassuggested that “the minimum wage will impact employment over time through changes in growth rather than an immediate drop in relative employment levels.”68 Yet one of the difficultiesofassessingtheimpactisthatalivingwagemayinduceemployerstorevisetheir business models and boost their productivity, thus making such estimates fragile. In addition,dependingonthespecificationofthefiscalmultiplierusedforcalculations,alivingwagecouldalsohaveawidereconomicstimuluseffect,boostingdemandandgrowth,reducingearningsinequalityandincreasingtheshareofwagesinnationalincome69.

Progression

4.5. Theinadequacyofpayfloorsasastandaloneresponsetolowpayhasencouragedgreater interest both in how people can move to better paid work and also progress within organisations70.Skillsisthetraditionalanswertothesequestions.However,thelimitsoftraditionalskillspolicytoaddresslowpaythroughadditionalqualificationsarebecomingmorewidelyunderstood:eventhegovernment’sownskillsbody,theUKCES,saystheskills problem “lies mainly on the demand side”, while the research presented in this report suggests there are sectors that pay relatively low wages even while relatively high skills are

65Holden,J.,Raikes,L.,:PayUp?LivingCostsandtheLivingWageinManchester,NewEconomyWorkingPaper,009,NewEconomy,July201266Lawton,K,.Pennycock,M.,BeyondtheBottomLine:TheChallengesandOpportunitiesofaLivingWage,ResolutionFoundation/IPPR,January

201367ResolutionFoundation/IPPR,ibid68Meer,J,andWest,J.,EffectsoftheminimumWageonemploymentDynamics,NBERWorkingPaper,No.19262,August,201369 This argument has been made by Reed, H., op cit, 201370 According to the Resolution Foundation, three in four people who were in low paid work in 2001 were still low paid a decade later. See Escape Plan:WhoProgressesfromLowPayandWhoGetsStuck,ResolutionFoundation,2014


the norm. One possibility here, advocated by organisations such as The Centre for Cities, is greater use of business support and ‘career ladders’71. ‘Career ladders’ are schemes thataimtocreateprogressionpathswithinorganisationsorsectorsasemployeesacquireskills,experience,qualificationsandresponsibility.InBoston,forexample,apublic-private partnership scheme for patient care technicians in hospitals, a relatively low level job,aimedtoenablethemtomoveupthroughgradedpositionswhichofferedincreasingresponsibility with the hospital providing tuition and time to study. Yet a review of the scheme stressed that the reason this was seen as successful was that it relied on a clear incentive for the employer because of the urgent need to stabilise a high churn workforce beset by expensive labour turnover; without this clear incentive, the scheme would have been less successful72. Elsewhere in its report, the Centre for Cities cites examples of industrial partnerships where employers and public sector organisations collectively pool resources to train workforces, ideally around an agreed set of economic priorities. The challenge, however, is engaging employers in collaborative ventures around skills; the oldindustrytrainingorganisationsandemployergroupshavesufferedadegreeof‘de-collectivization’ over the course of the last few generations ever since industrial policy has fallen from favour.

4.6. GreaterdevolutiontoEnglishcitiesandcityregionsraisesthequestionofhowskillpoliciescanbeconfiguredtobetterenableprogression.Improvingaccesstotrainingand progression opportunities is an obvious way that cities can support local growth. NIACE, an organisation that promotes adult skills, has advocated the creation of a National Advancement Service, targeted at people who receive tax credits but who are in work, by ring-fencing half the budget of the National Careers Service (a key argument is that resources are too focused on the most disadvantaged – the out-of-work – but ignore those who working on a low income)73. This, according to NIACE, could be run on the basis of a prime provider operating out of each LEP area. The service would be aimed at people whowouldbenefitfromprogressionsupport,butmaynotrecognizetheadvantages–the‘hidden demand’ for learning.

Business Support and Demand-oriented Policy

4.7. Business support is a further potentially fruitful area for improving skills demand. Initiatives here include increasing the links between employers, individuals, universities and learning providers in a bid to drive up the demand for skills. In one bold international example, between 1996 and 2010 the Finnish government funded workplace development programmesthatinvolvedexpertsadvisingemployersonboostingproductivityandjobqualitythroughjobdesignandworkorganisation74. The Scottish government in particular hasshowninterestoveranumberofyearsinunderstandinghowdifferentsectorsuseskills.

