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Economic Research

Living Wage Research for KPMG Current Trends in Household Finances and Structural Analysis of Hourly Wages

October 2012

Confidential \ Copyright © 2012 Markit Group L imited

Living Wage Research for KPMG

Table of Contents 1. Executive summary 3

2. Introduction 4 3. Methodology 5

KPMG Living Wa ge Ho usehold Finance Index Survey 5

ONS hourly earnings data analysis 7

4. KPMG Living Wage Household Finance Index Survey 9

Summary of key findings 9

KPMG Living Wage Financial Well-being Baromerer 12

KPMG Living Wage Labour Market Sentiment Barometer 14

KPMG Living Wage Spending Sentiment Barometer 16

KPMG Living Wage Cost of Living Barometer 18

5. Analysis of ONS hourly earnings data 19

Occupational analysis 19

Regional analysis 21

6. Appendix 29

Enquiries about this report can be addressed to:

Tim Moore, Senior Economist, Markit [email protected] Tel: 01491 461067

Jack Kennedy, Senior Economist, Markit [email protected] Tel: 01491 461087

Markit

Videcom House Newtown Road Henley on Thames Oxon, RG9 1HG United Kingdom

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mailto:[email protected]

mailto:[email protected]


1. Executive summary

1. KPMG Living Wage Household Finance Index survey

i) Key findings for October:

Exactly 41% of people earning below the Living Wage reported worsening finances

Six times as many saw savings fall (30%) as those that indicated a rise (5%)

Higher debt contrasted with a decline in debt among people above the Living Wage

Squeeze on cash availability much greater for people earning below the Living Wage

Actual spending rose at similar rates on both sides of the Living Wage threshold…

…but people earning below the Living Wage reported a much steeper drop in their appetite for major purchases

ii) Compared to those earning the Living Wage or above, people earning below the Living Wage are especially downbeat about…

Current household finances Savings

Cash availability Workplace activity

Appetite for major purchases Ease of access to unsecured credit

Data source: Markit

2. Structure of hourly pay across UK jobs and regions*

ii) Key findings:

An estimated one-in-five workers across the UK are earning below the Living Wage

This amounts to some 4.82 million people

The largest occupational category within this is sales & retail assistants, of which there are an estimated 780,000 people earning less than the Living Wage

As a proportion of all workers, the highest prevalence of sub-Living Wage earners is among bar staff (an estimated 90% of workers in this category) and waiters & waitresses (85%), partly reflecting reliance on discretionary tips to top up earnings in these categories

Elsewhere, the highest proportion of below Living Wage earners is in kitchen & catering assistants, elementary personal services occupations and launders, dry cleaners & pressers (all 75%)

Below Living Wage estimates vary across regions, with Northern Ireland (24%) having the highest proportion of workers below the Living Wage

London and the South East have the lowest proportion of those earning less than the Living Wage (both 16%)

*Data source: Markit estimates based on ONS figures

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2. Introduction The UK Living Wage is an hourly rate of pay set independently and updated annually. It is calculated according to the basic cost of living in the UK, and employers choose to pay the Living Wage on a voluntary basis. According to the Living Wage Foundation, since 2001 the campaign has impacted over 10,000 employees and redistributed over £96 million to some of the lowest paid workers in the UK.

The research herein is compiled by Markit for KPMG and uses the Living Wage threshold as at October 2012, which is as follows:

Greater London Authority calculates the London Living Wage, which is currently £8.30 per hour.

For the rest of the UK, the Living Wage is calculated by the Centre for Research in Social Policy at Loughborough University and is currently £7.20 per hour.

By comparison, the UK minimum wage in 2011 for people aged 21 and over was £6.08. The figure for 2012 (effective 1st October 2012), is £6.19.

From November 2012, both Living Wage figures will be announced annually in November of each year.

i) About the research

KPMG commissioned Markit Economics to conduct an original piece of data analysis on the Living Wage, by drawing together official hourly earnings figures and Markit’s proprietary survey information on UK household finances. The purpose to the research is twofold and outlined below.

In the first section of the research, we present a unique overview of recent trends in household finances for those on either side of the Living Wage threshold. This survey information shines a light on the contrasting experiences of people earning above and below the Living Wage, and covers four broad themes; financial well-being, labour market sentiment, spending and cost of living trends.

In the second section of the research we provide an insight into the regional and job sector distribution of hourly earnings below the Living Wage in the UK. In doing so, we highlight the ‘hot spots’ for the types of job below the Living Wage and estimate the total number of people whose earnings are below the Living Wage both nationally and by geographic region.

ii) Concept and data sources

Markit’s regular UK Household Finance Index (HFI) survey of 1,500 respondents within the UK was used to compile figures for financial conditions among those either side of the Living Wage threshold.

The Office for National Statistics (ONS) Annual Survey of Hours & Earnings was used as the data source to estimate the national, regional and job sector distribution of hourly earnings below the Living Wage.

The following section outlines how Markit Economics used these data sources to produce the statistics contained in the main research (see sections 4 and 5).

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3. Methodology i) KPMG Living Wage Household Finance Index survey

In October 2012, an additional question was added to the Markit Household Finance Index (HFI) survey (see information box below) which enabled a comparison of key trends in household finances between those earning below the Living Wage and those earning the Living Wage and above. The aim was to benchmark the trends in financial well-being across the Living Wage threshold, thereby highlighting key areas of pressure on household finances such as debt, savings and living costs.

Markit Household Finance Index™

The Markit Household Finance IndexTM (HFITM) survey was first conducted in February 2009 and is designed to accurately anticipate changing consumer behaviour each month. The HFI tracks objective “hard data” on actual month-on-month changes in financial wellbeing, focusing on household spending, savings and debt levels, and also includes several forward-looking opinion questions to help anticipate future trends.

