The UK’s COVID recovery strategy will only ‘build back better’ if it delivers for low-paid workers

Policymakers should not assume that a rising minimum wage and reopened economy will be sufficient to achieve an inclusive pandemic recovery. This blog from the Resolution Foundation proposes some more ambitious ideas

Mike Brewer and Nye Cominetti

Low-paid workers have borne the brunt of both the economic and health impacts of this pandemic. Workers from ‘elementary’, caring and leisure service occupations have faced death rates from COVID-19 around three times the rate of those in higher-paid occupations, and low-paid workers (defined as those with hourly earnings below two-thirds of the UK median) have been much more likely than higher-paid workers to have been furloughed, lost their job or seen a big cut in earnings.

The experience of this group will be central to whether the recovery from this crisis is one that ‘builds back better’. Policymakers shouldn’t assume, however, that a rising minimum wage and reopening the economy will be sufficient to achieve this.

Unemployment is set to increase

Despite the current hiring surge as hospitality and leisure sectors return to normal, unemployment is set to increase further in the coming months. This is mostly because the Job Retention Scheme (JRS) is due to end in October. The JRS has been one of the major policy successes of the pandemic: it has prevented mass unemployment, and the number of workers on furlough has fallen rapidly recently as the UK economy has reopened.

However, there remains a significant rump of workers on furlough. Increasingly, these are older workers who seem unlikely to be brought off furlough in its final few months, and who may struggle to find new jobs given how long they have been off work.

The Government’s first priority should be to minimise this rise in unemployment by driving a rapid recovery. This means getting the big decisions right – firstly, by raising aggregate demand. The Government appears to be assuming that opening up the economy will be sufficient to deliver a full recovery, but there is a high chance that more stimulus is likely to be needed – in particular for households.

The Government should make permanent the £20 boost to working-age benefits which is currently set to expire in September. Failing to provide such stimulus is taking an unnecessary risk with the recovery – it’s notable that despite facing a bigger economic hit than the United States, the UK’s fiscal stimulus has been smaller. The other priorities are ensuring the JRS withdrawal remains contingent on the state of the recovery, and delivering effective employment support programmes.

Policymakers must look beyond the minimum wage

Beyond that, abolishing low pay by the middle of this decade (by increasing the minimum wage to the level of the low-pay threshold, i.e. two-thirds of median hourly pay) remains the right policy and would be a major achievement. But policymakers must look beyond the minimum wage – to job security and labour market regulation – for ways to ensure that the post-COVID recovery actually benefits low-paid workers.

If anything, the risk is that both job security and the violation of existing labour market rights will deteriorate in the next few years. The security of the jobs on offer to low-paid workers was already at unacceptably low levels before the crisis: in 2019, one in five (20%) low-paid workers were in an ‘insecure’ job, including jobs with a zero-hours contract or with a temporary contract where the worker would like a permanent contract. This was more than three times the proportion of non-low-paid workers who were in insecure work (6%).

And insecurity matters: one-third of workers in the bottom pay quintile report being either ‘very’ or ‘fairly’ anxious about unexpected changes in their hours of work – more than double the rate of hours-anxiety observed among high-paid workers. The concern is that this could worsen if the UK labour market weakens post-crisis, as happened after the financial crisis (when the proportion of low-paid workers in insecure work nearly doubled, rising from 13% in 2008 to 24% in 2013).

The Government has previously talked about introducing an Employment Bill. This would be valuable, enabling progress on areas the Government has already committed to – such as strengthening the enforcement of employment laws via the creation of a Single Enforcement Body, and supporting workers who are falsely classified as self-employed, by clarifying the legal boundary between workers and the genuinely self-employed.

More ambitious measures are needed

However, more ambitious measures are also needed. On job security, the Employment Bill should introduce a right to regular hours that reflects workers’ normal hours worked, and minimum notice periods of the shifts or hours they will work, along with compensation for late changes.

These rights seem much less outlandish when we compare the UK with other advanced countries. For example, in 2019 the Republic of Ireland introduced legislation which gave workers on low-hours contracts the right to hours that reflect their actual hours, and minimum payments to compensate workers sent home with no work.

Also, giving workers greater security needn’t be costly. Nordic labour markets tend to be heavily regulated, but this doesn’t appear to have had a bearing on their (high) pre-COVID-19 employment rates, which were similar in Finland (73%), Norway (75%) and Sweden (76%) to the UK (76%). Other countries show that such protections are consistent with both high employment and labour market flexibility. The Resolution Foundation explored these ideas in more detail in our recent Low Pay Britain report.

The current crisis has shone a light on the UK’s low-paid workforce – whether key workers facing the biggest health risks, or workers in sectors with the tightest restrictions. Now is the time for the UK Government to make concrete proposals to improve their pay and working conditions. This will provide the dignity and respect those workers and their families deserve.

Mike Brewer is Deputy Chief Executive at the Resolution Foundation; Nye Cominetti is Senior Economist at the Resolution Foundation