Monitoring the Impact of the National Minimum Wage.

Nicola Allison, Fernando Arrieta, Angela Bowring, Alastair Hatchett, Catherine Kirk, Simone Melis, Ken Mulkearn, Louisa Potter and Lois Wiggins (Incomes Data Services)

Incomes Data Services monitored the impact of the 2006 increase in the minimum wage, and employers’ continuing responses to earlier increases in the minimum wage. This represented a continuation of previous work for the Commission. IDS also examined the impact of the changes made by employers in response to the forthcoming 2007 upratings.

The same methodology as in previous years was employed. This involved a mixture of telephone and postal survey work (of around 1000 organisations), and further telephone-based follow-up work.

IDS concentrated on the low-paying sectors such as hospitality (including fast food, pubs, hotels and restaurants); care homes; childcare; leisure and retail.

IDS also looked at rates of pay for apprentices and the impact of the October 2007 increase in annual leave entitlement.

IDS found that:

• the minimum wage continues to have a substantial impact on the lowest rates of pay across low-paying sectors, particularly pubs and fast food;
• the 2006 upratings narrowed differentials or caused changes to pay structures in retail and fast food;
• the divergence in youth pay has continued;
  • some firms now pay adult rates at 16,
  • most retailers pay adult rates at 18,
  • but fast food outlets use lower rates for under 22s.
• October has become the most popular month for pay reviews in retail;
• median pay for some jobs in hotels were less in London and the South East than in rest of UK;
• there was little evidence of substitution between groups of workers;
• recruitment and retention problems do not seem to have been affected by recent minimum wage rises;
• few employers reported that the increase had adversely affected employment or hours;
• an entitlement of just 20 days annual leave including Bank Holidays was common in some low-paying sectors such as fast food, pubs, restaurants and leisure; and
• the 2007 increase in annual leave entitlement cost many firms 1.3 to 1.6 per cent of the wage bill.

Did the UK Minimum Wage Affect Prices?

Jonathan Wadsworth, Centre for Economic Performance, LSE

In previously commissioned research, Wadsworth (2007) suggested that the introduction and subsequent uprating of the minimum wage may have induced certain industries and services that employed a high share of minimum wage workers among the workforce to raise prices more than in sectors which employed fewer minimum wage workers. However, these findings were tentative, due to data limitations, data availability and time constraints which precluded a more in-depth analysis of these issues.

This new study looked further at the effects of the minimum wage on the prices of UK goods and services.

Wadsworth used the Labour Force Survey (LFS) and the Annual Survey of Hours and Earnings (ASHE) to estimate the employee and the wage bill shares relating to minimum wage workers in each three or four digit industry sector and so define minimum wage goods and services. He then matched these data to sectoral-level data on retail prices and looked to see if there was any evidence that prices in minimum wage sectors were changed more by the introduction of, and subsequent changes in, the minimum wage.

The research found that, while it is hard to detect much evidence of a significant change in prices in the month in which the minimum wage changed, prices in several minimum wage sectors appear to have risen relatively faster than prices in non-minimum wage sectors in the period after the minimum wage was introduced.

The Pay Composition of the Low Paid: An Analysis from 1997 to 2006

Heather Holt, Mouna Kehil (both LPC Secretariat) and Geoff White (University of Greenwich)

This research updated previous Commission research on the change in pay composition since the introduction of the National Minimum Wage.

ASHE data from 1997 to 2006 were used to investigate the incidence of additional pay components among the low paid and their contribution to gross pay, as well as industry variations and changes over time.

LFS and ASHE were used to assess the prevalence of a range of benefits such as pension provision, tied accommodation, annual leave entitlement and other non-wage benefits among low-paid employees.

Researchers found that, in the last ten years, the incidence of additional payments among low-paid employees increased while it declined for better paid employees. However, low-paid employees were still less likely to be receiving shift premia, incentive payments or additional pay components such as car allowances or on call/stand-by allowances.

By contrast, low-paid employees were now as likely to be paid overtime as better paid employees. The sectors with the highest increases in the incidence of overtime among the low-paid since 1997 were food processing, leisure, social care and agriculture.

Further, they found that the low paid continued to receive much less generous benefits packages. Over 80 per cent of low paid employees were without an occupational pension. The low paid also got fewer days annual leave and were more likely to work on Bank Holidays or not get paid for the Bank Holidays not worked.

Characteristics of Those Paid Below the National Minimum Wage

Heather Holt (LPC Secretariat), Jamie Jenkins and Jennie Johnson (both ONS)

Each year, around one per cent of the workforce is found by ONS to be paid less than the minimum wage. This is not necessarily due to non-compliance.

Using ASHE and the LFS, these two research projects attempted to get behind the reasons why around 300,000 employees each year are recorded in official surveys as being paid less than the minimum wage.

The research explored likely legitimate reasons for being paid less than the minimum wage and attempted to gauge the extent of training and apprenticeship exemptions; the use of the accommodation offset; and the possibility that piece rates might also be a factor. The research also looked in detail at possible measurement issues with regards to rounding, stated versus derived hourly rates and proxy responses.

The research found that it was not possible to identify the extent of non-compliance using the data available. However, making various assumptions concerning measurement error and legitimate exemptions and offsets, the research found that it was possible to explain between a quarter and a half of the number of jobs estimated to be paid below the minimum wage. The researchers were unable to determine whether the remainder was due to non-compliance or whether it was the result of factors they had been unable to take into account.

An Analysis of Low-paid Jobs

Heather Holt (LPC Secretariat)

Each year, around one per cent of the workforce is found by ONS to be paid less than the minimum wage.

Using ASHE this research explored the characteristics of the jobs paid below the minimum wage.

The research then uses the ASHE/New Earnings Survey panel data to explore the persistence of jobs paid below the minimum wage and the impact of working in a job of this kind in the past on working in a similar job currently.

The research found that jobs paid below the minimum wage were more likely to be undertaken by employees who: were female; were younger (22–34) or older (aged 59/64+); were part-time; were on a temporary contract; had worked for the firm for less than one year; or who held more than one job.

It also found that these jobs were more likely to be: in the private sector; not covered by collective agreements; in a sales and customer service, skilled trade, personal service, process, plant and machine operative or elementary occupation; in the wholesale and retail trade or hotel and restaurant sector; in small firms (fewer than 10 employees); and in a region other than the South East.

The research concluded that the persistence of below minimum wage jobs was low with a high probability that employees would leave these jobs after a short time. The average tenure in these jobs was estimated to be 1.25 years.

However, it also found evidence of a scarring effect. That is, earning below the minimum wage in the past significantly increased the chance of currently earning below the minimum wage (or being low-paid).