The survey is based on monthly responses from approximately 1,500 individuals in Great Britain, with data collected by Ipsos MORI from its panel of respondents aged 18-64. The survey sample is structured according to gender, region and age to ensure the survey results accurately reflect the true composition of the population. Results are also weighted to further improve representativeness.

Index numbers are calculated from the percentages of respondents reporting an improvement, no change or decline. These indices vary between 0 and 100 with readings of exactly 50.0 signalling no change on the previous month. Readings above 50.0 signal an increase or improvement; readings below 50.0 signal a decline or deterioration. Due to the limited history of data, indices are not adjusted for seasonal influences.

The new question was placed into the regular HFI questionnaire as shown in the information box below. This formed a ‘Living Wage filter’ for all responses to the individual questions on the HFI survey, such as those on debt, savings and the cost of living. In order to make the figures consistent on a residence basis, a code was also introduced so that respondents living in London were asked whether their hourly wage was higher/same/lower than £8.30, while for respondents in the rest of the UK the figure was £7.20.

KPMG Living Wage survey filter

Q. ASK ALL WHO ARE EMPLOYED

“How does your hourly wage compare to [£8.30] IF REGION IS LONDON / [£7.20 ] IF REGION IS NOT LONDON. Is it:”

SELECT ONE

1. Higher

2. Equal

3. Lower

4. Don’t know

5. Prefer not to say

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With those earning higher, the same and lower than the Living Wage now identified, the next step was to calculate the answers to the regular HFI questions. Responses were split between those below the Living Wage and those earning the same or more than the Living Wage, which was 188 and 715 survey members respectively in the October HFI. The fieldwork was conducted between the 11th and 15th October. Additional background data analysis was also undertaken to ensure that these respondents were representative of the true national population (i.e. in terms of UK region, age and gender).

The exact questions asked by the monthly Household Finance Index survey are in the information box below. For each question, results have been split between those earning above (or the same as) the Living Wage, and below the Living Wage.

KPMG Living Wage Household Finance Index

Survey questions (higher/same/lower than one month ago, unless otherwise stated)

1. How has the amount of cash your household has available to spend changed?

2. How has the amount of cash your household actually spent this month changed?

3. How has your household's financial situation changed?

4. How do you think your household's financial situation will have changed 12 months from now?

5. Is now generally a worse time or a better time to make major purchases (such as a car, holiday booking, large household appliance, etc)?

6. How has your household's level of savings changed?

7. How secure do you think your job is?

8. How has the level of business activity at your place of work changed?

9. How has the level of income from your employment changed?

10. How has your household's existing level of debt changed?

11. How has your need for additional borrowing changed in respect of the following?(credit cards/overdrafts/other)

12. How easy is it for you to get access to credit in respect of the following?(credit cards/overdrafts/other unsecured loans)

13. How do you think prices generally for goods and services that you buy have changed?

14. How do you think prices generally for goods and services that you buy will have changed 12 months from now?

The questions outlined above fit broadly into four main categories; overall financial well-being, labour market conditions, spending and cost of living trends. As such, four key ‘Barometers’ are created for the purpose of analysing the KPMG Living Wage Household Finance Index results in section 4.

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ii) ONS hourly earnings data analysis

The structural information on Living Wages, analysed in section 5, is based on data from the 2011 Annual Survey of Hours and Earnings (ASHE) conducted by the Office for National Statistics (ONS). This survey provides a detailed breakdown of hourly earnings across occupations, with results published on both a national and UK regional basis.

Office for National Statistics: Annual Survey of Hours and Earnings

The Annual Survey of Hours and Earnings (ASHE) is based on a 1 per cent sample of employee jobs taken from HM Revenue & Customs (HMRC) PAYE records. Information on earnings and hours is obtained from employers and treated confidentially. ASHE does not cover the self-employed nor does it cover employees not paid during the reference period. In 2011 information related to the pay period which included 13 April. The 2011 survey was based on approximately 190,000 returns.

The ASHE includes percentile wage bands for each occupation, to illustrate the broad distribution of earnings within a particular grouping. This highlights patterns of hourly earnings below the Living Wage for a given occupation (and within a particular UK region). An example of the dataset is shown in the information box on the following page.

However, the limitation of the data set is a lack of more detailed information on the distribution of wages within percentile bands (and the width of each band is at least five percentage points). Therefore, no official figure is published for either the exact percentage or number of jobs that are below the Living Wage within each occupation type and region. We have sought to overcome this limitation by generating our own estimates, thereby providing greater detail around the structure of hourly pay patterns across the UK.

The estimates are derived from a simple calculation, and give our best assessment of the exact number and percentage of workers in each occupational category that are earning below the Living Wage. The first step for estimating these proportions was an assumption that the distribution of earnings follows a linear trend between the percentile bands that are published by the ONS. This assumption is both intuitively appealing, and a casual inspection of the dataset gives little evidence to the contrary. For example, there does not seem to be clustering around particular wage points or erratic hourly earning spreads across the percentile bands.

We then identify the percentile band within which the Living Wage falls for each occupation in the dataset, and interpolate the exact percentage of employees that fall either side of the threshold (assuming a linear trend in the distribution). Because the ONS publish the total number of jobs within each occupational category, it is then a simple calculation to obtain an estimate of the actual number of workers above and below the Living Wage threshold.

Having run this analysis over the dataset, lists of ‘hotspots’ by sector and region were created detailing where the highest or lowest proportions of people are earning less than the Living Wage. Estimates have been rounded where appropriate.

Due to the difference in the Living Wage between London and the rest of the UK, the estimate for the number of people below the Living Wage at the overall UK level is derived from aggregating the regional estimates (i.e. a ‘bottom up’ approach).

Using the aforementioned methodology, we take a detailed look at the current structure of hourly earning across job sectors and UK regions in section 5, but first the following section examines how household finance trends differed across the Living Wage threshold in October 2012.

