Study Notes
How might deregulation of the labour market lead to a rise in relative poverty in a country such as the UK?
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Last updated 10 Dec 2024
Deregulation of the labour market can lead to a rise in relative poverty in a country like the UK through several interconnected mechanisms:
1. Increased Prevalence of Low-Paid and Insecure Jobs
- Deregulation often results in fewer protections for workers, such as the removal of minimum wage laws or restrictions on zero-hour contracts. This can lead to an increase in jobs that pay very low wages or offer irregular and unpredictable hours.
- Workers in such jobs may find it difficult to earn a stable income sufficient to cover their basic needs, pushing them into relative poverty.
2. Reduction in Union Power
- Labour market deregulation can weaken trade unions, reducing workers' bargaining power. As a result, wages might stagnate or fall, particularly for low-skilled jobs, while employers gain more control over working conditions and pay structures.
- Without collective bargaining, low-income workers have less ability to negotiate better pay and benefits, exacerbating income inequality and relative poverty.
3. Increased Income Inequality
- Deregulation often benefits higher-income groups who have capital or entrepreneurial opportunities to leverage a more flexible labour market.
- In contrast, low-income workers are more likely to experience wage compression and job insecurity, widening the gap between the rich and the poor. As relative poverty measures compare incomes across the population, increasing inequality contributes to higher relative poverty rates.
4. Weakening of Employment Benefits and Protections
- Deregulated labour markets might limit employers' obligations to provide benefits such as paid sick leave, maternity/paternity leave, or employer pension contributions.
- The lack of these benefits disproportionately affects low-income workers, as they must cover such costs out of pocket, reducing their disposable income and increasing their likelihood of experiencing poverty.
5. Growth in the Informal Economy
- Deregulation can lead to the growth of informal or "gig economy" jobs, where workers often lack contracts, social security contributions, or access to benefits like healthcare or pensions.
- Such jobs can trap individuals in a cycle of low earnings, further entrenching poverty.
6. Limited Access to Training and Career Progression
- Deregulated labour markets might reduce employer incentives to invest in workforce training and development, as they are not bound by regulations mandating such investments.
- Workers, especially those in low-skilled jobs, might face limited opportunities to improve their skills and move into better-paid positions, perpetuating low incomes and relative poverty.
7. Impacts on Public Services and Welfare
- If deregulation leads to widespread low wages, it may increase dependence on state welfare systems like tax credits or housing benefits to supplement low incomes.
- This places greater pressure on government budgets and may lead to cuts in welfare provisions or public services, further harming low-income individuals who rely on them.
8. Regional Disparities
- Labour market deregulation can exacerbate regional inequalities, as high-paying jobs may become concentrated in economically vibrant areas (like London), while other regions face a proliferation of low-paid, insecure work.
- This dynamic can increase relative poverty in less economically developed regions.
Case Study Relevance: UK
In the UK, policies like the increased use of zero-hour contracts, the weakening of trade unions, and the rise of the gig economy have shown how deregulation can create precarious work conditions. While some argue that deregulation increases employment levels, the quality of jobs often deteriorates, contributing to relative poverty despite nominal employment gains.
Relative poverty in the UK remains a significant concern, with recent data indicating persistent and, in some cases, worsening conditions for many individuals and families.
Current Statistics:
- Overall Population: As of the financial year 2022/23, approximately 11.4 million people in the UK were living in relative poverty before housing costs (BHC). This figure rises to over 14.3 million when accounting for housing costs (AHC), representing about 21% of the UK population.
- Children: The percentage of children living in relative poverty has remained around 30% between 2018 and 2023, up from 27.1% in 2013. This indicates a concerning trend of child poverty rates increasing over the past decade.
- Pensioners: While pensioner poverty rates have remained relatively stable, there has been a statistically significant increase in the percentage of pensioners experiencing material deprivation compared to previous years.
Glossary of Key Terms
- Relative Poverty
- A measure of income inequality where individuals or households have significantly less income compared to the median in their society, impacting their ability to maintain a standard of living considered acceptable in that society.
- Before Housing Costs (BHC)
- A measure of income and poverty that calculates disposable income before deducting housing expenses such as rent or mortgage payments.
- After Housing Costs (AHC)
- A measure of income and poverty that calculates disposable income after deducting housing expenses, often showing higher poverty rates as housing costs disproportionately affect low-income households.
- Cost of Living Crisis
- A situation where the cost of basic goods and services (e.g., food, energy, housing) rises faster than incomes, making it harder for people to meet their essential needs.
- Material Deprivation
- A condition where individuals lack the resources to afford essential goods and activities necessary for an adequate standard of living.
- Income Inequality
- The unequal distribution of income within a population, often measured by metrics such as the Gini coefficient or income deciles.
- Low-Income Households
- Households whose income falls below a certain threshold, typically a percentage of the median income, making them more vulnerable to poverty.
- Trade Unions
- Organisations that represent workers in negotiations with employers to secure better pay, working conditions, and benefits.
- Zero-Hour Contracts
- Employment agreements where employers are not required to guarantee any minimum number of working hours, often leading to income instability for workers.
- Gig Economy
- A labour market characterized by short-term or freelance work, often facilitated by digital platforms, with limited job security and benefits for workers.
- Financial Vulnerability
- The condition of being at risk of financial distress due to low income, lack of savings, high debt, or other economic pressures.
- Housing Affordability
- A measure of whether households can afford housing costs without sacrificing other essential needs. It often compares housing costs to household income.
- Mortgage Rates
- The interest rates charged on home loans, which significantly impact housing affordability and household disposable income.
- Child Poverty
- A measure of the number or percentage of children living in households with income levels below a specific poverty threshold.
- Pensioner Poverty
- The condition where retirees have insufficient income to meet their basic needs, often assessed in terms of relative poverty thresholds.
- Social Mobility
- The ability of individuals or families to move up or down the economic and social ladder, often influenced by education, income, and employment opportunities.
- Welfare System
- Government programmes designed to support individuals and families in financial need through benefits such as unemployment support, housing assistance, or tax credits.
- Household Income Distribution
- The way in which total income is divided among households in a society, often used to analyse economic inequality.
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