Social Security and Wage Poverty

Historical and Policy Aspects of Supplementing Wages in Britian and Beyond

Chris Grover

• Publisher: Palgrave Macmillan
• Year: 2016
• ISBN:
  9781137293978
• Topic: Social Sciences
• Subtopic: Gender Studies
• Index: Social Sciences

This is the first book to examine debates about, and the practice of, state supplementing of wages. It charts the historical development of such policies from prohibition in the 1830s and how opposition to it was overcome in the 1970s, thereby allowing the increasing supplementation of the wages of poorly paid working people.

1

Introduction

In December 2014 3.22 million families in the UK were receiving state-sponsored wage supplements (tax credits). The majority (82.9%) of those families contained at least one child, but nearly a fifth (17.1% or 567,000) were families with no dependent children (extrapolated from HM Revenue and Customs, 2014a, figure 1.1). In 2012/13 families with dependent children received tax credits of £7,118 per annum on average, with tax credits for families where at least one person was in wage work costing a total of £19.9 billion (HM Revenue and Customs, 2014b, Tables 1.1 and 2.2). This represented 12% of benefit expenditure (Department for Work and Pensions [DWP], 2013a). For Tomlinson (2012, p. 221) the extent of such wage supplementation represents:

a startling return to the eighteenth-century-style Speenhamland system of ‘outdoor relief’, a reversal that would have early nineteenth-century economic liberals rotating in their graves ... we need to talk less about the ‘triumph’ of neo-liberalism, and more about how and why, and with what political consequences, the state plays such an enormous role in sustaining current employment levels.

For the purposes of Social Security and Wage Poverty, Tomlinson’s comments are interesting for several reasons. First, they point to the importance of an historical understanding of wage supplements. His reference to the Speenhamland system – a form of wage supplement formalised in the late 18th century in the county of Berkshire and one of the most misinterpreted forms of poor relief (see Chapter 2) – demonstrates this. Second, Tomlinson highlights the importance of more abstract conceptual and theoretical issues (his references to liberalism and neoliberalism) in understanding the supplementation of wages, for, like any other social policy, state provided wage supplements cannot be understood outside of the ideological and discursive. Third, he hints that wage supplements are equally, if not more, concerned with economic issues (‘sustaining current employment levels’ as he puts it) than they are with social needs (for example, the material condition of families that receive such a low wage income, given their circumstances, the state sees a necessity to supplement it).

Social Security and Wage Poverty focuses upon such issues related to wage supplements at a time when there is concern about the level of wages and the incidence of low wages in Britain and beyond (see, for example, Living Wage Commission, 2014 on Britain; Fernández et al., 2004; Adreß and Lohmann, 2008; Lohmann, 2008; Airio, 2009; European Foundation for the Improvement of Living and Working Conditions, 2010; Clark and Kanellopoulos, 2013 on Europe; Jefferson and Preston, 2013 on Australia; Wisman, 2013 on the USA). The Resolution Foundation (Corlett and Whittaker, 2014), for example, estimates that in Britain 5.2 million employees (22% of the total) receive a poverty level hourly wage.¹ Perhaps this should not be a surprise because of post-2008 wage trends. Blanchflower and Machin (2014), for instance, describe the consequences of the 2008/09 economic crisis for real wages as being ‘unprecedented’. They note (ibid., p. 19) that falling real wages:

did not happen in previous economic downturns: median real wage growth slowed down or stalled, but it did not fall. Indeed, in past recessions, almost all workers in both the lowest and highest deciles of the wage distribution experienced growing real wages. It was the unemployed who experienced almost all the pain: they lost their jobs and much of their incomes, and many were unemployed for a long time.

The fact that increases in unemployment have not occurred to the same extent as in previous economic crises has been a source of surprise for many economists,² such as Philpott (2014, p. 1) who ‘thought unemployment would top three million and stick close to that level for some time’ (see also Bell and Blanchflower, 2010, Blundell et al., 2014).

Working people have paid, however, for keeping their jobs by having to endure lower earnings (including nominal and real wage cuts) and reduced hours (Blanchflower and Machin, 2014; Bovill, 2014). It is estimated, for example, that while nominal earnings rose by about 2% between 2009 and 2013, inflation-adjusted real earnings fell by 8% (Bovill, 2014). Meanwhile, Blundell et al. (2014) found that for some workers it was not just real wages that fell. They note, for instance, that while the majority of workers who stayed in the same job between 2010 and 2011 experienced real wage cuts (70%), a significant minority experienced nominal wage freezes (12%) or nominal wage cuts (21%).

Meanwhile, the 2008/09 economic crisis saw a rise in various forms of precarious employment (for instance, casual, very short-term employment and zero hours contracts) (see Berrington et al., 2014 on young people). The Office for National Statistics (ONS, 2014) estimated that in January and February 2014 there were 1.4 million employee contracts in Britain that did not guarantee a minimum number of hours and in October to December 2013 over half a million (583,000) people were employed on such contracts in their primary employment. It is believed that the rise of zero hours contracts has contributed to under-employment post-2008 and evidence suggests that people on such contracts tend to be lower paid; that workplaces using such contracts have a higher proportion of workers receiving low pay compared to those companies that do not use such contracts (Pennycook et al., 2013); and that people on such contracts are more likely than other workers to want more hours of work (ONS, 2014).