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Estimating the exact number of workers below the Living Wage

By way of example, data for the ‘childcare and related personal services category’ in London shows that the median gross hourly wage for the third decile of the sample was £8.11. The figure for the fourth decile was £8.74. We can therefore infer that between 3040 percent of childcare workers in the capital received a wage below the Living Wage (£8.30).

There were 80,000 people in this job category in London; therefore approximately 24,000 – 32,000 people were earning less than the Living Wage in London in this type of work.

By making the reasonable assumption of a linear trend in wages across the percentiles, we can further place the number at approximately 26,300 workers. (24,000 + [0.29*8,000] ).

This calculation is shown below:

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4. KPMG Living Wage Household Finance Index Survey

Sharp deterioration in household finances for people earning below the Living Wage, amid depleted savings and squeezed cash availability

Key points for October: (for people earning below the Living Wage)

Exactly 41% of people earning below the Living Wage reported w orsening finances

Six times as many respondents saw savings fall (30%) as those that indicated a rise (5%)

Higher debt levels contrasted with a decline in debt among people earning above the Living Wage

Squeeze on cash availability was much greater for people earning below the Living Wage

Actual spending rose a t similar rates on b oth sid es of the Li ving Wage threshold…

…but people earning below the Living Wage reported a much steeper drop in their appetite for major purchases

i) Summary of findings

October survey data highlighted strains on household finances on both sides of the Living Wage threshold, largely

reflecting pressure on real incomes from higher living costs and subdued pay trends, alongside depleted savings

and weak underlying economic sentiment. The survey data indicated that people earning below the Living Wage

fared worse than those on or above this hourly pay threshold1, in terms of both overall financial well-being and

labour market sentiment, as well as consumer spending trends.

Job insecurities were more prevalent among those earning below the Living Wage in October, while respondents

in this pay category also reported lower workplace activity over the month, in contrast to an increase seen by

people earning the Living Wage and above. This provides some evidence that people earning below the Living

Wage are increasingly concerned about the impact on their job security of the continuing weakness across the

wider UK economy. Moreover, subdued economic conditions may have been behind the drop in workplace activity

in October, given that employees earning below the Living Wage are more likely to work in jobs with discretionary

hours (such as Bar Staff, Waiters and Waitresses – see section 5).

Nonetheless, people earning below the Living Wage did indicate a slight increase in total income from employment

over the month, likely reflecting an uplift in the national minimum wage during October, which contrasted with

stagnant earnings reported by those above the Living Wage threshold. This did not prevent a squeeze on those

1 In this section, for simplicity we use the phrases ‘above the Living Wage’ and ‘the Living Wage and above’ interchangeably,

since the survey results have been grouped into two pay categories – ‘below the Living Wage’, and ‘all other employees’.

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with savings as well as higher overall debt levels among those earning below the Living Wage in October and, in

both cases, the trends were worse than those recorded for people earning the Living Wage and above.

In turn, respondents earning less than the Living Wage were much more downbeat about their appetite for making

major purchases than other employees – almost half reported a drop in their appetite for spending on big ticket

items such as large household appliances, holidays and cars, against just 4% that saw a rise. People earning

below the Living Wage are also more downbeat about their household financial outlook and indicated a particularly

marked fall in access to unsecured credit, which further depressed spending sentiment during October.

Actual levels of spending nonetheless increased at broadly similar rates across the Living Wage threshold during

October, according to the latest survey findings. However, this may in part reflect higher living costs for items such

as food, transportation and utilities, perhaps especially so for those earning below the Living Wage, where a

greater proportion of household budgets are likely to be accounted for by essential spending. This was further

highlighted by people earning below the Living Wage reporting a much greater drop in cash availability than other

employees in October, despite seeing a stronger income trend and similarly marked rise in living costs to those

earning above the Living Wage. Meanwhile, in terms of future living costs, on both sides of the Living Wage

threshold the vast majority of respondents anticipate that the goods and services they buy will rise in price over the

year ahead.

The results of the survey, compiled between the 11th and 15th October are shown in the graphics below. In the

remainder of this section, we a more detailed analysis of the figures, grouping the indices into four key Barometers

of household finances – Financial Well-being, Labour Market Sentiment, Spending Sentiment and Cost of Living.

Table 4.1: Summary of data findings in October 2012

Indices vary between 0 and 100 with readings of exactly 50.0 signalling no change on the previous month.

Readings above 50.0 signal an increase or improvement; readings below 50.0 signal a decline or deterioration.

Question

(vs. one month ago unless specified)

Below Living Wage

Lower Same Higher

Percentages

Index

Living Wage and above

Lower Same Higher

Percentages

Index

Financial Well-being Household Finances 41% 53% 6% 32.7 25% 65% 9% 41.9 Savings 30% 65% 5% 37.5 26% 62% 12% 43.1 Cash availability 38% 53% 9% 35.1 27% 62% 11% 42.0 Debt 14% 68% 18% 51.6 19% 68% 13% 47.2 Need for unsecured credit

Labour Market

6% 81% 12% 52.9 9% 81% 11% 51.0

Job security 23% 68% 9% 43.1 16% 77% 7% 45.2 Workplace activity 24% 63% 12% 43.9 16% 61% 23% 53.8 Income from employment

Spending Sentiment

13% 72% 14% 50.5 9% 83% 8% 49.7

Spending 22% 52% 26% 52.1 18% 61% 21% 51.6 Appetite for major purchases 46% 50% 4% 29.3 32% 62% 7% 37.5 Ease of obtaining unsecured credit 20% 74% 5% 42.6 11% 84% 5% 47.1 Household finances in 12 months' time

Cost of Living

47% 30% 23% 37.8 43% 36% 21% 39.1

Cost of living 3% 21% 76% 86.7 2% 23% 75% 86.7 Cost of living in 12 months' time 4% 13% 83% 89.6 2% 9% 89% 93.8

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Results Summary Index values for selected variables, October 2012. Indices for Debt and Need for unsecured credit

are inverted. The closer the line to the centre, the worse the wage category was faring in October.


