Last Wednesday David Laws gave a speech at the Resolution Foundation on the Liberal Democrat agenda for tackling low pay.
He began by reflecting on the job market.
Many of us vividly remember the recession of the early 1980s, which destroyed so many jobs. There are still communities in our country which have failed to recover from that economic heart-attack. In contrast, the recent recession and the unusually slow recovery from it have been characterised by much better than expected employment outcomes. Instead of losing millions of jobs, we have been adding jobs. Growth in the workforce – in work and looking for work – has been unusually rapid, at almost 1% per year since 2010. This is well above the long run average.
The flexibility of the UK labour market – with workers responding to the downturn by accepting fewer hours and by foregoing wage increases – has certainly helped to protect jobs.
And nothing we do on pay policies should endanger this drive to get people into jobs. But maximising employment isn’t just about maintaining flexible labour markets. It’s also about reforming the welfare system so that it promotes work.
And it’s about going further to support work incentives.
At this year’s Liberal Democrat Autumn Conference we will consider further steps to raise the personal tax allowance, so that eventually people on the minimum wage no longer pay income tax.
He then turned to his own portfolio and claimed that the most important part of the Liberal Democrat and indeed Coalition agenda to get people into employment is our strategy to improve education.
By far the greatest predictor of a good income is a good set of
qualifications. Pay is a function of productivity. And productivity is a function of knowledge and skills. If we want significantly increased pay, we need to increase
skills.
He then traced some of the shortfalls in attainment in both primary and secondary schools, and outlines Liberal Democrat achievements, such as extending free early education, and the introduction (and accountability) of the Pupil Premium, before turning to pay policy.
The question arises as to whether there is more that we can do on pay, particularly to help those on the lowest incomes. The context is the introduction by the last government of a Minimum Wage, that has by general consent been far less damaging to employment than many people predicted.
He next asked whether we could we go further and introduce what some people have described as a “Living Wage”?
But personally I see a case for making the issue of poverty pay a much higher profile issue for employers, in both the private and public sector. The minimum wage is not very much, and speaking personally I would want my employees to earn more than this.
I am interested in how we use greater transparency to incentivise behaviours which would not only lead to a society of reduced inequality but which would also save the taxpayer some of the considerable amounts of money currently spent subsidising lower pay.
You can download the full speech here.
* Mary Reid is a contributing editor on Lib Dem Voice. She was a councillor in Kingston upon Thames, where she is still very active with the local party, and is the Hon President of Kingston Lib Dems.
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25 Comments
Portfilio
Thanks for pointing out the typo – now corrected
As an Education Minister David Laws is not going to roam into other territory i.e. Treasury and HMRC. Naturally his speech focuses on Education and the future.
Tackling low pay TODAY – up and down the country employers are getting away with paying UNDER the minimum wage.
http://www.guardian.co.uk/society/2013/jun/16/low-wages-too-high-price
One strand to tackle low pay must be to enforce current minimum wage legislation.
Which party is Mr. Laws from?
Either put up the minimum wage or reform the tax system to reintroduce a 10p rate (20p incluidng National Insurance) but please don’t fart about with some nonsense about transparency leading to employers paying a ‘living wage’. Its not a wage one can live on unless one has no housing costs. Why would it be acceptable for say Tescos to pay a ‘living wage’ but sainsburys just the minimum wage for people doing the same job? Why do both get away with massive taxpayer subsidy via housing benefit and tax credits aloowing them to pay workers a pitance ?
“By far the greatest predictor of a good income is a good set of qualifications. Pay is a function of productivity. And productivity is a function of knowledge and skills. If we want significantly increased pay, we need to increase
skills.”
This equates skills and qualifications and the one does not necessarily mean the other. Do people with first class degrees have better productivity rates than people with 2:2s?
The (il)logical extension of his argument is that if everyone has a degree then no-one will be on the minimum wage.
Why does David Laws ask the question about “his employees”? Why does he not say he would not like to earn that amount?
“with workers responding to the downturn by accepting fewer hours and by foregoing wage increases “?
