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Recession getting worse for low earners PDF Print E-mail
Friday, 23 October 2009

Despite recent talk of return to growth, today’s ONS figures show that the recession is far from over for low earners with larger declines in overall growth in key low earner industries compared with the previous quarter.

1. There has been a steep drop in output in key low earner industries. Distribution, hotels & restaurants decreased by 1% compared with a decrease of 0.4% in the previous quarter. 2.4 million low earners work in these industries.
2. There has been a much smaller decline in white collar industries. Business services and finance decreased 0.1% compared with 0.7% in the previous quarter.
3. Overall since the recession began there has been a bigger hit to the ‘real economy’ where low earners work. 5.3% in distribution, hotels & restaurants and 13% in construction (which employs 600,000 low earners and many more self-employed low earners) compared to 4.5% in business services and finance since quarter 3, 2008.
For the UK’s 7.2 million working low earners the recession is set to continue for the foreseeable future as unemployment lags and the consequences of job loss resonate.
The Resolution Foundation is currently finalising a report on how low earner’s are faring in the recession – due to be published in early November - and has found that low earners are being hit hard by this recession particularly because they were already in a precarious position. They had:
·       very little or no safety net of savings (51% savings less than £1500)

·       high loan to value and negative equity is prevalent for the 28% of low earners who have mortgages (over 1 in 8 has LTV of 75-100%, 3.6% in negative equity compared to 2.4% higher earners)

·       high debt commitments (24% spending more than a quarter of their monthly income on debt in 2008 compared to 12% in 2005).

The report will make recommendations about what more can be done in the areas of housing, work & skills and household finances to aid low earners to maintain their financial independence as the recession plays out.
Sophia Parker, Director of Policy & Research said:
“Today’s ONS figures show that the recession is far from over for the millions of working low earners who will face rising unemployment for months to come. Many low income households have been living on the edge for a long time already and all efforts must be directed to helping them to stay in work and maintaining their financial independence. Job loss for a low income household can push them from coping to crisis - it is critical we try and prevent this from happening wherever possible.”

‘Low earners’ is the term the Foundation uses for the group of people who are ‘too rich’ to qualify for state support yet often ‘too poor’ to access the benefits of private markets.

Where do low earners work?
Low earning employees are likely to be particularly highly concentrated in vulnerable industries:
·       35% of employees within the wholesale and retail sector live in low earner households, about 2.4 million people.
·       Low earners are less well represented in manufacturing, where just 25% live in low earner households, although this is still around 0.8 million people.
·       Just 26% of construction employees live in low earner households, representing 0.6 million people. However, it is likely that a sizeable number of low earners work in this sector on a self-employed basis.
·       The nature of the downturn could see the high street experiencing a longer period of decline than other sectors of the economy. People’s attempts to curb spending and credit constraint is likely to ensure that UK consumer spending remains depressed for some time.
What’s the position of a low earner in employment?
Low earners are in a squeezed position in employment - in work but on the bottom rungs of the income ladder, with many barriers which prevent them progressing in the Labour market:
·       Lower levels of skills; 50% of low earner household members have no qualification above GCSE, compared with 30% of members of high earner households.

·       Lower levels of job security; low earners are considered more dispensable than high earners that companies will have difficulty replacing.

·       Higher concentration in small- and medium-sized enterprises (SMEs); such organisations are likely to be less resilient than larger firms and more likely to face closure during a period of reduced demand.

Why low earners are likely to become long-term unemployed:
Low earners whose jobs are under threat are likely to find it more difficult than high earners to find alternative employment:
·       Low earners have lower starting level of skills and qualifications and reduced access to on- and off-the-job training. They are often too lowly skilled to be considered a worthwhile investment by employers, yet too highly skilled to be eligible for Government assistance which focuses on those without the most basic skills.
·       Low earners are less likely than high earners to receive sizeable redundancy payments to help soften their fall in income
·       Their opportunities are likely to be squeezed by unemployed skilled workers taking jobs at lower salaries as a way of returning to the labour market.

The Low earner experience – ‘they [the government] could have saved Woolworths: loads of people worked there’.
The Foundation held a focus group with low earners in June which found that job security and employment prospects was their greatest concern during the recession. The Foundation heard that:
·       the worsening employment situation brought about by the recession and rises in the cost of living experienced during 2008 have served to weaken the position of low earners and expose them to increasing pressures and vulnerabilities.
·       Job insecurity, lack of employment opportunities and having less money left at the end of the week have had a negative consequence on people’s quality of life. Feelings of physical tiredness, stress, anxiety and depression were being experienced by several members of the group.
·       Tellingly, no member of the group felt that the Government or other private or public service providers had their concerns at heart or was there to advocate for positive change on their behalf.

(Source - Resolution Foundation Press Release)


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