Household Finances 55.0 Household finances in 12

Savings months' time 50.0 Ease of obtaining 45.0

Cash availability unsecured credit 40.0 35.0 Appetite for major 30.0 Debt purchases Need for unsecured Spending

credit Income from employment Job security Workplace activity

Below Living Wage Living Wage and above

Pressure areas for those earning below the Living Wage Difference between index value for people earning above Living Wage and respondents earning

below the Living Wage

0.0

2.0

4.0

6.0

8.0

10.0 Household Finances

Savings

Cash availability

Debt

Need for unsecured credit

Job security

Workplace activity

Income from employment

Spending

Appetite for major purchases

Ease of obtaining unsecured credit

Household finances in 12 months' time

The larger the shaded area, the worse people earning below the Living Wage are faring compared to other employees

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KPMG

HouseholdFinancial Well-

beingBarometer


ii) KPMG Living Wage Financial Well-being Barometer

The KPMG Living Wage Financial Well-being Barometer is a measure of overall financial health. It is calculated by taking the average of the five survey indices below, with the debt and demand for unsecured credit variables inverted so as to move in a comparable direction to the other components:

Household finances

Savings

Cash availability

Debt (inverted)

Need for unsecured credit (inverted)

The resulting figure is designed to give a single figure snapshot of households’ financial health, with readings above 50.0 signalling improvement and below 50.0 indicating a deterioration. The index varies from 0 – 100, and the further away from the neutral 50.0 mark, the greater the rate of change signalled.

KPMG Financial Well-being Barometer (and component indices) Note that debt and need for unsecured credit are inverted in the barometer calculation

32.7

37.5

35.1

51.6

41.9 43.1

42.0

47.2

51.0 52.9

40.2

45.7

30.0

35.0

40.0

45.0

50.0

55.0

Household Finances

Savings Cash availability

Debt Need for unsecured

credit


KPMG Household Financial

Well-being Barometer

Index, 50 = no-change

At 40.2 in October, the KPMG Financial Well-being Barometer – a composite indicator designed to give a single-figure snapshot of households’ financial health – posted well below the neutral 50.0 mark for those earning less than the Living Wage. This signalled a sharp deterioration of household financial well-being. All five component indices – finances, savings, cash availability, debt levels and demand for unsecured credit – exerted negative influences on the overall figure during October. Moreover, the Barometer was much lower than the equivalent for those earning above the Living Wage (45.7). People earning below the Living Wage fared worse on each Barometer component, with the divergence led by underlying household finances, cash availability and savings respectively.

Respondents earning below the Living Wage indicated a strong degree of concern regarding their underlying household finances in October. Around 41% signalled that their finances had worsened since September and only

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6% saw an improvement. At 32.7, the index reading was far weaker than that for those in the Living Wage and above category (41.9).

The Barometer also showed that sharply falling savings were a key factor leading to weaker household financial well-being among those below the Living Wage. Within this earning category, six times as many respondents (30%) reported a drop in savings as those that saw an increase (5%). Of those earning the Living Wage and above, 26% noted a decline against 12% that reported an improvement in their household savings.

On balance, people earning below the Living Wage also saw a moderate rise in their debt levels over the month. Around 18% of these respondents signalled a rise in debt, compared to 14% that noted a reduction. An accumulation of household debt in October contrasted with lower levels of debt among those earning above the Living Wage. Around one-in-five respondents in this category reported falling debt, against 13% that registered an increase.

Those earning below the Living Wage also saw additional pressure on their financial well-being from lower levels of cash availability during October. Around four times as many (38%) reported a drop in cash available to spend as those that indicated a rise (9%). The resulting index reading of 35.1 pointed to a sharp reduction in cash availability, and a much faster pace of decline than for those earning above the Living Wage (42.0).

A lack of savings and a squeeze on cash availability among those earning below the Living Wage in turn contributed to rising demand for unsecured credit in October. Twice as many employees earning below the Living Wage (12%) indicated an increase in demand for unsecured borrowing as those that pointed to a reduction (6%). The resulting ‘diffusion index’ reading of 52.9 was slightly higher than for those in the Living Wage and above category (51.0).

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KPMG Labour MarketSentiment Barometer


iii) KPMG Living Wage Labour Market Sentiment Barometer

The KPMG Living Wage Labour Market Sentiment Barometer is a measure of overall jobs sentiment. It is calculated by taking the average of the three survey indices below:

Job security

Workplace activity

Income from employment

The resulting figure is designed to give a single figure snapshot of labour market sentiment, with readings above 50.0 signalling improvement and below 50.0 indicating a deterioration. The index varies from 0 – 100, and the further away from the neutral 50.0 mark, the greater the rate of change signalled.

KPMG Labour Market Sentiment Barometer (and component indices)

43.1 43.9

50.5

45.2

53.8

49.7

45.8

49.6

40

42

44

46

48

50

52

54

56

Job security Workplace activity Income from employment


KPMG Labour Market Sentiment Barometer


At 45.8 in October, the KPMG Labour Market Sentiment Barometer – a composite indicator designed to give a single-figure snapshot of labour market sentiment – registered much lower than the 50.0 no-change value for those earning below the Living Wage. Moreover, the figure was well below the equivalent reading for those earning above the Living Wage which, at 49.6, was close to the neutral threshold during October.

The survey therefore indicated a substantial worsening of labour market sentiment for those earning below the Living Wage during October. Two of the three component indices – job security and workplace activity – exerted negative influences on the overall figure over the month. Meanwhile, a slight rise in income from employment among those earning below the Living Wage (50.5) contrasted with broadly unchanged incomes among those above the threshold (49.7). The slight rise in incomes for people earning below the Living Wage was most likely driven by a rise in the UK national minimum wage during October 2012.