But workers have no choice but to accept any adverse changes that are made to their pay and wage increases. They have no other choice except to try find another job that pays them better. In a recession, that is not an option for most workers. With millions un(der)employed, most workers have no bargaining power and have to accept whatever shoddy working conditions they are offered. This is not a “flexible labpour market”, it is exploitation.
I have a clear opinion on this. The situation at the moment is irrational because we have the following:
People working for £0 per hour on internships, work experience and voluntary work.
People working for £2.68 per hour if they are an apprenticeship in their first year or under 19
Many people unemployed, under employed and working illegally for less than the minimum wage.
Self employed people often working for less than the minimum wage, struggling to meet business costs.
The solution to this is to scrap all welfare sanctions, the minimum wage and apprenticeships. You should not get rid of the minimum wage without getting rid of welfare sanctions, but at least if we had a strong welfare state people wouldn’t be forced to work for a minimum one size fits all wage set by the government.
The greatest predictor of income is not educational attainment it is family background. Once that damaging canard was repeated I couldn’t bring myself to read the rest.
Could I give an employer’s perspective. And I apologise for the length of this comment I can find no way to limit this and get the points across.
I am a shareholder and Director of a company that employs roughly 70 employed and a further 20 contract staff. They vary from senior professionals on 6 figure salaries to junior administration staff. A few years ago I used to be able to pay my staff what they deserved. At this time we pay them what we can – invariably this is lower. Our company hold numerous public sector contracts, all have seen reductions in spend of 20 – 70% most expect the same service. Whilst this is not possible what has happened in a drastic reduction in margin, this perpetuates this issue with wages.
We do not restrict wage increases to increase profit. The vast majority of our profit has been re-invested in the business to allow growth. We have increased our staff numbers year on year since 2009 and seen margin reduce by approximately 30 – 50% depending on client. At various times during that period the owners have stopped drawing their wages to allow new contracts to be serviced via cashflow as the banks are not interested supporting such growth.
In our industry we have little choice in the level of salary we pay at the top end. Collective agreements in the public sector have set this in stone and we have to match these level or we cannot fill posts. This leaves other staff to bear the brunt of any cuts in margin.
These are the people who actually put the vast majority of their income back into the economy. Without getting into arguments regarding whether or not they should be saving for the future, the truth is that people on lower incomes tend to spend the highest proportion of that income. Be that on food, clothing, transport, cars holidays or anything else the economy as a whole benefits from a higher proportion of their income then it does from higher earners.
I can quote no study to show this, but I would feel that every penny I pay them extra (ignoring the PAYE and NI contributions from us and them) would be pumped straight into UK PLC’s recovery.
Last year two interactions with Government schemes left me disgusted. Firstly, I was contacted (hounded) by someone asking me to establish apprenticeships within the administration team. I had two school leavers working within the team at the time so arranged a call to discuss. The basic deal being offered would have halved their wages and left them with the same qualification we already helped them to achieve. I did not progress this, but how many of these new apprenticeships are employers saving on wages on jobs that they would already have filled ????
The second was through the Job Centre. We tended to recruit through agencies and they wanted to be given chance to source staff for us directly. We agreed and two new reception / administration staff arrived. We were told they would be funded via the Job Centre for a period of up to 8 weeks to ensure we were happy with their work. Early in this period discovered that they were on the equivalent of Job Seekers allowance – something I viewed as borderline slave labour. We arranged for early transfer to our contracts. It is simply not right to expect someone to work for no benefit had I known at the start I would never have agreed to the scheme.
To summarise if the Public sector keep cutting margin when dealing with the Private sector it will be those at the bottom of the wage ladder who suffer the most. We were already operating in a lean environment, vast profits are the stuff of Union fantasy for owners of SME’s. Government schemes should not make slave owners of business owners. If someone who is unemployed is forced to work, or placed with an employer for a trial they should get the minimum wage. Finally, apprenticeships should be for proper trades and lead to significant qualifications. In my view otherwise they are just a method for paying low wages to those who should be valuable team members.
