The impact of employment changes on poverty in 2020

   Dr Lynn Gambin

Institute for Employment Research University of Warwick

Welsh Labour Market 2020Wales Millennium Centre, Cardiff

22nd November 2012

Outline

BackgroundOther StudiesAims and ObjectivesResearch Design and MethodsWorking Futures – BaselineHousehold income and povertyFindings Policy Implications

Background

Focus on detailed analysis of employment patterns for a number of reasons:• JRF over-riding concern - poverty & how to reduce it;• Policy interest in employment & work as the main

route out of poverty;• Concerns about in-work poverty;• Many trends towards inequality getting worse; • Increasing polarisation of employment by skill level

may result in growing income inequality.

Other StudiesPrevious research:

• Raising the level of skills can improve employment prospects, productivity and pay;

• Changing employment patterns can impact on poverty (Dickerson using earlier Working Futures projections)

• General projections of poverty based on IFS TAXBEN model (Brewer, Browne & Joyce (IFS)).

Aims and Objectives

•Improve understanding of how employment patterns impact upon poverty and inequality

•Develop robust projections of poverty and inequality (tied to “baseline” Working Futures 2010-2020 forecasts)

•Identify the implications of changing economic structure and related employment patterns for the distribution of pay and, in turn, household incomes

•Assess the implications of planned changes in tax benefit policy within the context of the likely changes in the structure of employment, skills & pay

Research Design and Methods

Quantitative employment scenarios based on Working Futures “baseline” and other scenarios

Assumptions about changing earnings & pay distributions within occupations & qualification & other groups

Implications for households based on the IFS poverty model of taxes and benefits (TAXBEN)

More qualitative analysis of implications for more detailed categories (including vulnerable groups)

Working Futures“Baseline” scenario

Latest in a long line of projections

Comprehensive picture of the UK labour market with focus on employment

Future patterns of demand for skills, as measured by occupation and qualification

Main focus on the UK – but with implications for the devolved Nations, English regions, etc

Conditional projections – what if…..

Working FuturesConditional forecasts

All projections are conditional on assumptions & “other factors” 

Assumptions include:

- various exogenous factors  (demographic assumptions; government expenditure, tax and monetary policy; what

is happening in the rest of the world (economic activity levels, prices, exchange rates, etc)

“Other factors” include:- the historical data used in the models - different vintages of data can make a big difference to the projected levels as well as to history

Working Futures Wales

• Output growth (GVA) was slower than UK average 2000 to 2010 and is projected to continue to 2020.

• Population growth to be slower than UK 2010 to 2020.

• Employment growth was stronger than UK between 2000 and 2010 but projected be same as UK to 2020

• Employment amongst males to grow 2x as fast as for women. Male share of total employment to increase slightly.

• Small shift away from full-time to part-time working; faster growth in part-time work for men than women.

Working Futures Wales

• Higher than UK growth in output in primary and utilities and manufacturing between 2010 and 2020. Business and other services to see fastest rate of output growth in Wales overall.

• Employment growth expected to be higher than UK rate in:• Primary and utilities,

• Construction

• Trade, accommodation and transport

• Relative shift of employment away from manufacturing towards service sector projected to continue

• Trade, accommodation and transport to be largest sector in terms of employment in 2020.

Working Futures Wales

• Occupational change in employment – shift to higher occupations set to continue• To benefit women in particular – number of people in

elementary occupations is projected to decline because loss of female jobs will outweigh gain in male jobs at this level

• Qualification profile in Wales has improved and is projected to continue to improve• 2000 1/3 jobs held by people with no or low qualifications

• 2020 fall to just over 1/5; more than 2/5 jobs expected to be held by people with higher level qualifications (Level 4+)

Occupational shares of total employment (UK)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0

5

10

15

20

251. Managers, direc-tors and senior of-ficials

2. Professional oc-cupations

3. Associate pro-fessional and tech-nical4. Administrative and secretarial

5. Skilled trades occupations

6. Caring, leisure and other service

7. Sales and cus-tomer service

8. Process, plant and machine operatives

9. Elementary oc-cupations

% share of total employment

0.0 10.0 20.0 30.0 40.0 50.0

QCF 0

QCF 1,2

QCF 3

QCF 4+

% share

2020

2010

2000

Changing demand by qualification (employment shares), 2010-2020 (UK)

Household income and poverty Simulation of the future distribution of household incomes

in the UK

Implications for net household incomes derived by reweighting the FRS data - individuals in jobs forecast to grow in Working Futures are given greater weight

The pattern of jobs in each category (e.g. occupation) therefore matches that implied by Working Futures

Provides the link between the ‘individual’ employment and earnings & the household income, drawing out the impact for poverty & inequality.

DefinitionsRelative poverty - an individual’s household’s net equivalised income (i.e. adjusted for different household sizes and compositions) is below 60 per cent of the median in that year

Absolute poverty - an individual’s household’s net equivalised income is below 60 per cent (or 50 percent) of the 2010/11 median adjusted for inflation.