The main source of the Barometer’s divergence across the Living Wage threshold was workplace activity in October. Those earning below the Living Wage saw a steep decline in workplace activity (24% noted a drop, and just 12% an increase) while those in the other wage category reported an increase on balance during the month (only 16% indicated a reduction, while 23% suggested a rise). This is perhaps evidence that those earning below the Living Wage are more likely to work in jobs with irregular working hours (such as Bar Staff, Waiters and

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Waitresses) and this in turn is likely to have contributed to the strain on financial well-being shown by the survey in October.

A further downward influence on the KPMG Living Wage Labour Market Sentiment Barometer was reduced job security in October, perhaps also reflecting the irregular working hours for some people in this income category. Almost one-in-four people (23%) below the Living Wage reported a drop in their job security, compared to just 9% that signalled an improvement during the month. The degree of pessimism about job security was slightly greater than that for people earning above the Living Wage. The index for the latter posted 45.2 in October, compared to a reading of 43.1 for those earning below the Living Wage. This is somewhat surprising given the job sector breakdown of people earning below the Living Wage, which shows that they generally work in the private sector – around 90% of the category in the October survey. The regular monthly Markit HFI survey, from which the KPMG data are derived, highlights that people working in the private sector have been consistently less downbeat about their job security than those working in the public sector during the past two-and-a-half years, reflecting job cuts and uncertainty amid ongoing government austerity measures.

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KPMG SpendingSentimentBarometer


iv) KPMG Living Wage Spending Sentiment Barometer

The KPMG Living Wage Spending Sentiment Barometer is a measure of overall household expenditure sentiment. It is calculated by taking the average of the four survey indices below:

Actual spending

Appetite for major purchases

Ease of access to unsecured credit

Household finances in 12 months’ time

The resulting figure is designed to give a single figure snapshot of spending sentiment, with readings above 50.0 signalling improvement and below 50.0 indicating a deterioration. The index varies from 0 – 100, and the further away from the neutral 50.0 mark, the greater the rate of change signalled.

KPMG Spending Sentiment Barometer (and component indices)

52.1

29.3

42.6

37.8

51.6

37.5

47.1

39.1 40.4

43.8

26.0

30.0

34.0

38.0

42.0

46.0

50.0

54.0

Spending Appetite for major purchases

Ease of obtaining unsecured credit

Household finances in 12 months' time


KPMG Spending Sentiment Barometer


The KPMG Spending Sentiment Barometer – a composite indicator designed to give a single-figure snapshot of spending trends – posted 40.4 in October for those earning below the Living Wage. This was well below the neutral 50.0 threshold and weaker than the equivalent reading for those earning above the Living Wage (43.8).

October data indicated that subdued appetite for major purchases was the main factor that dampened spending sentiment among those earning below the Living Wage. Almost half of these respondents (46%) suggested a lower appetite for big-ticket purchases such as holidays or cars, compared to only 4% that saw an improvement during October.

Households’ spending decisions are influenced by both their expectations for their future finances and their perceived access to unsecured credit. These two components of the Barometer weighed on spending sentiment during October.

Almost half (47%) of those earning below the Living Wage anticipate a deterioration in their household finances over the next 12 months, which is twice as many as forecast an improvement (23%). People earning below the

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Living Wage are also slightly more pessimistic about the financial outlook than those above the Living Wage threshold (among the latter, 43% expect their finances to worsen and only 21% anticipate an improvement).

People earning less than the Living Wage indicated a marked deterioration in their ease of access to unsecured credit in October, with four times as many reporting a drop (20%) as those that signalled an improvement (5%). At 42.6, the resulting index reading was much lower than the equivalent figure for those earning the Living Wage and above (47.1).

Actual household spending nonetheless increased at broadly similar rates among those on either side of the Living Wage threshold during October. Among those earning below the Living Wage, around 26% reported a rise in their household spending, compared to 22% that indicated a reduction.

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KPMG Cost of Living

Barometer


v) KPMG Living Wage Cost of Living Barometer

The KPMG Living Wage Cost of Living Barometer is a measure of overall inflationary pressures on household budgets. It is calculated by taking the average of the two survey indices below:

Current cost of living

Cost of living in 12 months’ time

The resulting figure is designed to give a single figure snapshot of inflationary pressures on household budgets, with readings above 50.0 signalling upward pressure on living costs and below 50.0 indicating lower cost pressures. The index varies from 0 – 100, and the further away from the neutral 50.0 mark, the greater the rate of change signalled.

KPMG Cost of Living Barometer (and component indices)

86.7

89.6

86.7

93.8

88.2

90.3

84.0

86.0

88.0

90.0

92.0

94.0

Cost of living Cost of living in 12 months' time


KPMG Cost of Living Barometer


The KPMG Cost of Living Barometer – a composite indicator designed to give a single-figure snapshot of inflationary pressures – registered 88.2 in October for those earning below the Living Wage. This pointed to a substantial squeeze on household finances from inflationary pressures over the month. Both component indices – current inflation and inflation expectations – highlighted greater pressure from living costs.

October data indicated an increase in the prices of goods bought by people earning below the Living Wage. Around three-quarters of these respondents (76%) reported higher living costs over the month, while just 3% saw a decrease. At 86.7, the resulting index reading was in line with the equivalent figure for people earning the Living Wage and above, thereby signalling similarly marked inflationary pressures on household budgets.

People earning below the Living Wage anticipate that the squeeze will continue over the next 12 months, as suggested by the index measuring inflation expectations posting 89.6 during October. Approximately 83% of respondents forecast that their living costs will increase over the year ahead, while only 4% anticipate a decline.