We need a proper discussion of Baumol’s cost paradox. Awareness of this is central to understanding why ‘public services’ take up a greater proportion of national income the more productive key parts of the economy become.
On the living wage, Ed Milliband has been saying the same thing witha dded tax cuts for firms paying it (sigh)
– and Laws is in charge of drafting the manifesto ??? Oh well, the slump in Cleggmania was about two policies – imigration and joining the Euro – neither of which made sense, both of which were approved by Clegg and Alexander.
@Steve Way
A very interesting post which makes some important points. I also want to commend you on the way you put good principles into practice.
An interesting perspective from Steve Way. He makes some very good points.
Thank you Steve Way. I read your informative piece with great interest. I chair the board of a professional theatre company.We have an excellent graduate intern to whom we pay the minimum hourly wage.We looked into the apprenticeship scheme and could not countenance paying someone that little.
Which party is Mr Hawkes from?
Jennie: “The greatest predictor of income is not educational attainment it is family background.”
Families that value educational attainment will tend to support their children towards high educational attainment; those that don’t won’t.
Very interesting post from Steve Way.
I’d also like to commend you for how you run your business.
Was interested to hear that public sector contracts required you to protect high salaries at the top, therefore requiring lower paid staff to bear the brunt of cutbacks. Could you provide a bit more detail on that issue?
Sounds like something we should be addressing.
Hywel made a good point.
I have a 2:2 degree in Maths and Philosophy. For a good few years I was on and off the dole, in and out of low paid jobs, not because I lacked skills, but because there was a lack of opportunities to use them.
I’ve now found job and am set.
My world has changed. I now feel like I’ve found my place, rather than feeling hopeless, helpless, thinking that I just wasn’t capable of finding decent work. Lack of opportunity is the problem out there.
The recent welfare “reforms” that require jobcenters to nag and observe us more, with more and more suffocating measures, to try and “encourage” us to find work, would not have helped me at all.
Tabman, I seem to disagree with Jennie on most things, but I think she has a point here – I don’t think it is possible to separate equality with equality of opportunity. The pupil premium will have to be paid by someone: if the rich pay for it then it will reduce inequality and if the poor pay for it then it won’t.
When a talented child has to stop taking after school classes due to the effects that the cuts are having on lower income families, whilst the better off parents can continue sending their children – you realise it is the money that counts.
Daniel, I would also like to disagree with you and others who say that the opportunities or the jobs just aren’t out there and agree with David Laws about the importance of qualifications, yet still disagree on his approach to inequality.
To give you a prime example: I set up a business in my parent’s house with one month’s paycheck because I had a finance qualification. I wouldn’t have been able to do this without the qualification.
Job seekers allowance should be changed to work-seekers allowance because it is finding work that is important, not necessarily finding employment.
We weren’t saying that education doesn’t make a difference, just that it’s not the answer to low pay. If all these low paid workers suddenly got educated, would there be suitable jobs for them? Increasing education helps, but can’t be relied to solve the problem on its own.
We weren’t saying that’s NO opportunity, just a lack of opportunity.
There was enough for you to successfully run your business, and I eventually found a suitable job too, but there’s not enough opportunity to “meet demand”, so to speak. Many people out there are still under-employed.
Daniel, I agree that lack of demand increases unemployment, I just wanted to emphasise that people could steal demand from larger companies rather than solely wait for demand to increase.
@Daniel
When I say that we have little choice what to pay at the higher end it is due to the nature of our business. We supply a professional service to clients that utilises specialist Physicians and Nurses. The bulk of these work within the NHS where their pay and conditions are generally very good (not true for the whole NHS but at their level it is). There are also extremely limited numbers with no where near enough training taking place to improve this. As such to operate as a private company you need to be able to match conditions to recruit staff or train internally. Those trained internally still need the same conditions or they will go elsewhere once fully qualified.
Once you take the professional staff out of the equation for cost savings their impact tends to be felt disproportionately by the remainder.