Fair pay is not just for the good times

By Matthew Pennycook

A growing number of our fellow citizens are suffering from the deadening, debilitating effects of unemployment. Yet the ordinary working men and women adding their names to the lists of job centres and employment agencies around the country are not the only victims of the economic recession.For the approximately 5.3 million people who make up Britain’s army of low-paid workers, the downturn is only likely to make a bad situation worse. Some workers may be prepared to put up with pay cuts and bad treatment thinking that they are lucky to have a job at all. Unscrupulous employers may be tempted to justify poor working conditions or even flout the national minimum wage to save costs. And even ethical employers may feel that pay cuts for those at the bottom and the retention of or reversion to low cost, low value, low skill business models are the best way through the crisis.

But as successful multinationals businesses, academics, anti-poverty organisations, and trade unions argued in a report issued yesterday by the Fair Pay Network, fair pay policies are not just for the good times. In fact, the opposite is the case. We must reinforce fairness during challenging economic circumstances not discard it.

We cannot let the severity of the recession compound the scandal of low pay in this country. Protecting these workers from the worst effects of a crisis they played no part in creating is not just a moral imperative but an economic necessity. An expansion of the low-paid workforce would tear at the social fabric of our communities by impoverishing and marginalising large numbers of working families. It would also compound falling consumer spending at a time when aggregate demand in our economy must be sustained on a footing more solid than the hazardous sands of unsustainable personal debt.

It appears that the Government has moved some way toward an understanding of this necessity. In raising the national minimum wage (NMW) and extending its top rate to 21 year olds from October next year Ministers resisted the temptation to scramble towards the comfort zone of traditional economic and labour market orthodoxy – taking a clear stand against the vigorous lobbying of the CBI and others for a NMW freeze.

Nevertheless, the increase falls short of what is required to truly safeguard the vulnerable from the scourge of low pay. One comfort perhaps lies in the fact that in a week where Conservative backbenchers are putting forward a bill that would allow employers to ‘opt-out’ of the minimum wage the decision cements the principle of a rising minimum wage-floor as a permanent fixture of our national life.

But the Government can and must go further.

Now, more than ever, we need action to make sure the wage-floor provided by the national minimum wage is meaningful and watertight. This means taking firmer action against rogue employers. It means increasing the numbers of staff in the NMW Compliance Unit from the woefully inadequate 125 that are currently employed to monitor violations across the entire country. It means introducing better coordination between enforcement agencies. It means setting up mechanisms that will ensure workers who have been underpaid or not paid the NMW receive immediate arrear payments to stave off financial collapse. And it means introducing a clearer and simpler system of employment rights so that disreputable employers cannot deny fair treatment on the basis of bogus self-employment or other methods of evading legal responsibilities.

We also need action to root out low pay in the public sector-in which approximately a quarter of all low-paid jobs reside. Calls to cut jobs, pay, and investment should be resisted and action taken to ensure that public sector contractors pay their own staff a fair wage.

We must go further still. It is not enough to merely help low-paid workers survive this current crisis. For all the misery wrought by the economic crisis it also presents us with a unique opportunity to reconstitute some of the fundamentals of our flawed labour market model.

It is a model defined by a large proportion of low-paid workers, buoyant job growth in most low-wage industries (such as hairdressing, social care, retail, hotels and restaurants, and security), relatively weak employment protection, and high wage inequality with a large penalty for working in low-status jobs. For too long it has torn at our social fabric and stymied economic performance by sustaining low value-added employment and low productivity.

An economy dependent on large numbers of low-paid workers is avoidable. Even a cursory glance at the above levels of low-paid work in other Western economies prove that the high incidence of low-paid work in the United Kingdom is not the inevitable by-product of a flourishing market economy or the forces of globalisation. As long as we have the will we can, through what policy choices we make, significantly affect that most fundamental of economic choices-the division of gains and losses in our economy and labour market.

While Labour Governments since 1997 have commendably sought to ameliorate some of the worst effects of this labour market model, they have not challenged its fundamentals. As beneficial as the National Minimum Wage, basic holiday entitlements, the Working Time Directive, and tax credits have been to millions they have not they have not reversed the growth in low-paid, low-skilled jobs which began in the late 1970s.

For Britain’s low-paid workers such a change is long overdue. Endemic low pay saps at the dignity of labour and compounds high levels of relative poverty and inequality. Less than a fifth of low-paid adults earn enough to lift their household out of poverty through their wages alone (compared to more than three-quarters of non-low-paid workers). 57 per cent of households and nearly half of the three million children living below the poverty line have at least one person at work in their household.

Statistics such as these could flow endlessly from our pens. The cold reality for our fellow citizens in working poverty is going without meals, clothing, holidays, educational opportunities, heating, healthcare and medicine, and basic leisure activities that the rest of us take for granted.

We must use this opportunity to begin the building of a fairer, more sustainable, and more socially just economy and labour market. A Britain in which the proportion of low-paid work is drastically reduced, where low pay is transitory, and where pay ensures that working people and their families remain free from poverty.

That is why we need to protect the pioneering fair pay and living wage initiatives that have sprung up around the country in the last ten years. This means publicising and sharing the experience of successful organisations-from KPMG to Barclays-that have adopted them, considering new business models, and thinking of innovative ways to avoid economic pressures translating into wage reductions at the bottom end.

Ending the social injustice of low pay should be a matter of moral and practical urgency. The Government’s action on the minimum wage yesterday was a small step in the right direction but we can and must go further, not only helping low-paid workers through this current crisis but using the space it has opened up to radically change the structure of our labour market. The welfare of those most vulnerable in our society as well as the long-term health of our economy demands it.