Presentation given by Graeme Harrison, Associate Director of Oxford Economics to the NICVA Centre for Economic Empowerment (CEE) conference on Working Poverty, 28 May 2014.

1. Economic Solutions to In-Work Poverty
Graeme Harrison
Associate Director
Oxford Economics
gharrison@oxfordeconomics.com
Belfast, 28th May 2014
NICVA Centre for Economic Empowerment
Working Poverty Economic Conference

2. Outline
• Background
• Economic and social policy
• Why does in-work poverty exist?
• Challenges for NI addressing in-work poverty
• Solution aims
• Solution options
• Forward-planning, target-setting and economic realism
• Useful research areas

3. Background
• Nature of UK and NI poverty has been transforming
• Long-term trend has been falling out-of-work poverty and rising in-work poverty
• Working households now make up the majority of those in poverty in UK, more than
non-working households; two-thirds of children in poverty are from households where at
least one adult works
• NI share of working age adults in absolute poverty at its highest
• There has been much greater success in reducing poverty for non-working household
like pensioners and lone parents – have working households been neglected?
• Implication: Getting into work is not a sustainable route out of poverty
• Median household income, poverty rates and labour market indicators have worsened
more in NI compared to GB … but NI was living in an economic bubble pre-recession

4. Background: NI poverty trends
14%
16%
18%
20%
22%
24%
26%
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Working age adults
Pensioners
NI: Relative income poverty (AHC)
Source:FRS
0
50
100
150
200
250
300
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
000s
Working age adults
Pensioners
NI: Absolute income poverty (AHC)
Source:FRS

5. Background: NI poverty characteristics
Composition
Composition
(000s)
%
Economic status of adults in the family
One or more full-time self-employed 16% 64 26%
Single/couple, all in full-time w ork 6% 24 5%
Couple, one full-time, one part-time w ork 5% 18 9%
Couple, one full-time w ork, one not w orking 9% 37 22%
No full-time, one or more part-time w ork 13% 55 36%
Workless, one or more aged 60 or over 11% 46 17%
Workless, one or more unemployed 13% 53 -
Workless, other inactive 27% 110 53%
Total 100% 406 23%
Working 49% 198
Workless 51% 208
Source: FRS
Note: Below 60% median income AHC
NI: Low income households (2011/12)

6. Economic and social policy
• Social and economic policy are traditionally not joined up, for example a lack of
connection between national economic and poverty strategies and government
departments responsible
• The assumptions that poverty will be solved by trickle down economic growth (the
orthodox economist view), and higher income is the sustainable solution to long-term
poverty (the social view), are flawed
• Often a lack of consideration of how social policies can deliver economic objectives, e.g.
the link between labour market programmes or progressive taxation and growth
• Equally social policy is sometimes designed in a vacuum and is not grounded in
business and economic realities
• Together this leads to neither economic or social targets being met
Why social policy should matter to economists?
• Benefits of economic growth do not automatically reach all
• To maintain citizen support for governments
• Highly unequal societies are associated with lower rates of growth and can lead to social
tensions

7. Economic and social policy
What is economic policy?
• GDP
• Exports
• Exchange rates
• Productivity
• Innovation
• FDI
• Competitiveness
• Business environment
• Macroeconomic management
• Fiscal policy
What is social policy?
• State intervention that directly affects
social welfare, social institutions and
social relations/cohesion
• Social security, health, housing, social
care
• Redistribution of income and wealth,
equality of opportunity, participation,
voice
• Aim to maximise people’s chances of a
good life – but what is a good life?
• Social policy can also produce new social
institutions, behaviours or norms
• Much more than a limited set of safety
nets and services to cover market failure

8. Economic and social policy: Grey areas
• Taxation and subsidies
• Public expenditure
• Labour market policy (e.g.
minimum wage, labour mobility)
• Skills
• Credit market policy
• Pensions
• Regulation
• Migration
Economic
policy
Social policy

9. Economic and social policy: Need for more alignment
• Social policy should complement and work in tandem with economic policy
• Social policy analysts tend to define social policy in relation to, often in opposition to,
economic policy
• Those who analyse/develop “economic policy” tend to be economists; those who
analyse “social policy” are by and large not economists
• Thinking about objectives and targets - is economic growth a sensible final objective of
national strategy, or better as an intermediate objective?
• There is a lack of clarity about the hierarchy of and linkages between objectives, and a
lack of distinction between intermediate and final objectives, or rather, too easy an
identification of intermediate objectives with final ones on the basis of an implicit
mechanism linking the two
• Possible joint objectives - “sustained and sustainable growth in per capita income,
accompanied by diversification of production, reduction of absolute poverty, and
expanding economic opportunities for all citizens”

