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The labour market

Inequalities in the labour market take many forms: inequalities in employment opportunities, wages and hours worked as well as job security. Labour market inequality has been on the rise in the UK since the early 1980s, producing one of the highest levels of wage and household income inequality in the developed world.

The earnings gap, zero hours contracts and working arrangements

The UK labour market has undergone profound changes in the last few decades. The earnings gap between those at the top (earning the most) and those at the bottom (earning the least) has widened substantially.

There has been rapid growth in employment in occupations at the bottom and at the top, with a hollowing out of occupations in the middle.

Non-standard work arrangements – such as independent contracting, on-call and temporary working, and zero hours contracts – have increased. These are characterized by earnings and job insecurity, and have become a focus for policy makers.

The role of skills, firms and technology

Inequalities in the labour market are affected by workers’ skills, technological developments and the behaviour of firms.

Technological advancement has made skilled workers more attractive. This has pushed up wages received by graduates as compared to non-graduates.

Competition over imported goods and the automation of routine tasks has led to the replacement of some middle-income occupations – such as manufacturing or administrative jobs.

Bargaining power, changes to employment contracts and minimum wages

Also important are labour market institutions such as the minimum wage, employment contract regulations and trade union rights.

Changes to how labour markets work have affected the ability of workers to bargain. The decline of unionisation and the emergence of contracts in the space between employment and self-employment are both likely to have weakened the bargaining power of ordinary workers vis à vis employers.

Minimum wages have become a popular policy tool to lift earnings at the bottom. Their ability to tackle inequality depends on whether they target the right groups and on whether firms respond by changing hours, employment or other non-wage benefits.

Understanding the interplay between economic trends and how labour markets work is key to understanding the role of policies in increasing or decreasing inequalities.