Low paid workers’ at most risk of losing jobs when furlough ends

Low-paid workers are expected to face the highest risk of losing their jobs when the government’s furlough scheme ends in September, according to analysis by the Resolution Foundation.

While the government’s coronavirus job retention scheme is widely believed to have prevented millions of job losses, economists are concerned that some jobs will still not be viable when it ends on 30th September.

The  Foundation’s research highlighting that lower-paid workers are likely to be hardest hit is in line with the experience of the financial crisis more than a decade ago. Despite this, the report also noted that prospects for those on low incomes had improved markedly since last year, particularly in low-pay sectors.

The foundation said the government must not assume that rising minimum wages and the economy reopening will be sufficient to improve the situation for the lowest paid. With unemployment having hit 4.9 per cent and some sectors reporting difficulties for hiring workers, there needs to be faster minimum wage increases and new rights to a regular contact. 

The report says that rising minimum wage has driven down low pay. The run up to the crisis was a positive one for low paid workers, with a fast-rising minimum wage improving the pay of the lowest earners. This was driven by the introduction of the National Living Wage in 2016. A worker working full time on the minimum wage in 2020 would have been paid roughly £1,700 more than if the minimum wage had continued to increase at its pre-2016 pace. In 2020 the proportion of workers in low pay (defined as earning less than two thirds of median pay) fell to its lowest level in 42 years.

Low paid workers continue to bear the brunt of the crisis with low paid workers have been more adversely affected by the Covid-19 crisis than higher paid workers. Low paid workers have been three times as likely as higher paid workers to experience a negative impact on their work: in March 2021, more than one-in-five (21 per cent) workers in the bottom weekly pay quintile had either lost their job or lost hours and pay due to the crisis, or were furloughed, compared to less than one-in-ten (7 per cent) of those in the top earnings quintile.

There are reasons for positivity as the economy reopens just as low paid workers have been worst affected by the restrictions on the sectors they work in, so the reopening of the economy from April onwards should benefit low paid workers the most. Rates of (full or partial) furloughing in hospitality fell from 58 per cent at the end of March to 48 per cent at the end of April. Employees in retail, hospitality and leisure – the three largest low-paying sectors of the economy – account for more than half (55 per cent) of the 880,000 fall in furloughed workers during April.

Most workers leaving furlough are returning to their previous job. In March of this year, 44 per cent of previously-furloughed workers were back in work in their previous job, and a further 12 per cent had found new jobs. 34 per cent were still furloughed and 7 per cent were no longer working. Those in the bottom half of the pay distribution were more likely to still be furloughed – likely reflecting the slower opening up of lower-paying sectors such as hospitality and leisure. Previously-furloughed workers in retail have been relatively more likely to find new jobs in other sectors.

Job quality for low paid workers is unlikely to improve without a tight labour market – and may worsen if unemployment rises. Beyond the immediate reopening period, there are risks facing low paid workers. This includes rising unemployment as the Job Retention Scheme ends, but also a deterioration in (or at the very least no improvement in) job insecurity and abuses of employment rights.

Problems of insecurity and abuse of employment rights are already unacceptably prevalent. 1 in 5 (20 per cent of) low paid workers has an insecure job, defined as having a zero hours contract, involuntary working on a temporary contract, or working low hours and wanting more. This compares to 6 per cent of higher paid workers. And 14 per cent of workers in the lowest pay quintile said they did not receive any paid holiday – compared with 6 per cent of the highest paid workers. Unfortunately, the Employment Tribunal system is not effective at supporting low paid workers, who are less likely to bring cases than higher paid workers, despite being more affected by labour market abuses.