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THE NATIONAL MINIMUM WAGE AND TRAINING Research report commissioned by the Low Pay Commission >>Back to main index 1. Introduction Workers in small firms in low pay sectors are the least likely to receive work-related training. There is a substantial body of evidence to suggest a positive association between employees’ access to training and their employment in larger organisations, in unionised workplaces and in the public sector. There are also variations in access by occupational group. Craft workers, operatives, assembly and routine workers are less likely to receive five days training or more than white collar workers. Part-timers are trained less than their counterparts in full-time jobs (Cully et al., 1999:149). This partly reflects the often particularistic training needs of small firms, a reliance on learning by experience and the absence of a dedicated training function. Small firm owners may consider the costs of training to outweigh the benefits (Storey and Westhead, 1997). The aim of this report is to examine the extent to which the National Minimum Wage (NMW) has had an impact on training and development strategies. It will do this by exploring the responses of employers to it in three low paying sectors: social care, hospitality and retail. It will take account of conditions specific to each of these sectors, the economic conditions firms face, the characteristics of the workforce and management practices. There are two separate issues to be explored in relation to the NMW. The first concerns the extent to which it has created incentives to employers to consider the training and development needs of their organisation and its impact on their investment in employees’ training. This includes their perception of the relationship between investment in training and market performance. The second issue relates to the Development Rate for young people and for older workers and the exemptions for apprentices and the extent to which these differentials provide an incentive to invest in the training of specific categories of employees. The impact of changes in wage rates on employers’ propensity to train has been much debated. Broadly speaking, two positions have been adopted. The first of these suggests that relatively high youth wage rates, along with the costs of apprenticeship training, have been a factor contributing to the low levels of employer investment in training in the UK (see Ryan, 1999). The logical outcome of this position is that the reduction of youth pay has sometimes been proposed as a mechanism for increasing employer investment in training. This occurred with trainee allowances under the Youth Training Scheme and its successors in the 1980s. The second position is that labour market deregulation and low pay contribute few incentives to make labour more productive through investment in training. High wages and institutional constraints on employers’ discretion provide incentives to invest in training and development and to make labour more productive (Streeck, 1989). The decision of the Low Pay Commission to recommend exemptions from the NMW wage to encourage training and development assumes that there is a positive association between reduced pay rates and an incentive to the employer to train. In its second report, concern was expressed that there was then ‘no sufficiently coherent work-based training provision to ensure that young people are not left in low-paid jobs with no qualifications’ (Low Pay Commission, 2000:80). It highlighted the Commission’s disappointment that a range of bodies responsible for education, employment and training strategies had not taken account of the potential of the exemptions to serve as a positive tool in achieving broader government objectives (2000:92). Research on the extent to which the NMW has affected training strategies shows that it has made little difference to employers’ use of training and labour market initiatives such as the New Deal and Modern Apprenticeship. This is especially the case in low paying sectors where training is mainly informal and on-the-job, such as hospitality (Low Pay Commission, 2001a:60). Where the NMW has prompted companies to introduce strategies to improve the quality of their production, training provision has often improved (Heyes and Gray, 2001). The overall conclusion is that although some firms have cut training as a response to the NMW, overall it has had a modest positive effect on it (Low Pay Commission, 2001a:62). It is important to emphasise that employers’ propensity to train is not simply a question of rational calculation on the return on an investment in an individual employee in relation to the wages bill, but also reflects the institutional structure which underpins the training system and product market strategies. In particular, Streeck argues that training and development are collective rather than individual goods. This is because although individuals can invest in training, potentially any employer using the same skills can take advantage of this investment. Therefore the supply of skills in a given sector is also dependent on the presence of institutions and the activities of collective actors such as business associations and trade unions (Streeck, 1989). This suggests that although variations in wage rates may create incentives and disincentives to investment in training, these can not be separated from the presence or absence of supportive institutional structures which also exercise a significant influence. A number of factors external to the firm may affect decisions relating to investment in training. These include the institutional structure supporting training and development, the role of statutory requirements (for example, to spend a percentage of payroll on training, to provide particular types of training e.g. in health and safety, food hygiene, the requirement that