Cleaning

3.42 It is not easy to determine trends in the number of workers in the cleaning sector. The ONS employee jobs series suggests that the number of jobs in the cleaning industry was on a downward trend prior to the introduction of the National Minimum Wage in April 1999, and that this trend continued to December 2001. More recently, the number of employee jobs has levelled off and in the year to September 2004 there was an increase of around 10,000. Figure 3.15 shows that since March 2002 the number of full-time employee jobs has been rising, while the number of part-time jobs has been falling. Although over 60 per cent of employee jobs continue to be held by women, most full-time jobs are held by men. In the period September 2002-September 2004 the number of full-time jobs increased by over 45,000 (about 15,000 were held by men), while the number of part-time jobs fell by a similar amount (although the number held by men rose by over 10,000).

Figure 3.15

Employee Jobs in the Cleaning Sector, Thousands, 1998-2004

Source: ONS employee jobs series, 1998-2004, GB.

3.43 However, the ONS employee jobs series (which reflects jobs in cleaning companies) does not show the whole picture. A significant number of cleaners work directly in-house for companies in other sectors and therefore they will not be included in the employee jobs series. This is evident from the Labour Force Survey (LFS), which shows that the number of cleaning employees is considerably higher than the figure indicated using the ONS employee jobs series alone. The LFS recorded 610,000 employees in cleaning occupations in Summer 2004, but only 180,000 in the cleaning industry. In contrast to the employee jobs series, the LFS data indicate that the number of cleaning employees has increased by over 10,000 since the introduction of the minimum wage. Employers' representatives also report an increase. These divergent trends of cleaning company employees and the number of cleaners may suggest a trend towards bringing cleaning back in-house. Previously the trend was towards contracting out. Such an interpretation is supported by the CBI's evidence, which stated that more large companies were taking their business services back in-house and that there was some concern in the business services industry that smaller firms would follow suit. In contrast, the Business Services Association (BSA) said they saw no incentive for companies to take back outsourced services.

3.44 The Cleaning and Support Services Association (CSSA) estimates that there are even more people working in the cleaning sector. According to their reckoning, there are 850,000 people employed in cleaning and support services, of whom 400,000 are employed in the private sector. In addition, the CSSA estimates that 650,000 people work as domestic helpers in private houses, a number of them in a self-employed capacity. Data from the LFS suggest that in Summer 2004 there were over 50,000 self-employed in the cleaning sector. It is difficult to draw definitive conclusions in the face of such competing and overlapping data, but there does not seem to be any evidence of a significant fall in the number of cleaning jobs, and the number may even have increased since the minimum wage was introduced.

3.45 It can be seen from Figure 3.16 that the minimum wage has had a significant effect on the hourly earnings distribution for employees in the cleaning sector. The spikes in the distribution at the lower end reflect upratings of the adult minimum wage. However the proportion on the adult minimum wage fell to 13 per cent in April 2004, compared with 17 per cent in April 2002 following the sizeable October 2001 upratings. Thus while the minimum wage seems to be having an increased effect in retailing, its impact on cleaning sector wage rates (while still at a higher level than in retailing) is, if anything, reducing. This may indicate that the overall tight labour market is now a more important driver of cleaning sector wages than is the minimum wage. The cleaning sector makes little use of the youth Development Rate.

'There is evidence that employers absorbed the costs of maintaining differentials for the first minimum wage increases but that subsequent minimum wage increases have put significant pressure on employers' ability to fund these in recent years. This situation exacerbates the problems of supervisor recruitment and retention.'

CSSA evidence

Figure 3.16

Hourly Earnings Distribution for Employees Aged 18 and Over in the Cleaning Sector, 2002-2004

Source: ASHE, April 2002-2004 without supplementary information.

Notes:
1. NMW label shows the adult NMW rate in April of the given year.
2. Gross hourly earnings excluding overtime.

3.46 Employer organisations reported that squeezed pay differentials had become a significant issue for the industry as a result of the 2003 and 2004 minimum wage upratings. Companies were finding it difficult to maintain differentials and claimed they could not justify the same percentage increase for supervisors as for those on the minimum wage. Firms also reported union pressure to maintain differentials, although in general trade unions told us they had not pressed firms on this issue. In cases where clients were willing to fund the direct cost of minimum wage upratings, employers said that they were unlikely to fund the cost of maintaining pay differentials. Our own survey of employers found that respondents from the cleaning sector were the most likely to increase pay to maintain differentials with those at the minimum wage level.

