Workers in low-wage jobs have fewer opportunities for training and limited pay progression. This can be improved by developing soft skills. National accreditation and improvements in digital infrastructure can help to upgrade people’s soft skills in the post-pandemic economy.
Low-earning workers around the world have seen minimal increases on their pay slips in recent decades. In the UK, although employment rates were relatively high pre-Covid-19, work alone was not enough to keep many families out of poverty. In 2019-20, 14.5 million people in the UK, or 22% of the population, were in relative poverty after housing costs, which means that they were living in households with income below 60% of the median.
Figure 1: Age profiles of average wages in the UK by level of education
Source: UK Household Longitudinal Study, Institute for Fiscal Studies calculations
An individual’s wages and prospects for earnings growth are affected by, among other things, their education level and whether they work full-time or part-time. For example, lower-educated workers face increasingly poor pay progression, low rates of training, shorter job tenures and a higher risk of outsourcing. Good jobs have the opposite attributes: favourable long-term prospects including opportunities for training, pay progression, generous benefits and promotion.
While women’s employment and hourly wages have risen, this trend has not been enough to reverse the rise in family earnings inequality. Lower-earning women tend to marry or cohabit with lower-earning men and vice versa. Women, especially lower-educated women, are also more likely to work in part-time jobs, which has been shown to reduce further their chances of wage progression. Poor opportunities for good jobs are a feature of the labour market for both lower-educated men and women.
Earnings inequality has risen further during the pandemic as low-income sectors are more likely to have been affected by lockdowns and the growth of online shopping. Younger generations have taken a hit as their education was disrupted and they have fewer job opportunities than prior to the pandemic. Access to training and apprenticeships has fallen dramatically too.
Despite this overall gloomy picture, there are pockets of light. Workers can still benefit from training. Here the specific skills gained matter, as does the type of firm with which the worker is matched. These factors may be the key to reversing poor job prospects, particularly for those who do less well in, or are poorly served by, the formal education system.
Improved access to and quality of official employee-employer data mean that we are increasingly able to study the wage growth – or lack of it – for individual workers across substantial parts of their career.
Research using these new data linkages shows that, for the lower educated, working in occupations that require soft skills delivers improved progression, with more training, longer tenures and less outsourcing risk compared with those without. This is especially true where the worker is employed in an R&D (research and development) firm and/or a firm with a large share of higher-educated workers.
Tasks that involve soft skills are quite broadly defined and include:
- Problem sensitivity – the ability to tell when something is wrong or likely to go wrong.
- Coordination – being able to adjust your actions in response to others.
- Taking responsibility for outcomes of other workers.
- Working in groups or teams.
- And consequence of error – understanding where your mistakes have big spillovers on others.
This is not to say that numeracy and literacy skills don’t matter: far from it. Rather, the evidence points to another set of skills that are important for wage progression, especially for low-educated workers.
Good policies, good jobs
How can this research help us design policies that generate good jobs? First, there are policies that exploit complementarities. For example, encouraging investment in artificial intelligence that helps integrate lower-educated workers in productive work, or redressing geographical concentrations of low-educated workers. Enhancements in the UK’s digital infrastructure will facilitate people’s efforts to upgrade their skills in the post-pandemic economy and to engage in society more generally.
Then there are policies that develop synergies. This could include subsidising firm-based qualification training with a component of nationally accredited training in soft skills. Local employers in sectors with good growth prospects could naturally contribute by identifying key complementarities.
To be effective, these steps need to be part of a broader suite of policies. An enhanced Universal Credit system alongside a generous minimum wage to boost low earnings will play an important part. There is also a need for regulatory change to line up benefit eligibility and tax treatment for the self-employed.
The need for a radical suite of targeted policies has been made more urgent by the pandemic. Perhaps the crisis will bring a new emphasis on building a fairer society. To do so, low-earning workers will need support and training that focuses on the demands of the post-Covid-19 economy, of which accredited training in soft skills will be a key component.
Where can I find out more?
- The innovation premium to soft skills in low-skilled occupations: VoxEU article discussing the link between a firm’s level of innovation and the wages of their workers in low-skilled occupations.
- Income inequality and the labour market in Britain and the US: Richard Blundell and co-authors examine income inequality and the relationship between labour market earnings and the tax systems in the two countries.
- How has COVID-19 disrupted the UK labour market, and how can better adult training and job placement aid the recovery? Report from the International Public Policy Observatory (IPPO) on the need for training and reskilling in the context of the skills mismatch between employers and workers.
- Skills strategies for future labour markets: Articles from the International Labour Organization.
Who are experts on this question?
- Richard Blundell, University College London
- Rachel Griffith, University of Manchester
- Philippe Aghion, London School of Economics
- Paul Gregg, University of Bath
- Sandra McNally, University of Surrey