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THE NATIONAL MINIMUM WAGE AND TRAINING Research report commissioned by the Low Pay Commission >>Back to main index 3. The Impact of the NMW in the Local Labour Markets The NMW has had a differential impact in the two local labour markets. Whereas many employers were paying below the NMW rate in Resort Town, this was not the case in County Town. As a consequence, the impact in the former has been greater and companies have had to develop strategies to adapt to a higher basic rate in the local labour market and an increased wages bill. It is here that examples of owners using the Development Rate were encountered. In County Town, wages in the local labour market are generally above the NMW and none of the case study companies have been paying the NMW. This means that there is less scope here for examining specific adaptations to the NMW. Nevertheless, it does allow an analysis to be made of labour management strategies in low pay sectors in a tighter labour market and how owners have addressed business challenges. Their perceptions of the significance of training to their business and staffing strategies are explored, including the potential for reduced wage rates to act as an incentive for investment in staff training. In the following section, local labour market conditions in the two towns are discussed. 3.1.1. Resort Town Resort Town had a population of 97,675 in 1998 (Resort Town Borough Council, 1998:15). It is an East Coast port which is closer to Amsterdam than to London and has a long history as a fishing port and trading centre. Tourism became important in the post-war period and in the 1960s the discovery of oil and gas in the North Sea brought considerable wealth to the town. Due to its location on the coast on the edge of rural county, food production and processing assumed considerable importance during the 1970s and early 1980s. The town has experienced a decline in its traditional industries such as fishing. In manufacturing and food processing over 7000 jobs have been lost since 1978, and this is related to the poor communications network with the rest of the UK (Resort Town Borough Council, 2000:1). The port facilities have been superseded by a neighbouring port. The offshore industry is in decline: the oil fields are now smaller and extracting gas is less cost effective. It is becoming less labour intensive with the application of technology. Tourism in the UK has declined with the increasing popularity of overseas holidays. Resort Town has been a popular holiday destination for populations especially in the North, the Midlands and Scotland and economic fluctuations in those areas affect the holiday trade. Now holiday makers often want self-catering rather than bed and breakfast accommodation. This is less labour intensive and has led to the decline of the holiday guest house. This combination of factors brought unemployment in Resort Town to significantly higher levels than national figures and in February 2000 unemployment stood at 10.4%, compared to the UK average of 3.3% (Resort Town Borough Council, 2000:1). The remaining narrow economic base relies heavily on tourism, the offshore industry and the port, all of which are susceptible to fluctuating national and international economic trends. Short-term offshore work and the availability of poorly paid seasonal work in agriculture and tourism obscure the true extent of the structural decline of the area. During the winter months, unemployment is at its height but usually drops during the summer to nearer the UK average. Because of the seasonal demand for labour, younger people are attracted to the area. They may live in at their work and often remain after the summer season, as rents are low in multi-occupancy ex-hotels. In the winter they may become part of the unemployed population. When the government launched the New Deal for 18 to 24 year olds, the Resort Town job centre had 24% of the estimated total unemployed in that age group as well as 33% of the unemployed aged over 25 eligible for the New Deal (Resort Town Borough Council, 1998:6). Beyond these figures, a number of people do not make themselves available for government training initiatives because they have not been unemployed for six months as they have taken seasonal work. All this is associated with high levels of benefit dependency, poor skills acquisition and training, and low aspirations. Of the 354 local authority districts in England, Resort Town has some wards, which ranked fifth worst by the index of multiple deprivation in 2000. The indices cover income (by way of non-overlapping counts of people in families in receipt of means tested benefits), employment, health, education and training, housing, homelessness or unsatisfactory housing and geographical access to services and shops and employment. The problems in two wards in particular have been given regional recognition by the award of £8.7 million of Single Regeneration monies. Resort Town received Intermediate Assisted Area Status in 1993 on the basis of the state of the labour market, its general deprivation and its ‘peripherality’ (Resort Town Borough Council, 1998). There is no dual carriageway to the local county town, the rail service needs investment and the nearest airport is small. Poor communications may have contributed to local people’s unwillingness to travel to work outside the town. Much of the built environment is outdated. In relation to the attraction of new businesses to the town, there are issues concerning suitable land supply for development and derelict land problems. Unused land in Resort Town is often poor quality and building has to be preceded by sinking very deep foundations, adding considerably to the cost of development. There is a large nature reserve and green belt land which limit space available for development. One of the features of seaside resorts is their capacity to attract a large elderly population. Low property prices have attracted retirees and the villages around Resort Town have an elderly population. Low property values have also meant many large hotels were converted to homes for the elderly and more recently into temporary accommodation for asylum seekers. This change of use can have a deleterious effect on the holiday trade and the local council resisted some applications for change of use. The recognition of the problems faced by Resort Town has brought a response in a range of government and European Union initiatives. The area has attracted funding as an Educational Action Zone, it has Assisted Area status and has bid for European Regional Development Funding. The education funds are partly targeted on improving motivation and aspirations