Low Pay Commission Research What we've noticed is that in those cases where we're dealing with contracts with clients, is that they don't object to a minimum wage but what they do is to ask us to observe the increase while it reduces the number of hours that we're putting into their contract. South West cleaning/facilities company employing 123 staff. Cronin and Thewlis, 2004. Qualitative Research on Firms' Adjustments to the Minimum Wage: Final Report to the Low Pay Commission

3.47 Both the BSA and the CSSA continued to report that a key problem in the industry remained an unwillingness by clients to renegotiate long-term contracts (typically 3-5 years) to take account of minimum wage upratings. We commissioned Cronin and Thewlis (2004) to investigate firms' adjustments to the minimum wage, and firms in the cleaning sector reported that clients would generally rather renegotiate a reduced service than increase the price of a contract following minimum wage upratings. Even where prices had been increased or contracts renegotiated they generally did not cover the full costs of increases caused by the minimum wage and other legislation. A small number of employers said they were unable to pass on any increased costs.

3.48 Overall the cleaning sector is difficult to analyse because of the multiple sources of data. The balance of evidence suggests, however, that while the sector is significantly affected by the minimum wage, there has been no major fall in employment as a result of the minimum wage's introduction and upratings, and that if anything the sector is feeling less direct impact from the minimum wage than it did at the time of introduction.

Security

3.49 Since the introduction of the National Minimum Wage, the number of employee jobs in the security sector has increased by around 30,000, as shown in Figure 3.17. Indeed, a record number of employee jobs in security were recorded in June 2004. In contrast to the cleaning sector, men make up over three-quarters of the workforce and the vast majority of employees work full-time.

Figure 3.17

Employee Jobs in the Security Sector, Thousands, 1998-2004

Source: ONS employee jobs series, 1998-2004, GB.

3.50 The adult minimum wage is the most common rate of pay in the security sector, as shown in Figure 3.18, but the percentage paid at the adult rate of the minimum wage in 2004 (about 5 per cent) is much less than in cleaning (13 per cent). And noticeably the percentage paid the minimum wage has declined slightly over the last three years. Lowest decile hourly earnings for security jobs remain above the minimum wage, although in 2003/04 lowest quartile hourly earnings also rose by over 7 per cent. This may reflect a move towards more high tech security provision in the sector and a demand for higher calibre staff, points highlighted during our consultation. As with the cleaning sector, little use is made of the youth Development Rate.

Figure 3.18

Hourly Earnings Distribution for Employees Aged 18 and Over in the Security Sector, 2002-2004

Source: ASHE, April 2002-2004 without supplementary information.

Notes:

1. NMW label shows the adult NMW rate in April of the given year.

2. Gross hourly earnings excluding overtime.

Low Pay Commission Research Security companies reported gross hourly pay (where information was provided, across all ages) ranged from £4.50 to £6.15. Wages as percentage of costs were estimated as between 50 and 80 per cent. Cronin and Thewlis, 2004. Qualitative Research on Firms' Adjustments to the Minimum Wage: Final Report to the Low Pay Commission

3.51 In the GMB's view, the minimum wage now forms the baseline for pay in the smaller security companies because their clients are not prepared to factor any further increases into the prices they are willing to pay. Smaller companies do not benefit from the economies of scale or negotiating power of the larger companies. The GMB also reported that low wages and long working hours are characteristic of the industry, with working hours of over 60 hours a week common in the manned guarding sector, often without any overtime premium. The union stated that larger (and unionised) firms, however, pay more and provide other benefits like pensions and higher annual leave entitlement.

3.52 As with the cleaning sector, business services representatives reported that many security companies operate under long-term contracts and face problems in planning for or passing on minimum wage increases to their clients. Labour costs are a significant proportion of total costs and therefore any changes to wage levels may be difficult to pass on. Cronin and Thewlis (2004) reported that when faced with increasing contract prices for security services, some companies responded by reducing their security requirements, with only a small minority accepting the increased minimum wage costs.

'A key problem is that companies are on long-term contracts and have difficulty in passing on minimum wage costs to clients.'

BSA evidence

3.53 Overall the security sector appears to be less affected by the minimum wage than it was at the time of initial introduction.

Childcare

3.54 The childcare sector continues to grow. According to the 2002/03 Childcare and Early Years Workforce Surveys (Department for Education and Skills (DfES), 2004a) the overall workforce (excluding childminders, who are often self-employed) grew by 2 per cent from 202,000 in 2001 to 206,000 in 2002/03. This was driven by the Government's policy of encouraging the expansion of the full daycare sector, thus enabling parents to take up employment, training or educational opportunities.