The consequence of these trends is demonstrated in the fact that many households living in poverty have at least one member in paid employment. So, for instance, nearly two-thirds (63%) of children living in poverty are in households where at least one adult is in work (Carr et al., 2014, p. 48). The explanation of this – that the majority of children live in families where at least one parent is in work – is weak given the policy importance that is placed upon wage work as being the means to address poverty (Chief Secretary to the Treasury, 2003; Secretary of State for Work and Pensions, 2010a, 2010b). Furthermore, such trends are reflected in contemporary problems related to what has been described as the ‘cost of living crisis’ by a variety of commentators and analysts,³ for instance, the increasing use of food banks for emergency food supplies by people in work (All-Party Parliamentary Inquiry into Hunger in the United Kingdom, 2014; Cooper et al., 2014).

It is not the case though, that low wages were caused by the 2008/9 economic crisis. If this were the case, it would make for a very short book! In contrast, low wages have been related to poverty for hundreds of years. Quigley (1996, p. 75), for instance, notes how in feudal times ‘work and poverty went hand in hand,’ while the Booth (1903) and Rowntree (1901) surveys of late 19th century London and York respectively highlighted a continuing relationship between low and/or intermittent wages and poverty, as have the various ‘rediscoveries’ of poverty since the 1960s (Abel-Smith and Townsend, 1965; Secretary of State for Social Services, 1985a; HM Treasury, 1999a).

What is intriguing, however, and what provides the substantive focus of Social Security and Wage Poverty is how low wages have been construed as a social problem that may (or may not) require the state to intervene. In this context, the narrative of the book is primarily concerned with explaining how, in Britain, there was a policy move away from the Poor Law Amendment Act 1834 which prevented Poor Law authorities from subsiding the wages of working poor people, unless in exceptional circumstances, to the situation in contemporary society where, as we have seen, the supplementation of wages is widespread and is likely to be even more so with the development of Universal Credit (UC) (see Chapter 9). The book explains this by examining debates about, and developments in, poor relief and social security policy at particular moments when there was concern about in work poverty and its potential consequences at a local level (Chapters 2 to 4) and at a national level (Chapters 5 to 9). In addition, Chapter 10 examines potential alternatives to supplementing workers’ wages by examining notions of living and minimum wages, and Chapter 12 examines how and why two other nations (New Zealand and the USA) developed wage supplements.

Locating Social Security and Wage Poverty

Hill (1990) notes that there are at least four approaches – social administration, economics, implementation and political science – to understanding social security policy. State-sponsored wage supplements have been analysed using each of these approaches, although it can be argued that the issue of wage poverty has been most forcefully highlighted through the social administration approach which, as Hill (1990) highlights, has its origins in the Booth (1903) and Rowntree (1901) poverty studies. Hill (1990) notes that such studies led to demands for social security policies beyond ‘the very limited response to need already provided by the Poor Law’. And, as we see in Chapter 5 the ‘rediscovery of poverty’ in the 1960s, which once again highlighted the problem of wage poverty, was driven by researchers in the social administration tradition (see Abel-Smith and Townsend, 1965).

In some senses, the economic approach is difficult to separate from that of social administration, because, as Hill (1990) notes, they both demonstrate a concern with the rationality of policy. However, he suggests (ibid., p. 7, original emphasis) that in contrast to social administration, the economic approach is concerned with ‘the twin concepts of efficiency and effectiveness’. The focus of the economic approach is not only upon the ways in which policies may or may not address the needs of individuals, but the way that they may also lead ‘to the advancement of the general good’ (ibid.). In relation to the themes of Social Security and Wage Poverty the economics approach is most relevant in the econometrics of out of work and in work (wage supplements) social security policies, including concerns with labour market behaviours and the effects of such policies on labour markets (see, for example, on Britain: Maki and Spindler, 1975, 1979; Atkinson and Fleming, 1978; Kay et al., 1980; Micklewight, 1986; Atkinson, 1993; Blundell et al., 2000; Brewer et al., 2006, 2011a; and on the USA: Dickert et al. 1995; Averett et al., 1997; Meyer and Rosenbaum, 1999; Eissa and Hoynes, 2004).

For Hill (1990) the strength of the implementation approach is within the ways in which it highlights differences between policy and practice – that it is a ‘false picture of the policy process to assume that policies are passed down to implementation staff with their goals and objectives clear, their ambiguities eliminated and their relationships to other policies adequately sorted out’ (ibid., pp. 12–13). With reference to wage supplements, the main concerns with implementation have been in regard to difficulties related to introducing new social security policies (see, for example, Child Poverty Action Group (CPAG), 2004; Lane, Wheatley and Bremne, 2005; Griggs et al., 2005; Howard, 2004; House of Commons Public Accounts Committee, 2005; Brewer, 2006 on tax credits; Tarr and Finn, 2012; House of Commons Public Accounts Committee, 2013; NAO, 2013, 2014, on UC).