of young school leavers. In some parts of the town GCSE attainment and participation in post-16 education and training is low. The local training infrastructure includes Resort Town College which offers a range of courses including specialist vocational courses, AS levels and access courses to higher education and caters for up to 6000 students a year. The catchment area for the college is wide. The college principal is concerned that more students are recruited from neighbouring towns and the ‘leafy suburbs’ than from the local wards where the college is located. The Principal pointed out, ‘(a)s a community-focussed college and committed to social regeneration as we are, how do we crack that problem so that we can provide the sort of courses and training and access that local folk need? Particularly how do we equip them to get employment locally? Even with a drop in unemployment there are still high levels of unemployment and yet enormous skills shortages locally’. This issue is a priority for the Learning Skills Council, the Job Centre, as well as the local colleges. Interviewees from institutions and government agencies described a tradition of non-participation in post-16 education and training amongst certain sections of the population and the negative influence of seasonal work and shift patterns on attitudes to learning. The college is tackling these issues by rethinking provision and trying to overcome anxieties about learning in an institutional context, running courses in unorthodox venues such as pubs and village halls. There are other colleges relatively close by in two neighbouring towns. Training is also offered by independent suppliers. Improving the quality and availability of training has been a focus for the Learning Skills Council. The recent influx of money from a number of sources has helped to support new training initiatives. There are at least three elements to this strategy. Firstly, attempts are being made to raise the aspirations of young people in schools to make them aware of opportunities, for example, in engineering jobs associated with the oil companies. Secondly, a range of vocational courses and opportunities are being introduced for disaffected young people who left school without qualifications. The Learning Gateway, run by the Careers Service uses an organisation called Breakout to identify these young people. They are allocated a personal advisor who prepares them for training. Thirdly, the local Job Centre helps to find them work. The New Deal supports all age groups to train for employment and uses subsidised employment to get them into work. There are also people who go through the New Deal but remain unemployed. A pilot project now in place for two years will target the very long-term unemployed with a range of initiatives for training for work. Although the local economy is responding to all the efforts at regeneration, Resort Town remains a low wage labour market. The introduction of the NMW had a big effect on local employers who typically paid below it. In unskilled jobs, the minimum wage is a common rate. Discussion at the local Job Centre indicated that almost all jobs in hospitality are advertised at the NMW, though chefs will negotiate their own salaries. The NMW is also advertised as the basic wage in the care sector. In both these sectors there is very little variation in the rates advertised. In the retail sector, there is more variation in wage rates, some of which is due to seasonal factors. An additional influence in retail is that a national supermarket chain is advertising jobs at £5.10 per hour. Despite the depressed state of the local economy, there are skill shortages at all levels in the area and full-time jobs increasingly demand skills. These jobs can command more than the NMW, which becomes a marker and employers wishing to retain skilled staff must pay above it. The emphasis on skills training seems to be having an immediate effect on the holiday trade as local people are less available for seasonal work and some employers report that they recruiting workers from Spain and Portugal. Other developments may bring increasing jobs and prosperity to the region. A new port is proposed and a roll-on, roll-off ferry which may not provide new local jobs but will increase trade certainly with Holland. There is also a proposal to revamp and modernise the sea front and tourist areas. Whilst the prosperity of the local county town, twenty miles away, may have a negative influence on Resort Town by taking trade from local retailers, there is also the potential for employment for local people prepared to travel to work. 3.1.2. The case study organisations in Resort Town Interviews were conducted in a total of ten organisations in Resort Town. These included four care homes, with different specialities in their client base: two provided care for the elderly mentally infirm; one specialised in residential care and the fourth in nursing care. The three hotels catered for different segments of the hospitality market. Two were long established family-run hotels, which both perceived their cuisine as being central to attracting their target clientele. One was aiming at the tourist market, specialist holidays and conference activities, the other at the top end of the tourist market and workers in the offshore industry. Although the third had recently had a series of changes of ownership, a new manager had been appointed and was upgrading it for business customers. The three retail outlets included one long-established department store and two smaller stores: a sports shop and a newsagents. Details of all the organisations, their respective markets, staffing and business strategies are outlined in Table 1, including the extent to which they were using the NMW. This is followed by Table 2, which summarises the focus of their training strategies, the extent to which they were training younger and older workers and if this included the use of the Development Rate. Table 1: Market Strategy and the National Minimum Wage in Resort Town | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Table 2: Training strategy and the use of the exemptions from the NMW in Resort Town | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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3.2.1. County Town County Town is located in central England with a population of just under 200,000 in 1999 (County Council, 2000a:1). It has good communications with the rest of the UK through the road motorway network and train services and has good access to several international airports. The industrial and employment structure has shifted in recent years and it is now a major sector for financial, professional and