This research report seeks to understand whether and how government can use tax and regulation policy to promote wage progression and career progression among low-paid workers.
Experiences in the labour market are at the heart of the political and policy debate about the modern economy. There is a growing sense that work is no longer providing a reliable route to better living standards and social mobility. A key part of the social contract – that “work should pay” – is being broken. Without reform, there is likely to be growing anger about the UK’s economic model.
Our research concerns itself with two routes to higher living standards for workers – wage progression and career progression.
- Chapter 2 discusses in depth the factors that drive limited pay and career progression among lower earners in the UK, and identifies three overarching categories; within firm factors, between firm-factors and individual factors.
- Chapter 3 considers whether wage regulation could be used to require wage progression, with higher earnings for workers who are more experienced, older or have served more time. It concludes that any such policies would be accompanied by major disadvantages.
- Chapter 4 analyses profit related pay (PRP). It could offer an important political message that the economy is there to serve the interest of workers as much as owners. Evidence indicates that profit-sharing can – if designed well – help improve productivity.
- Chapter 5 analyses whether business taxes could be effective instruments with which to incentivise employers of low wage workers to increase their wages and provide career progression, and considers what activities by firms should be encouraged.
The report puts forward the following recommendations:
- The Government should explore incentivising PRP to help increase the wages of low-paid workers, although it would not have any impact on their occupational progression.
- Tax reliefs could be made conditional on employers achieving a pre-determined percentage increase in wages for low-paid staff, at the bottom end of the income distribution, not directly affected by the minimum wage floor.
- Behavioural trials should be undertaken to assess which form of tax incentives would be most likely to achieve an increase in training opportunities for low-paid workers.
- Due to the geographical concentration of low paying industries ‘Economic Growth Areas’, should be piloted by local authorities, city governments or national government.