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Where do low wages lead?

What is the contribution to the European economy of "odd jobs", of all those occasional, part-time and underpaid jobs? Are jobs like this better than no job at all? And to what extent do they lead to poverty and exclusion? Researchers from the LoWER network have been analysing the complex facets of low-wage labour, a phenomenon which has become commonplace. The aim is to provide Europe with new weapons in the fight against social division


In 1996, fourteen economists, experts on employment and wages from universities in Finland, France, Italy, the Netherlands, Spain, and the United Kingdom, joined forces in a thematic network. Christened LoWER (European Low-Wage Employment Research Network), the group was granted three years' financing under the Targeted Socio-Economic Research Programme. The aim? To study the mechanisms likely to lead those in low-wage jobs to social exclusion. By analysing the situation throughout the European Union, it would hopefully be easier to identity and evaluate the phenomenon, compare national situations, and develop actions to counter the slippery slope which all too often leads from precarious employment to social exclusion.

Defining the terms
But first of all, what exactly do we mean by a "low wage"? The OECD defines it as a wage which is less than two thirds the national median wage. The LoWER researchers are less categoric. Wage differences and the process of exclusion vary from one country to another and an individual's possible marginalisation is not a factor of low income alone.

"A lot of parameters must be taken into account in order to build up a complete and realistic picture of this situation," explains Wiemer Salverda, a lecturer at Groningen University in the Netherlands and the LoWER co-ordinator. "A census must be taken of the number of workers on low wages in each country, defining the concept both in absolute terms and in relative terms linked to the national economy. A number of characteristics must also be indicated for each individual, such as sex, age, level of training, and the numbers of hours worked each week."

Collecting the data
The first task for the teams was to collect and evaluate national and European data on low-paid jobs. Various sources of socio-economic information (social security and tax statistics, surveys of household incomes, etc.) were consulted in 14 countries (1) and as many elements as possible collected in order to improve the comparisons. The data collected - varied, incomplete and sometimes far from recent - highlighted the need to develop a methodology making it possible to quantify this phenomenon by means of indicators which can be applied throughout Europe.

"At the company level," continues Wiemer Salverda, "we also need to be able to determine the supply and demand situation for low-wage employment by sector, size of company, etc." In this area too, there are no systematic data. The only recent figures (1995-1996) covering EU Member States come from the European Structure of Earnings Survey (ESES), but these are far from complete. They do not include public companies or SMEs employing fewer than 10 people, for example, or, in certain countries, the "micro-businesses" which represent more than 40% of national employment - the very sector in which you often find the lowest wages.


Comparing situations
"Another essential element in any comparison must be parity of purchasing power," adds the LoWER co-ordinator. "You cannot compare wages in one country with those in another simply on the basis of exchange rates between their currencies. Differences in consumer prices must also be taken into account."

Moreover, all this information must be analysed over time. "Data which tell us how long individuals have been in low-wage jobs are also very incoherent. Nevertheless, those we have been able to collect show that many of these people are unable to extricate themselves from such a situation. Our research has also identified an almost inevitable "progress" from badly paid employment to no employment at all. Low wages lead more surely to unemployment than to a fair wage for an honest job."

And, when it comes to comparisons, what about the low-wage jobs across the Atlantic? Invited by the LoWER researchers to address their London Conference, Professor Richard Freeman of Harvard University analysed the relationship between low wages and the growth of employment in the USA. "More odd jobs means more employment, but it can also lead to greater poverty if they have the effect of pulling down minimum wages," he explained.

Vicious circles and grey areas
"The situations in Europe and the United States are not comparable. In Europe, the roots of social exclusion lie principally in unemployment," adds Wiemer Salverda. "We find ourselves in a vicious circle at present. There is a real need in fields such as domestic services for elderly people and home helps, which could create jobs. But the cost of these services make them inaccessible at present to most people, while those providing the services could only increase the wages of their staff and the quality of their services by charging even more. The only way to break this vicious circle is for the public authorities to come up with incentives to stimulate supply and demand. There are a number of examples of such incentives, such as the chèques emploi service in France or the 'white cleaning ladies' who clean people's houses in the Netherlands. That is one way of improving this situation."

Finally, how can it ever be possible to take real stock of the situation without also taking into account undeclared work, the so-called "parallel economy"? Clearly the figures are anything but transparent once you move into this area! In addition to this undeclared and thus illegal work, the figures also fail to take into account odd jobs amounting to just a few hours a week, which are legally exempt from social security contributions and tax (employers more often being individuals than companies). All in all, the LoWER researchers certainly have some avenues for inquiry. Moreover, the network they have created should have the effect of stimulating new research in the field of low-wage employment.

(1) Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, Sweden, United Kingdom.



Project Title:  
European Low-Wage Employment Research Network (LoWER)

Targeted socio-economic research (TSER)

Contract Reference: CT 95 3004 (PL 953449) (TN)

CORDIS databaseFor more information on this project,
go to the Cordis database Record