property services, distribution, engineering and high technology. A number of national and international companies, in the financial, engineering, paper production and food and drink sectors have their national head offices in the town (County Council, 2000b). The County Council points to good labour relations, the existence of a ‘diverse, highly skilled and adaptable workforce’ and the availability of a wide range of industrial and commercial services as attractions to potential investors in the area (2000b:1). County Town’s employment profile has changed over time with the development from its traditional industrial base dominated by agriculture and footwear to high growth sectors such as those of financial services, light engineering, high technology and logistics. This evolution has probably been stimulated by the development of the region as a transport hub for England and also by the trend away from the manufacture of commodity goods that has been brought about through globalisation. Another significant factor was its designation as a New Town in the 1960s. This fuelled a major population expansion in the last forty years. With its good transport links to all parts of the British mainland and a large and adaptable human resource base, employment prospects in County Town appear relatively secure. Transport, warehousing and logistics are expected to be growth sectors (County Council, 2000a). Production of light goods, perishable foodstuffs and brewing requiring wide geographical distribution throughout the UK is also becoming increasingly important. These sectors fuel a large and rapidly growing packaging and printing industry. County Town has become an important engineering centre for the motor sports industry. Footwear, another skill-based industry, is in decline but is still a significant employer. The town is a major centre for the finance industry. A number of major companies were attracted to the town following its designation as a New Town and their workforces are expected to continue to grow. Employment in the county as a whole increased by more than 100,000 between 1982 and 2000 which represents 45% growth over that period. Much of the employment growth arose from the establishment of County Town as a major centre of business and financial services which accounted for 29,000 of these jobs. The second highest area of employment growth came from other parts of the service sector with wholesale, retail, hotels and restaurants accounting for 27,000 jobs. The same stimulus is likely to have caused an additional 6000 jobs in transport and communications to have been generated in the period. There has been a slight reduction in the number of people employed in manufacturing but this sector still employs about 25% of the working population, which is above the national average. Within manufacturing there has been a trend away from traditional industries such as mineral extraction, metal production and chemical processing towards light engineering (County Town Borough Council, 2002). County Town has experienced consistently lower rates of unemployment than the UK and within its region. In June 2002, male unemployment stood at 3.3 per cent and female unemployment at 1.2 per cent, with an average of 2.3 per cent. Despite this, there are three wards where higher levels of unemployment are found. In this scenario employers are competing for labour in a local labour market where demand is high. The Job Centre conducted a survey of wages in the locality, based on information collated from vacancies it displayed between September and December 2001. Overall the lowest hourly rates offered ranged from £3.70 per hour for a sales assistant in the retail trade to £5.50 per hour for LGV drivers and skilled operatives. In retail, the rate ranged between £5.42 and £3.70 per hour, with an average hourly rate of £4.37. In care work, hourly rates ranged between £8.00 and £4.10 per hour, with an average rate of £4.86. In catering work, in different occupations, the hourly rates ranged from £8.00 to £4.10, with an average of £4.30 for bar staff, £4.55 for general catering staff, £5.41 for chefs and cooks and £5.03 for waiting staff. Although some of these rates are close to the NMW, all the case study organisations interviewed in this research project were paying above it and reported that they had not been affected by its introduction. There are a range of establishments in further and higher education in County Town which maintain good links with the Chamber of Commerce and the new Learning and Skills Council. A higher education institution provides undergraduate and postgraduate courses in a range of subjects, including Management and Business, technology and design, health care and engineering. The further education college offers a range of full-time and part-time provision and has a Business Support Centre which works with local businesses. Courses that are relevant, or potentially relevant, to the sectors covered in this study, include Business and Professional Studies, Office Administration, Information Technology, Hospitality and Catering, Leisure and Tourism and Social Care. 3.2.2. The case study organisations in County Town Interviews were conducted in a total of nine organisations in County Town. These included two care homes, one specialising in the care of the elderly, the other in the care of people with learning difficulties and the third case study, a day care centre was in the voluntary sector. The three hotels catered for different segments of the hospitality market: two focussed on the business market and social functions and the other specialised in professionals on training courses and emergency referrals from the Social Services Department. The three retail outlets included one relatively up-market clothing store, a florist and a leather goods shop. Details of their respective markets, staffing and business strategies are outlined in Table 3. This is followed by Table 4, which summarises the focus of their training strategies, the extent to which they were training younger and older workers. In County Town, none of the case study organisations paid the NMW, nor used the Development Rate. Table 3: Market Strategy and the National Minimum Wage in County Town | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Table 4: Training strategy and the use of the exemptions from the NMW in County Town | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Table 5: Adjustment to the National Minimum Wage in Resort Town | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Table 6: Adjustment to the National Minimum Wage in County Town | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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