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5. Analysis of ONS hourly earnings data This section contains results from the analysis of the 2011 ONS Annual Survey of Hours and Earnings to provide an insight into the prevalence of people earning below the Living Wage across occupations and regions.

Key findings:

An estimated one-in-five w orkers across the UK are earning below the Living Wage

This amounts to some 4.82 million people

The largest occupational category within this is sales & retail assistants, of which there are an estimated 780,000 people earning less than the L iving Wage

As a proportion of all workers, the highest prevalence of sub-Living Wage earners is among bar staff (an estimated 90% of all w orkers in this category) and w aiters & waitresses (85%), partly reflecting reliance on discretionary tips to top up earnings in these categories

Elsewhere, the highest proportion of below Living Wage earners is in kitchen & ca tering assistants, elementary personal services occupations and launders, dry cleaners & pressers (all 75%)

Below Living Wage estimates vary across regions, with Northern Ireland (24%) having the highest proportion of workers below the Living Wage

London and the South East have the lowest proportion o f those ea rning less than the L iving Wage (both 16%)

5.1 Occupational analysis

The dataset contains a detailed breakdown of wage distribution by occupation at the 4-digit Standard Occupation Classification (SOC) level for UK aggregates. Analysis of these data shows that low-skilled services occupations generally prevail with respect to the greatest numbers of people earning below the Living Wage.

In terms of absolute numbers, the occupation with the highest number of people sub-Living Wage is sales & retail assistants, with an estimated 780,000 people falling into this category. In second place by some distance is cleaners & domestics (440,000), followed by kitchen & catering assistants (340,000).

Table 5.1.1: Top 10 occupations by number below Living Wage: UK

Rank Occupation Total (000s)

Median wage

Annual % chg

Mean wage

Annual % chg

No. below

Living Wage*

1

2 3 4

5 6 7

8 9

10

Sales and retail assistants

Cleaners, domestics Kitchen and catering assistants Care assistants and home carers

Other goods handling and storage occupations Bar staff General office assistants/clerks

Waiters, waitresses Customer care occupations

Educational assistants

1,175

646 435 831

500 179 919

165 352

449

6.59

6.50 6.18 7.93

8.07 6.00 9.19

6.00 8.21

8.23

1.4

0.5 1.7 -1.7

0.9 2.6 1.4

1.2 0.0

1.7

7.51

7.21 6.67 8.57

8.76 6.43 10.32

6.52 9.08

8.86

1.8

0.8 0.8 -0.7

1.9 2.0 1.5

0.1 -0.7

2.2

780 440

340 290 170

160 160 140

120 110

In terms of the proportion of people earning below the Living Wage relative to the overall number of workers, hospitality-related jobs feature prominently at the top of the ranking table. In first place is bar staff, with an estimated 90 percent of workers in this category earning below the Living Wage. This is closely followed by waiters & waitresses at 85 percent. Kitchen & catering assistants, elementary personal services and launders/dry cleaners/pressers each have an estimated 75 percent of earners sub-Living Wage.

/ 19


Figure 5.11 illustrates the top 10 occupations by number of people below the Living Wage, whereby the larger the size of the circle, the greater the number of sub-Living Wage earners in that category. The circles are distributed along the vertical axis according to the percentage of earners below the Living Wage in that occupation.

Figure 5.1.1: Top 10 occupations by number below Living Wage

Occupations with greatest number of people below Living Wage: All UK

Percentage below Living Wage*

0

100

60

80

Sales and retail assistants (780k)

Cleaners, domestics (440k)

Kitchen and catering assistants (340k)

Care assistants and home carers (290k)

Other goods handling and storage (170k)

Bar staff (160k)

General office assistants/clerks (160k)

20

40 Waiters, waitresses (140k)

Customer care occupations (120k)

Educational assistants (110k)

Table 5.1.2: Top 10 occupations by proportion below Living Wage: UK

Rank Occupation Number (000s)

Median wage

Annual % chg

Mean wage

Annual % chg

% below

Living Wage*

1

2 3 4

5 6 7

8 9

10

Bar staff

Waiters, waitresses Kitchen and catering assistants Elementary personal services occupations n.e.c.

Launderers, dry cleaners, pressers Floral arrangers, florists Elementary office occupations n.e.c.

Cleaners, domestics Leisure and theme park attendants

Hairdressers, barbers

179

165 14 435

19 51 5

56 646

30

6.00

6.00 6.18 6.17

6.28 6.51 6.40

6.50 6.50

6.50

2.6

1.2 1.7 0.9

1.2 0.2 -5.1

0.5 2.4

0.0

6.43

6.52 6.67 6.95

6.74 6.91 7.21

7.21 6.64

7.33

2.0

0.1 0.8 4.0

0.3 0.0 -3.4

0.8 1.2

-0.1

90 85

75 75 75

70 70 70

65 65

/ 20


By broad job category (at the 3-digit Standard Occupation Classification level), Elementary Personal Services Occupations has the highest proportion of workers below the Living Wage, with an estimated 80 percent of earners falling into this category. Elementary Cleaning Occupations and Sales Assistants and Retail Cashiers follow, each with an estimated 65 percent of workers earning less than the Living Wage.

Table 5.1.3: Top 10 broad occupations by proportion below Living Wage: UK

Rank Description Number (000s)

Median wage

Annual % chg

Mean wage

Annual % chg

% below

Living Wage*

1

2 3 4

5 6 7

8 9

10

Elementary Personal Services Occupations

Elementary Cleaning Occupations Sales Assistants And Retail Cashiers Hairdressers And Related Occupations

Elementary Security Occupations Food Preparation Trades Elementary Process Plant Occupations

Animal Care Services Elementary Agricultural Occupations

Elementary Sales Occupations

833

699 1,343

76

293 294 242

32 59

81

6.07

6.55 6.64 6.75

7.44 7.51 7.54

7.76 7.76

7.83

1.1

0.7 1.8 0

1 2.2 -0.9

-2.7 1.8

6.9

6.64

7.32 7.53 7.55

9.08 8.34 8.35

8.27 8.36

8.13

0.9

0.1 1.8 -0.4

1.7 1.1 -0.1

-3.3 2.7

6.1

80 65

65 60 45

45 45 40

35 35

*Markit estimates

See appendix for details of which occupations are included within broad groupings

5.2 Regional analysis

Northern Ireland has the highest proportion of people earning below the minimum wage at 24%, followed by Wales at 23%. The lowest proportion of sub-Living Wage earners is in London and the South East, both at 16%.