workers should be qualified to NVQ standards in social care). Other external factors include sources of advice available through trade associations, training organisations and business support agencies. Equally, a bouyant local labour market may mean that employers have to consider alternative recruitment, employment and training practices in order to attract and retain labour. Nevertheless, managers also have scope for discretion in their choices over product market strategy and staffing policies. Internal factors may include decisions to compete on the price or the quality of a product or to seek niche markets. These will be reflected in patterns of work organisation and the ways in which training and development are mobilised to meet corporate objectives. Therefore a consideration of the impact of the NMW on training strategies and employees’ access to training has to locate them in the context of firms pre-existing strategies for training and development, their broader adjustment strategies to the NMW and the external infrastructure on which they can draw. The aim of this report is to explore the influence of these internal and external factors on a range of small and medium-sized companies in low paying sectors affected by the NMW. It explores the impact of the NMW on organisational training strategies in general, and the extent to which exemptions have been linked to young people’s and adults’ participation in formal training programmes and the attainment of nationally recognised qualifications. The research involved two major elements. The first of these was a consideration of the national and local infrastructural support available to small and medium-sized firms adapting to the NMW and, in particular, sources of advice on training strategies. This involved contacting national training organisations for the relevant sectors, trade associations, Job Centres, training providers and local authority support services in the local labour market. The second element of the research involved conducting case studies of three firms - two small and one medium-sized - in each sector in two localities. For our purposes, small was defined as having fewer than twenty full- and part-time employees and medium-sized as having between 21 and 50 full- and part-time employees. In practice, because it was impossible to know how many staff were employed until after we had gained access, some of the organisations were slightly larger than those originally targeted. It was also difficult to know in advance whether the organisations paid the NMW and used the Development Rate for adults or young people. One of the issues in conducting research on low pay is gaining access. Staff pay is not the easiest of issues to discuss in interviews with employers and there are presentational problems in addressing the issue of low pay in particular. Purcell et al., (1999) found many employers were reluctant to participate in their research on the lower earnings limit for National Insurance and those that did were not always willing to provide access to employees. Like Purcell and her colleagues, we believe there is a probability that those who did agree to be interviewed represent ‘better practice’ employers. In hospitality and retail where branding and image are important, pay rates are related to staff recruitment and to the image of the organisation. Here payment of the NMW or differentials above it may be linked to customer perceptions of the establishment and owners may be keen not be identified as paying low wages to their staff. Access was less of an issue in the care sector where employers were keen to discuss the problems of meeting statutory requirements and how local authority payments for clients did not allow them to pay their staff more. In Resort Town an additional case study was conducted in the care sector because home-owners were keen to be interviewed. A more detailed discussion of methodological issues in conducting research in low pay sectors can be found in Appendix 1. One of the local labour markets, which we refer to as County Town, was relatively bouyant, with a below average rate of unemployment. The other, Resort Town, was more economically depressed and is characterised by a range of indicators of deprivation. This allowed a comparison to be made between the effects of the NMW and the Development Rates under differing labour market conditions. This meant an assessment could be made of the external conditions in which the companies operated as well as their internal adjustment strategies. Semi-structured interviews were held with owner-managers and employees, including those in categories covered by the Development Rate. All the organisations have been anonymised and are referred to by pseudonyms. A summary of their characteristics, business and training strategies, and their adjustments to the NMW are provided in Tables 1 to 6 in sections 3.1.2., 3.2.2. and 4.1. Details of nine of the nineteen case study organisations can be found in Appendix 2. Six of these are from Resort Town because they provide examples of how companies have adjusted to business challenges in a local labour market where the NMW has had an impact. Three case studies are provided from County Town which illustrate how organisations have met the same types of challenges in low pay sectors where they are paying above the NMW. The report is divided into four sections. The first examines training issues and their relationship to the NMW at sectoral level. The second examines the local labour markets in Resort Town and County Town and the impact of the NMW on them. The third section analyses the organisations' adjustments to the NMW, and thematic issues which emerge from the case study materials, including the influence of business strategy and local labour market conditions. The fourth section is made up of a commentary and conclusion. | |
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