2 What We Did

We learnt a great deal in preparing our first two reports and that experience informed our approach to our third report. As before, we based our recommendations on research and extensive consultation.

Research

We commissioned a substantial amount of original research, the results of which we have been able to draw upon throughout the two volumes of this report. We publicised our requirements in the British Universities Industrial Relations Association’s (BUIRA) Newsletter and Labour Market Trends, and on our Internet web site, www.lowpay.gov.uk. We also wrote to those who had previously completed research for us and to those who had shown interest in our seminars and occasional papers. We were encouraged by the continuing interest of the research community and others in our work which led to us receiving over 30 proposals. A group of commissioners met under an independent chair from the DTI to assess them. Twenty-one projects were eventually undertaken. The research we commissioned ranged from sophisticated econometric analysis of datasets to individual surveys of those on low pay.

• Incomes Data Services Ltd. (IDS) once again adapted their pay monitoring exercises to give us information about the effect of the June and October upratings and whether there were effects on differentials, grading, employment, youth rates and training.
• Mark Stewart from the University of Warwick and Joanna Swaffield from the University of York used secondary analysis of the British Household Panel Survey (BHPS) to evaluate the impact of the minimum wage, including its impact on the wage distribution and the characteristics of those benefiting. Stewart also estimated the employment effects on individuals, measured by their probability of remaining in work, using the Labour Force Survey (LFS), New Earnings Survey (NES) and BHPS.
• Several researchers looked at the effect of the National Minimum Wage on employers’ behaviour. Jason Heyes and Alex Gray from the Leeds University Business School surveyed firms to see whether the National Minimum Wage had resulted in employers incorporating higher skills levels into their jobs and whether there had been implications for training. Anna Bullock, Alan Hughes and Frank Wilkinson from the Economic and Social Research Council’s Centre for Business Research at the University of Cambridge surveyed cleaning and security firms in the UK to see what effect the National Minimum Wage had on productivity, management practices, training and recruitment.
• Some researchers looked at the impact of the minimum wage on particular low-paying industrial sectors. Many of these included the effects on small firms. Derek Adam-Smith, Gill Norris and Steve Williams at the University of Portsmouth surveyed housekeeping and bar work in the hospitality industry in Portsmouth. Janet Winters from Canterbury Christ Church University College researched current employment practices in horseracing by surveying all racehorse trainers in the UK and visiting training establishments for people working in stables.
• Some of these projects looking at the impact on particular groups of people followed up or extended useful work that had been started previously. The National Group on Homeworking, which articulates the problems of those working at home, looked at how effectively the enforcement procedures operate in these circumstances. Maria Hudson from the University of Cambridge provided us with information about the effect of the minimum wage on disabled people, and Justine Schneider from the University of Durham considered what effect it had on the employment of disabled people. The Equality Commission for Northern Ireland assessed the effect of the minimum wage on women and men in Northern Ireland. We commissioned two projects to consider the impact on ethnic minorities: Leicester City Council surveyed workers from ethnic minorities to assess the impact of the minimum wage, and Fiona Colgon, Mary Davis and Steve Jefferys from the University of North London studied awareness and impact in an area of deprivation and high ethnicity in North London.
• Some projects focused on young people. Rosemary Lucas and colleagues at the Manchester Metropolitan University examined the treatment of young workers in the hospitality sector in urban and rural areas. They also carried out another project on the experiences of students taking work. The Greater Manchester Low Pay Unit analysed Careers Service data to inform us about the interaction of the minimum wage with the youth labour market.
• We commissioned further research on compliance from the National Association of Citizens Advice Bureaux (NACAB) and the West Midlands Low Pay Unit which monitored enquiries about the minimum wage. IDS also undertook research on the outcome of National Minimum Wage cases at Employment Tribunals.
• Finally, our terms of reference asked us to consider the interaction of the minimum wage with the tax and benefits system, which enabled us to widen the scope of our research projects. Holly Sutherland from the University of Cambridge used a tax-benefit model to analyse the impact of the minimum wage on in-work poverty. And Euan Phimister, Ioannis Theodossiou and Alana Gilbert from the University of Aberdeen looked at the potential impact of the minimum wage on earnings in rural areas through analysis of BHPS data.

The body of research findings that we have amassed from academics, voluntary groups and professional research organisations — employing a variety of research techniques — contributed to the recommendations we have made. The research findings underpin our conclusions and are reflected throughout both volumes of this report. We have much appreciated working once again with a number of researchers as well as making links with new ones. We believe that at this stage, however, we should begin to consider more long-term research, and we very much hope that in its response to this report the Government will ensure that we are in a position to encourage longer-term research projects. Although most researchers will wish to publish their own research, as last time we will ensure that copies are deposited in certain libraries, the details of which can be found on our web site and in the second volume of our report. A complete list of the projects we commissioned will be found in the second volume of this report.