3.55 Jobs in childcare are distributed across several industries, such as education, health, social and welfare services. It is therefore not possible to use the ONS employee jobs series to identify workers in this sector. The LFS, however, can be used to identify childcare occupations. As shown in Figure 3.19, the LFS estimates that the number of nursery nurses - the childcare occupation most likely to be affected by the minimum wage - has been on an upward trend since Spring 1998. Most of the increase since Spring 2001 has been in the private sector.

Figure 3.19

Number of Nursery Nurse Employees, Thousands, 1998-2004

Source: LFS, 1998-2004.

Note: The classification of occupation in the LFS changed from SOC90 to SOC2000 in Spring 2001; thus direct comparisons between periods before and after should not be made.

3.56 The DfES surveys indicate that about half of full daycare and out of school clubs reported difficulties filling vacancies over the previous 12 months. The main reason was the general lack of applicants as well as a shortage of experience and qualifications. The National Day Nurseries Association told us that the sector has expanded rapidly due to Government initiatives such as Sure Start and there was a lack of experienced staff to feed the growth. The Government's Ten Year Strategy for Childcare (HM Treasury et al., 2004a) announced a commitment to the recruitment and retention of enough workers to support the continuing growth of the sector, and a pay and workforce strategy is scheduled for publication in early 2005.

3.57 Given it is not possible to identify the childcare sector from ONS industry data, in previous reports we have looked at hourly earnings for employees in childcare occupations, i.e. workers in nurseries, playgroups, educational assistants and other childcare related occupations. Data on hourly earnings for all workers in childcare occupations suggest only a small percentage earn around the level of the minimum wage¹, but consultation and research commissioned from IDS highlighted that the minimum wage was having an increasing impact on private sector nurseries and that greater use was being made of age-related pay. We therefore focused our attention on pay for nursery nurses, using ONS occupational data.

3.58 As can be seen in Figure 3.20, the hourly earnings distribution for nursery nurses has shifted upwards in recent years to reflect minimum wage upratings. In April 2004, 4 per cent of all nursery nurses were paid around the adult rate of the National Minimum Wage and 9 per cent received below this rate. This is unchanged from the position in April 2002. But the figures were twice as high in the private sector, with 8 per cent paid around the adult rate and 18 per cent paid below this level.

¹ According to ASHE, in April 2004 3 per cent of employees in childcare occupations were paid around the adult rate of the National Minimum Wage. Four per cent of employees were paid less than the adult rate in April 2004, unchanged from the position in April 2003.

Figure 3.20

Hourly Earnings Distribution for Nursery Nurses Aged 18 and Over, 2002-2004

Source: ASHE, April 2002-2004 without supplementary information.

Notes:
1. NMW label shows the adult NMW rate in April of the given year.
2. Gross hourly earnings excluding overtime.

3.59 The National Day Nurseries Association told us they viewed the level of pay as the biggest issue facing the sector. Research commissioned from IDS (2004b) found that nearly two-thirds of the 100 independent nurseries in its survey needed to raise their pay rates in order to comply with the October 2003 upratings of the minimum wage. This was significantly more than the 46 per cent of organisations who reported that they had needed to raise rates to comply with the October 2001 upratings (IDS, 2002). Some three-quarters of nurseries predicted that they would be affected by the October 2004 upratings.

3.60 The IDS survey (2004b) found some indications that, since October 2003, nurseries have sought to reduce the size of their workforce, or increase the proportion of unqualified staff. However a number of nurseries observed that they had no flexibility over staffing levels left as they were already operating at the minimum legally required ratios for the number of staff to children. Indeed, our survey found that, among firms affected by the October 2003 upratings, those in the childcare and social care sectors were the least likely to reduce staffing levels.

Low Pay Commission Research Just under three-fifths (57 per cent) of [private nurseries] said that the last increase in October 2003 had had a significant impact on their organisation. IDS, 2004b. Report to the Low Pay Commission on the Impact of the National Minimum Wage

3.61 Nearly two-thirds of respondents to the IDS survey (2004b) reported that they had raised fees as a result of the increased costs from implementing the October 2003 upratings of the minimum wage. Several mentioned that the increase in fees had led to a drop in the number of children in their nursery and a couple said that they were concerned about the knock on effect this could have on staffing. Our survey found that, among firms affected by the October 2003 upratings, those in the childcare sector were the most likely to have increased prices. Consultation supported the view that the significant upratings of the minimum wage have caused a corresponding increase in childcare fees and some expressed concern at the possibility of overpricing causing a reduction in the demand for childcare.

3.62 Overall the evidence on childcare suggests that the minimum wage plays a major role in setting wages within the industry, and that there are adjustment problems as the minimum wage is increased. But these problems are not preventing a robust expansion of this sector.