4.8. Proposals that seek to address productivity by boosting demand for skills are inevitably

71SeeCentreforCities,UnequalOpportunity,opcit,201472Osterman,P.,JobQuality:PoliciesAimedattheDemandSideoftheLow-WageLabourMarket,UpjohnInstituteforEmploymentResearch,200873NIACE,NoLimits:fromGettingBytoGettingOn,policySolutionsIssue,February201574 Keep, E.,Opening the Black Box – Increasing the Importance of a Public Policy Focus on What Happens in the Workplace, Skills in Focus, Skills

Development Scotland, April 2013


difficultintheUKcontext.Acommonreactionwhentalkturnstohowpolicymakerscanintervene‘insidethefirm’todriveupthedemandforskillsisthattheyhave‘noleverstopull’ on product or service market strategies. This is not completely true. Governments cananddoshapefirmbehavior–forexample,throughlevies,licencetopracticearrangements(forexample,insistingontheneedforaqualificationbeforeanindividualcanwork),procurementspecificationandgovernmentsponsoredprogrammes.Thereisalso persuasion and research. In some industries, such as energy, government regulates toincreaseefficiency;elsewhere,itsetsstandardsinhealthandsafety;occasionallyitbacksgradingcriteria,suchasinthefoodanddrinksector.Thereisalsoanofficiallybacked programme aimed at improving the management of people and skills demand - the Investors in People programme - which was introduced in 1991. Taken together, such measureshaveatleastthepotentialtoaffectthedemandforskills75. Yet the intricacies of thisapproach,thepossiblerisksofhighdeadweightcostsandtheuncertaineffectonpaylevels, may mean demand-oriented policy positions have greater potency to speak to the issues of low pay when coupled with policies such as the living wage.

4.9. Low pay remains a multi-faceted issue that is generating considerable insightful research and analysis. However, policies which address its underlying causes, as well as its immediate symptoms, remain a public policy challenge, not least at regional level.

75 Ashton,D., and Sung,J., Product Market Strategies and Skills Utilisation, Skills in Focus, Skills Development Scotland, July 2011