To obtain an exclusive and direct indication of the impact of the National Minimum Wage on business, we once again undertook our own survey. But we broadened its coverage by targeting sectors likely to be affected by the minimum wage. Hairdressing, hospitality, retail, business services, social care, childcare and textiles were all included and we are grateful to trade associations in these sectors — and to the Black Business Association and North London Chamber of Commerce — which distributed the questionnaire to their members. Altogether we distributed over 20,000 questionnaires. We achieved response rates of between 17 and 21 per cent in the hospitality, business services, social care and childcare sectors, with the total response rate being 14 per cent. Three-quarters of the responses came from small firms. Questions focused on the overall impact of the minimum wage, the impact of the June and October upratings, pay structures, the use of the Development Rates and the likelihood of employing young people. Certain sectors received additional questions if we thought there were issues that were of particular concern to them.

As our terms of reference referred specifically to the interaction between the minimum wage and the New Deal, we also conducted a small-scale postal survey of employers who had participated in the New Deal. We are grateful to the Employment Service for helping us to identify nearly 1,500 employers (mainly small and medium-sized enterprises) to which we sent questionnaires. The response rate was 12 per cent. Questions covered the extent of New Deal participants, the impact of the minimum wage, whether employers were more or less willing to take on subsidised employees with the onset of the minimum wage, rates of pay and use of the Development Rates, and whether employers intended to continue to use the schemes. Full details of the New Deal research will be in our second volume. We used the main survey to inform our report and there are references to it in the main body of this volume. Appendix 2 gives a fuller account of the survey.

Readers of our last report will recall that there were problems with the data available on low pay. As these underpin much of this report and our recommendations, we have continued to work with the ONS to establish better estimates of the incidence of low pay. During the period that we have been working on this report, ONS has produced new estimates based on a revised methodology. We are grateful to ONS for the work it has done and hope that it will continue to work to improve the estimates of the incidence of low pay in the economy. Chapter 3 describes what the data tell us about the impact of the minimum wage, and Appendix 1 to this volume explains how the latest estimates were derived and gives our assessment of their accuracy.

We have continued to look at minimum wages in other countries and discussed their operation and the arrangements for uprating with officials in the Republic of Ireland and the Netherlands. We have discussed questions of mutual interest with academics and government representatives from Australia, Bulgaria, Japan, New Zealand, South Africa, Sweden and Taiwan. Further information about international comparisons will be found in Appendix 3 of this volume and in our second volume.

Consultation

We now possess a database of those in a position to offer advice about the minimum wage as a result of the evidence collected for our previous reports. We sent over 400 letters to employer organisations, unions, voluntary and charitable organisations, pressure groups and academics. But we also tried to make some new contacts, especially with organisations that work with people from ethnic minorities and disabled people. Our web site also encouraged individuals, firms and organisations to submit their written evidence to us. We asked for views on any or all of the issues covered by our terms of reference but, in addition, also welcomed views on compliance with and enforcement of the minimum wage and on longer-term uprating mechanisms.

We received more than 150 pieces of written evidence from businesses, trade associations, trade unions, pressure groups, employer organisations and individuals. The vast majority of these acknowledged that the minimum wage had been of benefit to low-paid workers and that businesses had been able to accommodate it. Many of those from trade unions and pressure groups took the opportunity to argue for a substantial rise in the main rate and abolition of the Development Rate for young workers. But most employers’ organisations were cautious about the next increase. Once again we were impressed by the serious and considered nature of the evidence that we received. In the case of the representative organisations this was often based upon extensive information-gathering exercises which they themselves had undertaken. Evidence, unless given to us in confidence, will be made available to the libraries listed on our web site and in the second volume of our report.

We heard oral evidence from the CBI and TUC and a number of other organisations which had expressed a wish to supplement their written evidence. A list of those we met will be in the second volume of this report. We are very grateful to all the people and organisations that gave us their views.

We have always valued the opportunity to meet those most affected by the minimum wage on their home ground. This allows us to get an impression of its impact, discuss how it is working, and what should happen next. This time we also wanted to look at some specific issues which had been raised with us when preparing previous reports.

We met providers of care homes for the elderly and their local authority partners. We met unemployed people and those from local authorities, government departments and local agencies trying to help them with obtaining benefits and getting back to work. We visited a college of commerce to meet young people, their representatives and some of their employers. They gave us their views on the Development Rate and shared details of their circumstances and the paid work that they had to undertake to pay for their education. We talked to employers about their training. We also met people recently settled in this country who were trying to find work and those whose circumstances meant that working from home was their only option. We visited an agency placing disabled workers in jobs. We were able to meet many representatives of the hospitality industry, including those providing caravan sites. We met those supplying casual workers, often from overseas, to a range of sectors. We listened to the views of small manufacturers. We saw those providing entertainment — circuses and seaside piers — and those supplying services — a village shop, dry cleaners and a company providing cleaning and hygiene services. We saw those helping people obtain the minimum wage and those to whom the Government has entrusted the task of enforcing it. We visited Northern Ireland, Scotland and Wales and — in England — the North East, North West, Yorkshire and East Anglia. We are grateful to everyone we saw and also to those who helped us arrange the visits.

Conclusion

We have once again accumulated a vast amount of information about the minimum wage and the impact it is having in the UK. Because we have solicited views from a diversity of sources, thoroughly assessed the data and sought out those with a particular view to express or experience to recount, our confidence about the unanimous recommendations we have made is strong.