In contrast to the economic and social administration approaches, the political science approach to social security is ‘concerned to explain the system we have got, and to look at the political forces which have determined its shape and structure’ (Hill, 1990, p. 9). Hill (ibid.) argues that there are two main political science approaches. These are political economy, rooted in neo-Marxism accounts of social security in the legitimation and reproduction of capitalism (for example, O’Connor, 1973; Gough, 1979; Offe, 1984; Grover and Stewart, 2002) and a liberal pluralist approach ‘concerned with the roles of electoral forces, pressure groups and professional interests in explaining content’ (Hill, 1990, p. 9). Social Security and Wage Poverty is framed by a political economy approach for two main reasons.

First, the other approaches, particularly the social administration approach, have ‘tended to underestimate the political forces ranged against [it]’ (Hill, 1990, p. 6). The contemporary social security and wider social policy environment provides an example par excellence of this. The 2010–15 Coalition government, for example, argued that it ‘came together in the national interest ... at a time of real economic danger’ (HM Government, 2013, p. 5). In this context, the ‘most urgent job was to restore stability in our public finances and confidence in the British economy. In just two years we have cut the deficit by a quarter and have set out a credible path towards our goal to balance the current budget over the economic cycle’ (ibid.). As is discussed in greater depth in Chapter 9, this has involved substantial cuts to public expenditure which have had a disproportionate effect upon the income poorest areas and people (Women’s Budget Group, 2010, 2013; MacLeavy, 2011; Beatty and Fothergill, 2014), and, as has been highlighted by a range of policy actors and institutions, has meant that the statutory obligation to abolish child poverty contained in the Child Poverty Act 2010 would not have been met, even before the proposed abolition of its measures and targets in the Welfare Reform and Work Bill 2015 (Brewer et al., 2011a; Social Mobility and Child Poverty Commission, 2013).

Second, the political economic approach is preferable because the other approaches focus upon the way in which social security programmes operate, which is problematic because they ignore the ways in which they are embedded in a wider set of social relationships, and related ideologies and discourses. If histories of poverty relief tell one story, it is that the policies which make up such programmes are influenced by concerns that are much wider than merely the way in which they might be operating. This is not to argue, as is the case in the liberal pluralist tradition, that the state is a neutral arbiter of competing demands (Hill, 1990), but suggests that social security policy, like other social policy areas, is framed by a set of concerns related to the ways that British society is structured through a range of social relationships, notably those related to capitalism and patriarchy.

The analysis of Social Security and Wage Poverty is located in what has been conceptualised as the tensions central to capitalism and the dilemmas that these create for the state in attempting to manage those tensions. Such approaches to social security policy, as noted above, are developed from neo-Marxian understandings of social welfare policy. Marx said very little about such policies and, in fact, Mishra (1977, p. 74) argues that because of the way in which capitalism was organised it was Marx’s belief that it was not possible for individuals to obtain a true measure of welfare. Nevertheless, because, for Marx (1976, originally 1867) capitalism is a socially embedded process, it can be argued that it requires at least some non-market based intervention to help ensure its longer-term reproduction. While the nature of those interventions differ between countries because of a range of nationally based economic, historical, moral and social factors (Peck and Theodore, 2001), the accumulation process cannot be left to its own devices as it is, ultimately, destructive (Marx, 1976).

There are various ways in which political economic analysts have attempted to explain the relationships between social policy and the capitalist accumulation process. In the 1970s and 1980s analysts (for example, O’Connor, 1973; Gough, 1979; Offe, 1984) argued that social policies (or, more specifically, the welfare state) had roles in managing the long-term, strategic interests of capitalism – or, as Ginsburg (1979, p. 2) put it, ‘the functioning and management of state welfare suggests that it remains part of the capitalist state which is fundamentally concerned with the maintenance and reproduction of capitalist relations’. In such analyses welfare states are held to have two roles, reproduction an...

Table of contents

• Cover
• Title
• 1  Introduction
• 2  Wage Supplements and the New Poor Law
• 3  Wage Supplements and Poor Relief in the 1920s: Norfolks Agricultural Labourers
• 4  Wage Supplements and Public Assistance in the 1930s: Lancashires Cotton Weavers
• 5  Family Allowance, the Rediscovery of Poverty and Rejection of Means-tested Wage Supplements
• 6  Family Income Supplement: Reintroducing Means-tested Wage Supplements
• 7  Family Credit, Wage Suppression and the Think Tank
• 8  Tax Credits, Wage Worklessness and Child Poverty
• 9  Universal Credit: Wage Supplements and Mini-jobs
• 10  Minimum and Living Wages: Alternatives to Wage Supplements?
• 11  International Experiences of Wage Supplements: New Zealand and the USA
• 12  Conclusion
• Notes
• References
• Index