Economic downturn has pushed a further 1.4 million employees below the Living Wage – the rate deemed necessary for a basic standard of living – a report reveals today.

Low Pay Britain 2013 , published by independent think tank the Resolution Foundation, shows that 4.8 million Britons (20 per cent of all employees) earn below the Living Wage – a leap from 3.4 million (14 per cent) in 2009 – at the height of the recession.

The Living Wage was calculated at £7.20 outside London and £8.30 in the capital for the period covered by the report – April 2012 – the most recent full figures available. Since then the Living Wage has risen to £7.45 an hour outside London and £8.55 in the capital.

The Resolution Foundation report provides the most comprehensive breakdown of the extent of sub-Living Wage pay and low pay more generally among the country’s 25 million employees, including by age, gender, sector and region.

Women, younger workers (aged 16-20) and all those working outside London and the South East are most at risk of being paid below the Living Wage. The report finds that:

  • One in four female employees (2.9 million or 25 per cent) earned less than the Living Wage in 2012 – compared to 15 per cent of male employees (1.9 million)
  • Three-quarters of employees aged 20 and under (77 per cent) earned less than the Living Wage
  • Just 16 per cent in the South East and London were paid below the Living Wage, compared to almost 23 per cent in Wales and more than 20 per cent in many other parts of Britain
  • Pay below the Living Wage is most common in the hotels and restaurants sector, where two in three employees (67 per cent are low paid) are in this position. It is least common in public administration and defence (just 2 per cent)

As well as the numbers paid below the Living Wage, the report also records those in low pay – a different, internationally-recognised measure defined as those earning below two-thirds of the median hourly rate (£11.15 in the period covered by the report). Using this definition, 5.1 million of all employees (21 per cent) are low paid. This includes anyone earning £7.44 or less – equivalent to £13,530 a year for a 35 hour week. Because levels of low pay are calculated relative to median pay, which has also fallen during the downturn, they have remained flat over recent years.

However, a striking trend highlighted by the report is a significant fall in low pay among older employees – those aged over 60. In the mid-1990s, as many as 37 per cent of this group were in low pay – by 2012 that had fallen to 24 per cent – fewer than one in four. Over the same period, the number of low-paid younger employees (aged between 16 and 30) has climbed steadily – from 26 per cent to 37 per cent in 2012. The report suggests this shift may be down to the growth in student employment among younger people and a general increase in older employment – with those continuing to work beyond 60 being higher-skilled and higher-paid than in the past.

The report also suggests the emergence of a two-tier workforce in Britain, in which the lower tier is increasingly characterised by low-paid, low-skilled work which is often temporary, part-time or self-employed. Initial evidence suggests that early signs of economic recovery, such as an increase in jobs, have done little to avert this trend with rates of part-time or temporary work among new employees (those starting or returning to work) remaining high. And in 2009 the median hourly wage for a new employee stood at £8.42 – it is now just under £8.