The Incidence of Low Pay is Falling In Britain, But Why – and Can We Trust the Figures?

Recent research indicates that the percentage of employees in Britain who are low paid – earning below two-thirds median hourly earnings – has been falling in the last 6-7 years.  It points to the increased ‘bite’ of the adult National Minimum Wage (NMW) and its replacement in 2016 by the more generous National Living Wage (NLW) as a driver of this change, raising pay rates at the bottom end of the earnings distribution.  However, new research from the ADR UK funded project, published for the first time today, revisits estimates of the incidence of low pay over the period 2004-2018 using new methods.

The study indicates that the incidence of low pay among those aged 25 and above has been falling since 2013, predating an increase in the NMW/NLW bite.  Although there are a number of reasons why low pay might be declining we show the decline appears to be driven by an increase in the probability of leaving low pay for higher pay, an increase that began in 2012/13. Ours is the first study to account for non-response and sample attrition in the key data set used by the Low Pay Commission and others to estimate the incidence of low pay.  We show that the incidence of low pay is over-estimated and the decline in low pay under-estimated if one does not account for non-response.

The full report can be accessed via the following link