In terms of size, the North West and London have the highest number of people earning below the Living Wage at 570,000 apiece.

Table 5.2.1: Regions by number and proportion of earners below Living Wage

Rank Region Number (000s)

Median wage

Annual % chg

Mean wage

Annual % chg

No. below % below Living Wage* Living Wage*

1 Northern Ireland 716 10.00 2.1 12.83 2.9 170 24%

2 Wales 1,084 10.05 0.0 12.76 0.6 250 23% 3 East Midlands 1,679 10.18 0.4 13.17 0.0 370 22% 4 Yorkshire and The Humber 2,001 10.32 1.0 13.21 1.3 440 22%

5 North West 2,596 10.41 -0.5 13.49 -0.5 570 22% 6 West Midlands 2,104 10.43 1.4 13.44 0.5 460 22% 7 North East 936 10.31 1.8 13.20 2.5 200 21%

8 South West 2,052 10.36 -0.3 13.39 0.4 430 21% 9 Eastern England 2,196 10.87 1.3 14.01 0.6 440 20%

10 Scotland 2,162 11.09 0.8 14.07 1.4 390 18% 11 South East 3,321 11.81 0.9 15.37 0.8 530 16% 12 London 3,539 15.67 1.1 20.70 3.3 570 16%

All UK 24,385 11.20 0.5 14.80 1.3 4,820 20%

*Markit estimates

/ 21

800


Figure 5.2.1 illustrates the Markit estimates for the number of people below the Living Wage in each region in relation to the minimum and maximum possible vales according to the ASHE percentile breakdown (see methodology section).

In general, the spread between the minimum and maximum vales is larger in regions with a greater number of earners, such as London and the South East. Conversely, the spread is generally tighter in regions with fewer employees, such as Northern Ireland, Wales and the North East.

Figure 5.2.1: Regional estimates within percentile bands

Number below Living Wage (thousands)

200

300

400

500

600

700

Max

Markit estimate

Min

100

0

Northern Ireland

Wales East Midlands

North East

Yorkshire and The Humber

South West

North West

West Midlands

East Scotland South East

London

/ 22


Figure 5.2.3: Regional heatmap

by number of earners below

Living Wage (‘000s)*

*Markit estimates

Figure 5.2.4: Regional

heatmap by proportion of

earners below Living Wage*

*Markit estimates

/ 23


5.3 Regional breakdown by broad occupation group

Due to smaller sample sizes, the ONS do not publish regional breakdowns at the most detailed SOC 4-digit level by occupation. The tables which follow therefore refer to broad occupational groupings at SOC 3-digit level for all regions except Northern Ireland. See table 6.1 in appendix for a breakdown of occupations within broad groupings.

North East: key statistics

Total number in employment: 936,000

Median wage: £10.31 (UK = £11.20)

Estimated number below Living Wage: 200,000

Estimated proportion below Living Wage: 21% (UK = 20%)

North East: top 3 occupation groups below Living Wage


Median Wage £

% below Living Wage*

1 2 3

Elementary Personal Services Occupations Hairdressers And Related Occupations Sales Assistants And Retail Cashiers

34 5 61

6.03 6.27 6.49

80 75 70

North West: key sta tistics

Total number in employment: 2,596,000

Median wage: £10.41 (UK = £11.20)



North West: top 3 occupation groups below Living Wage


Median Wage £


1 2 3

Elementary Personal Services Occupations Sales Assistants And Retail Cashiers Hairdressers And Related Occupations

103 161 9

6.00 6.53 6.45

80 70 65

/ 24


Yorkshire & The Humber: key statistics


Median wage: £10.32 (UK = £11.20)



Yorkshire & The Humber: top 3 occupation groups below Living Wage


Median Wage £


1 2 3

Elementary Personal Services Occupations Hairdressers And Related Occupations Elementary Cleaning Occupations

68 6 59

6.04 6.50 6.47

85 70 65

East Midlands: key statistics


Median wage: £10.18 (UK = £11.20)



East Midlands: top 3 occupation groups below Living Wage

Rank Occupation Number Median % below (000s) Wage £ Living Wage*

1 Elementary Personal Services Occupations 52 6.00 90 2 Elementary Cleaning Occupations 43 6.38 70 3 Hairdressers And Related Occupations 4 6.49 70

/ 25


West Midlands: key statistics


Median wage: £10.43 (UK = £11.20)



West Midlands: top 3 occupation groups below Living Wage


Median Wage £


1 2 3

Elementary Personal Services Occupations Hairdressers And Related Occupations Elementary Cleaning Occupations

73 6 65

6.00 6.16 6.43

80 80 70

Eastern England: key statistics


Median wage: £10.87 (UK = £11.20)



Eastern England: top 3 occupation groups below Living Wage

Rank Occupation Number Median % below (000s) Wage £ Living Wage*

1 Elementary Personal Services Occupations 76 6.08 80 2 Elementary Cleaning Occupations 58 6.5 70 3 Sales Assistants And Retail Cashiers 133 6.73 65

/ 26


South East: key statistics


Median wage: £11.81 (UK = £11.20)



South East: top 3 occupation groups below Living Wage


Median Wage £


1 2 3

Elementary Personal Services Occupations Elementary Cleaning Occupations Sales Assistants And Retail Cashiers

