Data Insight: How common is low pay in Britain and is it declining?

This Data Insight examines the incidence of low pay in Britain over the period 2004-2021 using two indicators that are the focus of government policy. The analyses use data developed as part of the Wage and Employment Dynamics project, funded by ADR England. We use the data to identify and adjust for biases in estimates of the incidence of low pay. We show that the incidence of minimum wage employment is under-estimated. We also show that the incidence of low pay has been falling faster than previously thought.

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Summary

Identifying the incidence of low pay, and understanding how and why it changes over time, are vital components in decision making over the future level of the minimum wage and broader decisions about how best to support living standards. The Annual Survey of Hours and Earnings (ASHE) is the main source of information on the incidence of low pay. Completing the survey is a statutory requirement under the Statistics of Trade Act 1974, but some employers do not respond.

The Office for National Statistics (ONS) generates weights for each annual ASHE dataset which make the achieved sample representative of the population of employee jobs in Britain in terms of gender, age, occupation and region. We linked data from ASHE to the Business Structure Database – a research-ready version of the ONS business register – in order to investigate whether certain types of organisations remain under or over-represented in the achieved ASHE sample, even after applying the original ASHE weights.  

We found that jobs in smaller organisations, younger organisations and those in the private sector were under-represented in the annual weighted samples from ASHE, relative to their prevalence in the wider economy. We constructed new weights to remove these biases and used these to re-estimate the incidence of low pay among employees aged 25 or more.  

We also used the employee identifiers in ASHE to link records over time and examined rates of attrition in the survey from year-to-year. We found that younger employees, those on low wages and those working relatively few hours were less likely to remain in the ASHE sample over time, even after accounting for their likelihood of leaving employment – which we estimated from Annual Population Survey. We constructed weights to remove this attrition bias and used these to examine the extent to which employees move between low and higher pay from year-to-year.  

The percentage of jobs paid at or below the minimum wage has been rising over time, but we found that this percentage is under-estimated by around one fifth if one does not take account of the response biases that we identified in ASHE. In contrast, the percentage of employees on low pay (defined as two-thirds median earnings) has been falling over time, but the rate of decline is faster once response biases are accounted for.  

The fall in low pay is assumed by many to be a direct result of the rise in the wage floor but, in our new estimates, this fall predates the substantial increase in the minimum wage in 2015. We found that the main driver of the decline in low pay has been an increase in the share of employees who transition to higher pay in a given year. We did not find that estimates of transitions are subject to notable attrition biases. 

Why it matters

The findings indicate that there are observable response biases in existing estimates produced from the UK’s official source of earnings statistics (ASHE). By linking ASHE to the Business Structure Database we have been able to show that the ASHE dataset for Britain under-represents jobs in smaller, younger and private sector organisations. By generating adjusted weights which remove this under-representation, we have shown that the response biases have a substantive impact on our view of the bottom end of the wage distribution.  

This is relevant to a key area of government labour market policy, since estimates of the shares of jobs paid at or below the minimum wage or living wage and the incidence of low pay are key indicators for the Low Pay Commission when it advises the government on the operation and future uprating of the minimum wage or living wage.

We are making our work available to the Low Pay Commission, and our code is being made available to all researchers via the ONS Secure Research Service. This will enable government analysts and others to examine the construction of our new weights and to explore the sensitivity of any estimates to the choice of weighting scheme.