From the TUC

A squeezed middle: How the recession is hitting low earners

11 Nov 2009, by Guest in Economics, Labour market

Once again, today’s ONS figures show us that the once-predicted ‘white collar’ recession has not materialised. Instead it is the UK’s 7.2 million low-paid, low-skilled workers at the sharp end of a flexible and global service economy who are being hit hardest.

Today the Resolution Foundation publishes its report exploring the impact of the recession on low earners – the ‘squeezed middle’ with below median incomes who remain broadly independent of state support. Our analysis shows that if low earners do lose their jobs, they will find it harder to re-enter the labour market due to their low level skills. Whereas nearly nine out of ten managers and senior officials find work again within 26 weeks, only three-quarters of people in elementary occupations move off the claimant count. Those who do hold on to their jobs are finding the recession is limiting their already slim chances of accessing training, with evidence that employers are cutting back on training budgets during the downturn.

This is a similar story to the last three recessions, despite the unprecedented origins of the current circumstances. What is different this time round is that low earners were already living on the edge. With average earnings growth at a historically low 1.9% in 2009, wages are not keeping up with recent rises in the cost of living, in particular food and fuel costs. In an era of easy credit, low earners could bridge these gaps by supplementing monthly income with the use of credit. But since the meltdown in financial services in 2007, the tidal wave of credit has reduced to a trickle. Many of the sources of credit that low earners depended on evaporated. Nearly four million low earners are spending a quarter of their monthly income repaying debts, and one in eight are juggling high loan-to-value mortgages.

Given low earners were already living on the edge in the good times, the recession brings with it the very real risk that this group will be pushed from coping to crisis, with all the costs that brings to individuals and households, as well as to society and the economy at large. Protecting those who are most exposed to the lagging indicators of unemployment, repossessions and insolvencies may be difficult, but it must be the priority.

So what can be done? Our report makes a series of focused policy recommendations across the areas of jobs, housing and money. For example we argue that it should be made easier for people to combine real jobs with useful training, through allowing training to count in the eligibility criteria for working tax credits. A greater focus is needed on smoothing transitions as well, to ensure that any change in circumstances for low earners does not trigger crisis. This will require action by government – for example, speeding up benefits processing when someone loses their job – but also by lenders. Ensuring that current forbearance agreements between government and mainstream lenders also cover the sub-prime and buy-to-let sectors is an urgent priority.

Our report focuses on immediate steps that can be taken to protect low earners during the recession. However our analysis shows that many of the effects low earners are feeling now are not simply the product of today’s economic downturn. They are also the result of much longer-term trends towards a stratification of the labour market and a growing gap between those people with assets such as houses and pensions, and those who lack them. As important as protecting low earners’ fragile economic independence now is ensuring that today’s decisions do not reinforce existing patterns of polarisation that could be traced back long before the recession took hold.

GUEST POST: Sophia Parker is the author of ‘Closer to crisis? How low earners are coping in the recession‘ and Director of Policy & Research at the Resolution Foundation. Before joining the Foundation, she worked with Kent County Council to set up their unique Social Innovation Lab, where she published Just Coping: a new perspective on low income families. Previously, Sophia was deputy director of think-tank Demos, leading their work on public service reform and families. She has also worked as a civil servant at the Women and Equality Unit. Sophia is a committee member of the Fabian Women’s Network, and an associate at ESRO, an ethnographic research agency.

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