10. Why does in-work poverty exist?
• Note: Work measured at household level
• Low pay and ever lower take-home pay after tax and benefits withdrawn
• Minimum wage below living wage?
• Low working hours / proliferation of part-time, insecure work – many people want to work
more
• Lack of progression opportunities
• Too few dual working households
• High cost and low availability of childcare – limits jobs some mothers can take
• Lack of aspiration
• Lack of labour mobility

11. Challenges for NI addressing in-work poverty
• Long list of legacy and recession-related changes
• Economy faces a number of transitional drivers, many of which are negative and
creating new transitional challenges
• Multiple new vulnerable groups
• Current economic data is positive
• But risk of the recovery running out of steam
• Long-term jobs outlook is sluggish, downward pressure on wages
• NI faces the twin challenges of creating lots of jobs and lots of well-paid jobs

12. Challenges for NI addressing in-work poverty
Historic structural and recession legacy challenges
Historic
 High share of working age are economically inactive and have no or low qualifications (low labour mobility)
 High share of households are workless
 High share of economically inactive do not want to work and are dependent on benefits as their main income source
 High cost of childcare
 Cycle of worklessness and poverty across generations within families and areas; poverty of aspiration
 High share of young classified as NEETs
 Low average pay means many working households live in poverty and earn below the living wage; financial returns from
employment are often too low to entice claimants off benefits; in other words creating employment is not a guaranteed
exit from poverty
 There has been growth in the number of households more at risk of being in poverty such as lone parent and single
person households
 High rate of fuel poverty
 Long-standing prevalence of economically lagging areas and regional imbalances
 Numerous economic challenges including over-dependence on the block grant, limited private sector export base (NI has
been a net loser from globalisation) and competitive weaknesses
Recession legacy
 Significant job loss and rise in unemployment, especially amongst the youth, despite the cushioning effect of NI’s large
public sector
 Squeezed household incomes from downward pressure on wages and upward pressure on the cost of living
 Upward correction in household saving to reverse past trends and repay debt
 Negative housing market equity, restricting labour mobility
 Constrained access to and higher cost of borrowing for households and business
 Further falling behind in competitiveness as other countries implement more wide-ranging economic reforms such as
ROI

13. Challenges for NI addressing in-work poverty

14. Challenges for NI addressing in-work poverty

15. Solution aims
• Note: Working poor and non-working poor are same people at different times
• Increase pay, including take-home pay – but should be linked to productivity
• Increase working hours for those who want to work longer
• Increase feasibility of more dual working families
• Increase labour mobility
• Increase aspirations for working, pay and progression

16. Solution options
Policy
• Minimum wage – look at Switzerland’s
recent referendum
• Downsides – price out low skilled from labour
market, increase unemployment, cost may be
passed on to consumer prices, unaffordable for
small firms
• But is the welfare system subsidising low wages
anyway?
• Working tax credits
• Personal income tax – devolve powers to
NI?
• Income top ups
• Labour mobility
• Skills – increase employability, boost
productivity
• Child care, including more publicly
funded free child care
Institutional
• A poverty strategy
• A poverty agency like ROI
• More joined up and coordinated
economic and social policy
• Economic strategy – create different
types of jobs?
• Business involvement – what can
businesses do to be part of the solution?
• Political commitment and responsibility
• Rebalancing of supply from out-of-work
poverty towards in-work poverty

17. Forward-planning, target-setting and economic realism
• Often strategies are piecemeal and lack the ambition and detailed quantified targets to
solve the challenge – they tend to have top-down targets with no bottom-up road map
• There is a need to work back from an ambitious, forward-looking target for in-work
poverty
• How many jobs need to be created, balance between FT and PT, what pay level, in what location etc
• What changes to tax credit, personal income tax, benefits etc need to be introduced
• And quantify the implications for government
• Fiscal implications
• Skills implications
• Child care implications
• Transport implications
• Then consider how realistic the options are – too costly, lack of demand for economic
growth sectors, skills mismatch, wage levels unrealistic etc – and reassess ambitions
• Simulate different scenarios

18. Useful research areas
• Identify countries, ideally broadly comparable to NI, which have significantly and
sustainably reduced in-work poverty (or reversed rising trends)
• Why was in-work poverty reduced in these countries? What were the driver economic
and social policies? What were the sources and nature of economic growth?
• Understand better the sources and drivers of in-work poverty in NI: low pay versus low
working hours; which sectors and occupations
• Consult with business and public sector employers on possible solutions: what is
realistic and affordable, where does policy need to change
• Modelling and simulation of different scenarios to observe the impact on in-work poverty
– feed findings into strategy

19. Global analysis for better decisions