Work please but poverty, no thanks: how can we avoid the rise in the working poor?

Domesticallydelish/Visualhunt , CC BY-SA

As the British rock group The Smiths famously sang in 1984, “I was looking for a job and then I found a job, heaven knows I’m miserable now”. The rise of the working poor calls into question the adage that work is the best way out of poverty. With radical changes on the labour market, the types of jobs available and new threats such as robotics, old sureties can no longer be counted upon. What can society do faced with a rise in the share of in-work poor?

So what is in-work poverty?

Though definitions vary, the European Commission considers the working poor to be people who are employed for over half the year but whose household income falls below 60% of the national median. This definition captured almost 10% of the EU working population in 2015. The working poor are especially concentrated among single-earner households with children (19.8%), while dual-earner households with no kids have the lowest risk (6.2%).

In-work poverty has arisen from changes on the labour market and in who works, compounded by social protection systems that are not well adapted to the new realities of the economy. Stable jobs that previously provided security for a worker and “his” family have been replaced by a range of new contracts, pseudo self-employment and precarious work forms. The diversity of labour market participants has also increased to include more women, more single parents, and young people struggling to find a foothold in work.

And where are the working poor?

Young people are overrepresented among the working poor since their jobs tend to be lower paid and more precarious. Yet the official rates of in-work poverty may be complicated by the nature of household-level statistics. For example, in-work poverty among young people is less pronounced in Southern Europe, where young adults tend to remain in the family home.

These statistics illustrate the household effects inherent to the working poverty measure: poverty is defined at the household level yet people are employed as individuals. In this way, poverty is hard to disentangle from household composition. This feature, in turn, renders working poverty a tricky problem from a policy perspective – at which level should it be tackled?

Is the “sharing” economy driving more workers into poverty?

The growth of new forms of self-employment provides an additional dimension to the in-work poverty challenge. In almost all countries, in-work poverty is higher among the self-employed. A recent study on self-employment showed that there is greater polarization in incomes for the self-employed than for employees.

The rise of the so-called “sharing” economy has further highlighted ways in which the low-paid self-employed are vulnerable: they shoulder much of the risk, yet enjoy a relatively small portion of the fruits of these new markets. Research from Germany suggests that low-paying self-employment tends to be concentrated amongst already economically marginalized groups – “youth, women, part-time workers, single parents and self-employed [workers] with health problems”.

A new definitional problem?

Part of the problem of the new economy relates to the question of whether workers are really self-employed or just employees without the benefits. While truly independent workers set their prices to account for the cost and maintenance of equipment, low-demand periods, sick days, etc., prominent “sharing” economy players like Deliveroo and Uber deny their workers this control. Uber has been subject to challenges on this point in many countries, with a potential impact upon worker entitlements in terms of wages, holiday pay and sick pay.

The problem of definition extends to the variability of incomes in the sharing economy. The risk borne by the workers means that they can be managing one week yet working poor the next. In addition, as pseudo self-employed workers, they are at risk when they face periods without work, such as for health reasons.

What kinds of policies could help?

One of the challenges for policymakers is to adapt social support in line with precariousness on the labour market and incomes that fluctuate week by week. The problem is complex and may in fact require action on many fronts. From the labour market perspective, policy makers require new tools to tackle the reality of modern day employment situation – that requires social support to protect against irregular or low incomes and measures to deal with the negative consequences of some “innovations” in the new economy.

For social protection, making benefits unconditional, or universal, is one option to provide a floor below which earnings are guaranteed not to fall, mitigating the risk of in-work poverty. A number of countries have experimented with forms of negative income tax whereby workers receive additional income to compensation for low wages. However, these can be expensive to implement and are not necessarily adaptable to short-term income fluctuations. Minimum wages are another way to provide an hourly floor but short or irregular hours means that a minimum rate does not necessarily guarantee a living wage each week. A Belgian study of policy options for countering in-work poverty concluded with a call for universal measures since they could bolster rather than undermine work incentives (when compared with more targeted measures).

In relation to labour markets, policy activity in recent years has been towards reducing legislative protection rather than increasing with the aim of raising employment and promoting flexibility. In the new economy traditional forms of collective action by unions are difficult since workers are often transient, young and mobile – all factors that do not help union recruiters. However, there are signs of new forms of mobilisation for example among Deliveroo riders and fast-food workers on so-called zero-hour contracts.

In any case, it is vital not to underestimate the risk of allowing in-work poverty to continue unabated – when people feel that they are losing out despite playing by the rules, the risks to society extend beyond precariousness to decreased social cohesion and increased populism.

This article was originally published in French