Data Annex


5. Data Annex

Annexe 1

Occupational Change in North West, UK and North West LEPs between 2004 and 2014

North West 2004 2007 2013 % point change 2004-13

%Highpayemployment 36.7 38.2 40.0 3.3

%Mediumpayemployment 33.8 32.3 29.1 -4.7

%Lowpayemployment 29.4 29.2 30.0 0.6

Sum 99.9 99.7 99.1 -0.8

North West 2004 2007 % point change 2004-07

2013 % point change 2004-13

% point change 2007-13

(Oct) 2014




%Highpayemployment

36.7 38.2 1.5 40.0 3.3 1.8 40.7 1.5 2.5 4.0

%Mediumpayemployment

33.8 32.3 -1.5 29.1 -4.7 -3.2 28.9 -1.5 -3.4 -4.9

%Lowpayemployment

29.4 29.2 -0.2 30.0 0.6 0.8 29.4 -0.2 0.2 0.0

Sum 99.9 99.7 -0.2 99.1 -0.8 -0.6 99.0 -0.2 -0.7 -0.9

UK 2004 2007 % point change 2004-07



(Oct) 2014




%Highpayemployment

39.4 41.1 1.7 43.7 4.3 2.6 44.1 1.7 3.0 4.7


32.7 31.0 -1.7 27.8 -4.9 -3.2 27.7 -1.7 -3.3 -5.0

%Lowpayemployment

27.5 27.5 0.0 27.7 0.2 0.2 27.6 0.0 0.1 0.1

Sum 99.6 99.6 0.0 99.2 -0.4 -0.4 99.4 0.0 -0.2 -0.2


Greater Manchester

2004 2007 % point change 2004-07



(Oct) 2014




%Highpayemployment

36.4 38.8 2.4 41.2 4.8 2.4 40.9 2.4 2.1 4.5


33.7 31.8 -1.9 27.6 -6.1 -4.2 27.2 -1.9 -4.6 -6.5

%Lowpayemployment

29.6 29.2 -0.4 30.3 0.7 1.1 30.8 -0.4 1.6 1.2

Sum 99.7 99.8 0.1 99.1 -0.6 -0.7 98.9 0.1 -0.9 -0.8

Cheshire & Warrington

2004 2007 % point change 2004-07



(Oct) 2014




%Highpayemployment

43.4 42.7 -0.7 46.4 3.0 3.7 46.6 -0.7 3.9 3.2


28.8 29.7 0.9 26.8 -2.0 -2.9 27.4 0.9 -2.3 -1.4

%Lowpayemployment

27.4 27.3 -0.1 26.3 -1.1 -1.0 25.4 -0.1 -1.9 -2.0

Sum 99.6 99.7 0.1 99.5 -0.1 -0.2 99.4 0.1 -0.3 -0.2

Cumbria 2004 2007 % point change 2004-07



(Oct) 2014




%Highpayemployment

32.7 34.4 1.7 38.4 5.7 4.0 35.5 1.7 1.1 2.8


35.4 37.6 2.2 33.0 -2.4 -4.6 33.8 2.2 -3.8 -1.6

%Lowpayemployment

31.3 27.6 -3.7 28.3 -3.0 0.7 30.3 -3.7 2.7 -1.0

Sum 99.4 99.6 0.2 99.7 0.3 0.1 99.6 0.2 0.0 0.2


Lancashire 2004 2007 % point change 2004-07



(Oct) 2014




%Highpayemployment

36.4 37.3 0.9 37.3 0.9 0.0 39.5 0.9 2.2 3.1


35.2 34.4 -0.8 31.2 -4.0 -3.2 30.6 -0.8 -3.8 -4.6

%Lowpayemployment

28.2 28.1 -0.1 30.8 2.6 2.7 28.9 -0.1 0.8 0.7

Sum 99.8 99.8 0.0 99.3 -0.5 -0.5 99.0 0.0 -0.8 -0.8

Liverpool City Region

2004 2007 % point change 2004-07



(Oct) 2014




%Highpayemployment

34.2 36.1 1.9 37.3 3.1 1.2 39.3 1.9 3.2 5.1


34.7 30.9 -3.8 30.3 -4.4 -0.6 29.9 -3.8 -1.0 -4.8

%Lowpayemployment

30.8 32.6 1.8 31.5 0.7 -1.1 29.9 1.8 -2.7 -0.9

Sum 99.7 99.6 -0.1 99.1 -0.6 -0.5 99.1 -0.1 -0.5 -0.6

AllSources:LabourForceSurvey


Annex II

Detailed Breakdown of SOC 6 – Caring, Leisure and Other Service Occupations

6 CARING, LEISURE AND OTHER SERVICE OCCUPATIONS

61 CARING PERSONAL SERVICE OCCUPATIONS612 Childcare and Related Personal Services6121 Nursery nurses and assistants6122 Childminders and related occupations6123 Playworkers6125 Teaching assistants6126 Educational support assistants613 Animal Care and Control Services6131 Veterinary nurses6132Pestcontrolofficers6139 Animal care services occupations n.e.c.614 Caring Personal Services6141 Nursing auxiliaries and assistants6142Ambulancestaff(excludingparamedics)6143 Dental nurses6144 Houseparents and residential wardens6145 Care workers and home carers6146 Senior care workers6147 Care escorts6148Undertakers,mortuaryandcrematoriumassistants62 LEISURE, TRAVEL AND RELATED PERSONAL SERVICE OCCUPATIONS621 Leisure and Travel Services6211 Sports and leisure assistants6212 Travel agents6214 Air travel assistants6215 Rail travel assistants6219 Leisure and travel service occupations n.e.c.622 Hairdressers and Related Services6221 Hairdressers and barbers6222 Beauticians and related occupations623 Housekeeping and Related Services6231 Housekeepers and related occupations6232 Caretakers624 Cleaning and Housekeeping Managers and Supervisors6240 Cleaning and housekeeping managers and supervisors


Annex III

Top 10 Sectors for Employment Expansion, 2009-2013, by Two Digit SIC, North West and by NW LEP area

North West 2009 2013 Difference

Employment activities 69,235 96,160 26,925

Legal and accounting activities 58,013 80,424 22,411

Human health activities 235,937 254,128 18,191


117,623 133,630 16,007

Warehousing and support activities for transportation 42,075 53,801 11,726

Otherprofessional,scientificandtechnicalactivities 9,036 18,237 9,201

Officeadministrative,officesupportandotherbusinesssupport activities

33,084 42,103 9,019

Residential care activities 72,849 81,370 8,521

Architectural and engineering activities; technical testing and analysis

41,419 49,774 8,355

Activitiesofheadoffices;managementconsultancyactivities

49,418 57,509 8,091

Waste collection, treatment and disposal activities; materials recovery

10,608 16,969 6,361

Liverpool 2009 2013 Difference


Publishing activities 1,397 7,053 5,656




16,693 19,466 2,773


6,797 9,224 2,427


Manufacture of motor vehicles, trailers and semi-trailers 3,881 5,461 1,580


5,830 7,410 1,580


6,196 7,622 1,426



Lancashire 2009 2013 Difference


24,650 32,833 8,183




Civil engineering 8,445 12,586 4,141

Education 55,380 57,736 2,356




Manufacture of food products 10,552 12,229 1,677


2,563 3,960 1,397

Greater Manchester 2009 2013 Difference




23,029 30,963 7,934



13,799 20,632 6,833


53,649 57,222 3,573


Real estate activities 21,994 25,128 3,134

Postal and courier activities 10,680 13,544 2,864


Programming and broadcasting activities 257 2,774 2,517


Cumbria 2009 2013 Difference


Education 16,648 18,791 2,143


2,994 4,357 1,363

Accommodation 9,239 10,450 1,211

Warehousing and support activities for transportation 995 1,756 761

Activities of membership organisations 1,407 2,129 722

Manufacture of paper and paper products 1,069 1,724 655

Otherprofessional,scientificandtechnicalactivities 500 1,051 551

Security and investigation activities 508 981 473

Manufactureofothertransportequipment 4,972 5,379 407

Legal and accounting activities 2,975 3,373 398

Cheshire and Warrington 2009 2013 Difference






8,657 11,035 2,378


Services to buildings and landscape activities 7,609 9,459 1,850

Accommodation 5,265 7,096 1,831


990 2,621 1,631


16,579 17,848 1,269


Source:BRES