103 105 160

6.15 6.66 6.88

80 65 60

South West: key statistics


Median wage: £10.36 (UK = £11.20)



South West: top 3 occupation groups below Living Wage


Median Wage £


1 2 3


77 76 124

6.00 6.43 6.58

85 70 70

/ 27


London: key statis tics


Median wage: £15.67 (UK = £11.20)



London: top 3 occupation groups below Living Wage


Median Wage £


1 2 3


102 69 147

6.50 6.57 7.24

80 75 70

Wales: key statistics


Median wage: £10.05 (UK = £11.20)



Wales: top 3 occupation groups below Living Wage


Median Wage £


1 2 3


39 35 68

6.00 6.39 6.51

90 70 70

/ 28


6. Appendix

Table 6.1: Top 10 broad occupation groups below Living Wage: Standard Occupation Classification codes breakdown

Food Preparation Trades 543 Animal Care Services 613 Butchers, meat cutters 5431 Veterinary nurses and assistants 6131 Bakers, flour confectioners 5432 Animal care occupations n.e.c. 6139 Fishmongers, poultry dressers 5433 Chefs, cooks 5434

Hairdressers And Related Occupations 622 Sales Assistants And Retail Cashiers 711 Hairdressers, barbers 6221 Sales and retail assistants 7111 Beauticians and related occupations 6222 Retail cashiers and check-out operators 7112

Telephone salespersons 7113

Elementary Agricultural Occupations 911 Elementary Process Plant Occupations 913 Farm workers 9111 Labourers in foundries 9131 Forestry workers 9112 Industrial cleaning process occupations 9132 Fishing and agriculture related occupations n.e.c. 9119 Printing machine minders and assistants 9133

Packers, bottlers, canners, fillers 9134 Labourers in process and plant operations n.e.c. 9139

Elementary Personal Services Occupations 922 Elementary Cleaning Occupations 923 Hospital porters 9221 Window cleaners 9231 Hotel porters 9222 Road sweepers 9232 Kitchen and catering assistants 9223 Cleaners, domestics 9233 Waiters, waitresses 9224 Launderers, dry cleaners, pressers 9234 Bar staff 9225 Refuse and salvage occupations 9235 Leisure and theme park attendants 9226 Elementary cleaning occupations n.e.c. 9239 Elementary personal services occupations n.e.c. 9229

Elementary Security Occupations 924 Elementary Sales Occupations 925 Security guards and related occupations 9241 Shelf fillers 9251 Traffic wardens 9242 Elementary sales occupations n.e.c. 9259 School crossing patrol attendants 9243 School mid-day assistants 9244 Car park attendants 9245 Elementary security occupations n.e.c. 9249

/ 29


Table 6.2: Summary of occupations – proportion below Living Wage: UK

Percent below Living Wage (est)

Occupations

90+ Bar staff

80-89 Waiters, waitresses

70-79 Kitchen and catering assistants Elementary sales occupations n.e.c. Launderers, dry cleaners, pressers

Elementary personal services occupations n.e.c. Floral arrangers, florists Cleaners, domestics

60-69 Leisure and theme park attendants Sales and retail assistants School crossing patrol attendants Hairdressers, barbers

Elementary office occupations n.e.c. Retail cashiers and check-out operators School mid-day assistants

50-59 Hotel porters Fishmongers, poultry dressers Packers, bottlers, canners, fillers Beauticians and related occupations

Playgroup leaders/assistants Animal care occupations n.e.c. Nursery nurses

40-49 Fishing and agriculture related occupations n.e.c. Tyre, exhaust and windscreen fitters Car park attendants Sewing machinists Sports and leisure assistants Food, drink and tobacco process operatives

Housekeepers and related occupations Chefs, cooks Travel and tour guides Leisure and travel service occupations n.e.c. Labourers in process and plant operations n.e.c.

30-39 Taxi, cab drivers and chauffeurs Customer care occupations Van drivers Butchers, meat cutters Industrial cleaning process occupations Shelf fillers Receptionists

Childminders and related occupations Merchandisers and window dressers Assemblers and routine operatives n.e.c. Farm workers Care assistants and home carers Other goods handling and storage occupations n.e.c. Weighers, graders, sorters

20-29 Shopkeepers and wholesale/retail dealers Security guards and related occupations Educational assistants Labourers in building and woodworking trades Veterinary nurses and assistants Labourers in other construction trades n.e.c. Pharmaceutical dispensers Glass and ceramics process operatives Farmers Call centre agents/operators Market research interviewers Bakers, flour confectioners Refuse and salvage occupations Sales related occupations n.e.c.

Travel agents Gardeners and groundsmen/groundswomen Telephonists Publicans and managers of licensed premises Assemblers (electrical products) Fitness instructors Fork-lift truck drivers Telephone salespersons Agricultural and fishing trades n.e.c. Transport operatives n.e.c. Database assistants/clerks Debt, rent and other cash collectors Dental nurses

10-19 Textile process operatives Company secretaries Routine laboratory testers General office assistants/clerks Postal workers, mail sorters, messengers, couriers Bookbinders and print finishers Metal making and treating process operatives Glaziers, window fabricators and fitters Typists Counter clerks Photographers and audio-visual equipment operators Paper and wood machine operatives Houseparents and residential wardens Stock control clerks Printing machine minders and assistants Plastics process operatives Library assistants/clerks

Elementary security occupations n.e.c. Caretakers Restaurant and catering managers Plant and machine operatives n.e.c. Metal working machine operatives Hotel and accommodation managers Routine inspectors and testers Road sweepers Motor mechanics, auto engineers Construction operatives n.e.c. Clergy Chemical and related process operatives Retail and wholesale managers Furniture makers, other craft woodworkers School secretaries Road construction operatives

/ 30


Figure 6.2: Regional heatmap by total number of jobs (‘000s)

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