Living standards at risk in low-to-middle income households
A recent report by the Resolution Foundation suggests that low-to-middle income households are ‘pinched’ by a combination of modern work pressures and reliance on public services. This ‘too rich and too poor’ group is particularly vulnerable to a decline in living standards due to caring responsibilities or cuts in public services. Their predicament is indicative of economic growth without the relative gain of wage increases, the report argues.
Commission on Living Standards
In May 2011 the research organisation Resolution Foundation published a report for the Commission on Living Standards, called ‘Growth without gain?’ (2Mb PDF). It investigates the ‘faltering living standards’ of people on low-to-middle incomes and reveals that average pay is set to be no higher in 2015 than in 2001.
The Commission brings together experts from the public and private sectors, including board members of large firms, trade union organisations, academics and journalists.
The Resolution Foundation Commission on Living Standards is an independent investigation into the living standards of low-to-middle earners (LMEs); defined as ‘adults living in households in income deciles 2-5, where less than one-fifth of the gross household income comes from means-tested benefits’.
This group is simultaneously ‘too rich and too poor’: too rich to be considered in need of state support, but too poor to prosper in private markets such as housing and social care. This represents around 11.1 million people or one third of the working population in the UK.
Changes in working patterns
The Resolution Foundation’s report claims that rising living standards can be attributed more to changes in working patterns than to trends in individual wages.
The report observes two distinctive characteristics of modern working patterns that have bolstered the increases in living standards: The number of women in the workforce has risen from 59% in 1971 to 74% in 2010. This, coupled with the trend for working longer, has helped to sustain household income for longer periods – a trend likely to continue with the abolition of the UK’s default retirement age of 65 (UK1008019I).
The changes in modern working practices, including more flexible work arrangements (EU1101011D), mean that dual-earning households have become more common. The report estimates that around two thirds of two-adult households in the UK have two incomes. In LME households, 39% of all adults are in employment of some kind, which includes single adults and couples both in work. In over a quarter (27%) of LME households all adults are working full-time. Connolly et al. (2009) found that around 90% of dual-earning families contain adults who work at least some atypical hours.
New support needs for LMEs
Based on the characteristics of LMEs, the report identifies factors that render them particularly vulnerable to pressures from modern working patterns.
The majority of LMEs are in work (76%) and earn modest wages. However, most households live on narrow margins, so are highly dependent on their existing patterns of employment.
Given their narrow margins, LME households are unlikely to be able to afford switching from dual- to single-earning, or from full-time to part-time work, for example, to raise a family. Caring responsibilities illustrate the pressures LMEs face to maintain living standards.
Using data from the British Social Attitudes Survey, Figure 1 shows that the burden of more intense caring responsibilities falls more heavily on the lowest income households (10%). However, LMEs share a higher burden of more modest caring responsibilities (8% and 17%).
Given the ageing population, the care burden is only expected to increase. The report estimates that by 2040, 13% of people in the UK will be over 75 and 4% over 85.
Figure 1: Caring Responsibilities: Proportion of people not pursuing activities they would like to because of the need to care for others
Resolution Foundation analysis, British Social Attitudes Survey
Reliance on public services
The burden of care is an important determinant of the ability of households to work and therefore improve, or maintain, living standards. The significance of public services for LMEs is very high – effectively a gateway to work.
The report suggests that the reliance of LMEs on public services needs to be included in assessing the right balance between raising living standards directly through the tax-benefit system or through spending on ‘enabling’ public services such as childcare and social care.
Modern working patterns have led to a broad rise in living standards for many in the UK. However, LMEs face an acute challenge to maintain living standards as household income is bolstered by increased participation in work and more flexible working, rather than a rise in individual incomes. The report emphasises the dependence by LMEs on public services such as childcare, to raise and maintain living standards through work as opposed to a form of ‘benefits-in-kind’.
Connolly, S. and Gregory, M. (2009), The PT Pay Penalty: Earnings Trajectories of British Women, Oxford Economic Papers, Vol. 61 No S1, 2009, pp. 76-97.
Alex Wilson, IRRU, University of Warwick