Low Pay and Household Poverty

Abstract

Abstract A number of major industrialized economies have seen earnings dispersion increase and the incidence of low-paid employment grow over the past two decades (OECD 1996a). Many have expressed their concern that, as a consequence, poverty in work has worsened. It is against this background that minimum wages, for example, have moved back into the spotlight. Much of the debate revolves around the question of whether and to what extent low-paid workers live in low-income households, and hence whether minimum wages are effective as a poverty alleviation device. At the same time, in-work benefits and/or tax credits are being introduced or existing programmes expanded, again with the aim of improving the living standards of low-paid workers. In continental Europe, where most countries have seen little or no increase in earnings inequality and where low-wage employment remains less widespread than in the Anglo-Saxon countries, the policy debate is somewhat different. There, prompted by the OECD, enhanced wage flexibility is being debated as a possible cure for persistent high unemployment. But there also exists a widespread perception that an expansion of low-wage employment would lead to a proliferation of the working poor. It is in this context that this chapter attempts to shed some light on the empirical relationship between low pay and poverty.