Inequality ratios

90/10 ratio of incomes at the 90th percentile in the household income distribution to incomes at the 10th percentile

90/50 the ratio of incomes at the 90th percentile to incomes at the median (50th percentile)

50/10 the ratio of incomes at the median to the 10th percentile

Child poverty – a child’s household’s income is below 60 per cent of the median. Child poverty may be measured in either relative or absolute terms, as defined above.

Findings - BaselineImplications for poverty & inequality

Main findings in the “baseline”:

Inequality and relative poverty set to increase

Various reasons for this projected increase, including:

1) Interaction of inflation and general tax and benefit policy;

2) Changes to employment structure forecast by Working Futures.

Simulated poverty measures, 2020/21

0

5

10

15

20

25

30

35

40

45

children working agew/o children

lone parents head of hhage 65+

children working agew/o children

Poverty rate (%)

HOUSEHOLD TYPE

2009/10 baseline (2002/21) fixed employment structure (2020/2021)

RELATIVE POVERTY RATES

( % with incomes < 60% of median)

ABSOLUTE POVERTY RATES

( % with incomes < 60% of 2010/11 median)

ALTERNATIVE SCENARIOS

Exploration of a number of alternative scenarios defined in terms of employment structure and relative pay

Main focus on employment structure (employment levels in 2020 assumed fixed)

Scenarios considered changes in employment structure by:

- Qualifications - Gender - PT/FT/SE status

- Occupation - Sector - Geography

And changes in pay, e.g. closing of the gender pay gap, increasing returns to higher qualifications, etc.

IMPROVING QUALIFICATIONS

Both an improvement in the highest qualifications (i.e. increased share of employment) and a general improvement in qualifications considered.

• Improvements in qualifications are inequality-increasing when there are no changes in rates of return to particular qualifications

• Increasing the share of employed people with the highest qualifications has some poverty-reducing effect – but this is small.

Changing the returns to qualifications does not make a big difference to the distribution of income.

Impact of improvement in qualifications levels on distribution of net household

income by 2020-21

-5%

-3%

-1%

1%

3%

5%

7%

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95Perc

enta

ge ch

ange

Percentile point

Working Futures employment changes onlyIncrease in highest qualificationsGeneral increase in qualification level

Improving qualifications and lower returns to higher qualifications

Gender Balance of Employment and Gender Pay Gap

• Increase in the share of employment held by females (by 2.5%) and a compensating decrease for males (-2.5%)

• Decrease in the gender pay gap (increased female pay by 3.0% with male pay held at baseline)

ResultsBoth changes have very little impact on the household income distribution, including most poverty and inequality statistics.

Except, poverty in lone parent families, which in both of these combined is about 1½ percentage points lower than in the Working Futures baseline.

Gender scenarios – increasing employment shares and narrowing pay gaps

Other Scenarios• More even split between Manufacturing and Services• Pay gap between the Financial Services and all other sectors • Redistribution to the regions outside London & the South East• Shift of employment to FT away from PT work

Implications for measures of inequality and poverty:

• Substantial changes to employment/pay structures result in small difference from “baseline”

• Scenarios had little effect on the income distribution and virtually no impact on the simulated poverty and inequality statistics

Implications for selected vulnerable groupsQualitative assessment of implications for potentially vulnerable groups

Disadvantaged groups are disproportionately non-employed

Generally shifts in the structure of employment have no clear cut and/or large impacts on most disadvantaged groups

Possible exceptions - women, disabled minority ethnic groups disproportionately employed in the public sector

Differences in household structures between and within groups emphasises heterogeneity in experience of poverty

Summary of Key FindingsPoverty & inequality are set to increase as a result of tax-benefit policy - changes in employment structure (as projected in Working Futures) exacerbate this

Policies aimed at shifting the structure of employment (e.g. increasing skills) have a modest impact on lowering poverty, because:

• Many individuals in low-income households are out of work -. changing employment structure will not alter this (though it might affect which individuals are out of work);

• Changes to employment and pay impact on median incomes, and hence the level of the poverty line - this affects the relative status of workless households as well as those on low incomes;

• Incomes at household level are key measures for poverty and inequality, but it is individuals who participate in the labour market.

Implications for Policy

Household composition is crucial.

• Being a low-paid worker is not a good indicator of being in a low-income household (as likely to be in middle-income households);

• General labour market changes are therefore limited in achieving specific poverty or inequality objectives;

• For a significant impact it is necessary to ensure a positive effect on workers in low-income households, rather than just those who are low paid themselves.

A focus on general improvements in skills and employment will not change matters significantly for those in poverty

For further information:

Lynn Gambin

Institute for Employment Research, University of Warwick

lynn.gambin@warwick.ac.uk

The full report, Poverty and inequality in 2020: Impact of changes in the structure of employment is available as a free download at http://www.jrf.org.uk/publications/poverty-inequality-employment-structure

For more details of the Working Futures projections see:http://www.ukces.org.uk/publications/er41-working-futures-2010-2020