To get people out of poverty, the right sectors need help hiring

Fighting poverty needs to be about more than just getting people into work. Champion studio/Shutterstock

Employment policy has conventionally focused on getting people into work as a means of addressing poverty. But being in employment does not guarantee poverty reduction: since 2011 more than half of the people in poverty in the UK live in a family where someone is in work. Prior to this, the majority of people in poverty were in a workless or retired family.

Changes in the labour market are just one part of the story: employment has grown in business services associated with higher pay – financial or legal services and advertising, for example – and in low-wage jobs, such as waiting staff, care workers and cleaners, which are associated with flexible and precarious working practices. A reduction in middle-skill occupations – e.g. clerical and skilled trades – also means it is more difficult to escape low pay by moving from low to high-skill occupations. Instead, people are trapped in a low-wage, no-wage cycle as they move between unemployment and low-paid jobs.

Since 2010 the government has tried to move from a low-wage, high-tax, high-welfare economy to a higher wage, lower tax and lower welfare economy. Policies such as the national living wage, introduced in April 2016, have helped lift people in employment out of poverty. There has also been renewed interest in industrial strategy and sector-based policies to generate growth. In fact, it is by implementing more strategies to help employees in sectors that are growing now, that poverty can be battled.

Some sectors better than others. CandyBox Images/Shutterstock

But how can these “growth sectors” actually combat poverty? Looking at the UK’s industrial strategy, top of the list are advanced manufacturing, knowledge-intensive traded services, such as business and professional services, and energy. These are sectors of long-term strategic importance to the UK and are important in terms of gross value added (GVA). However, this does not mean they will end up employing the most people in the next ten years. In employment terms, sectors such as accommodation and hospitality, and social care actually have the some of the greatest potential for growth, but these are not deemed to be of such long-term importance.

Evidence suggests that employment growth rather than GVA growth has the biggest impact on poverty. So it is the “high employment” sectors where new job opportunities are being generated, and where there are openings for people to enter employment. These fields may have some of the greatest labour shortages, however, so employers face the challenge of employee retention –- but in return will offer opportunities for progression in employment through promotion, more working hours or greater stability.

Growth and low pay

Several sectors associated with projected employment growth, including hospitality, wholesale, retail and social care, offer significant opportunities for labour market entry over the next ten years; this is particularly so for young people and people moving into work from unemployment and economic inactivity, including those with no or low formal qualifications.

However, they are also characterised by relatively high rates of low pay: 60% of workers in accommodation and food services and 40% of those in wholesale and retail receive low wages, for example. In part this reflects the characteristics of individuals working in these sectors, such as young people working in hospitality. But statistical analyses modelling low pay and poverty show that sector-specific effects remain once characteristics of individuals and households have been taken into account.

Household labour supply has a potentially important role to play in mediating poverty. A low-paid worker might be in a household with a more highly paid worker, lifting the household out of poverty. But data from the Family Resources Survey shows that household poverty persists in some sectors characterised by low pay despite there being two earners in the household.

There is also evidence that some sectors better facilitate routes out of low pay than others. Some 60% of workers in financial services and insurance in low pay are not a year later. This is a markedly larger proportion than in any other sector. At the opposite end of the spectrum more than 80% of the workers in hospitality, agriculture, forestry and fishing were still in low pay a year later, demonstrating the persistence of smaller wages in these particular sectors.

Public policy and growth sectors

Families in work are still affected by poverty. wavebreakmedia/Shutterstock

Addressing high rates of low pay in “poverty dense” growth sectors is a potentially important target for policy. Though some headway has been made to “raise the floor”, the government needs to address the issue of what happens once people are actually in work. Procurement policy – essentially the rules set in place to acquire goods and services – could be used to set standards in employment, by ensuring businesses have to follow set protocols. Skills policy meanwhile can play a role in equipping people to move into more highly paid jobs in the same sector, or through broadening their skill sets to enable moves into related sectors.

Employers themselves can seek to address issues of pay security and pay levels too. They can align pay progression scales to skills development and help identify “career pathways” from low-paid to higher paid jobs for employees. Employers also have an important role to play in job design: increased variety in roles and greater autonomy can create “good jobs”.

Working together, employers, sector organisations and local agencies can help businesses raise the demand for skills, provide information on careers guidance and progression opportunities, and facilitate local and partnership working. This strategy has the potential to get far more working people out of poverty than merely signing a job contract ever could.