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THE NATIONAL MINIMUM WAGE AND EMPLOYERS' TRAINING DECISIONS
Research report commissioned by the Low Pay Commission >>Back to main index Part 1 – Introduction and Background to the Research In late 2001 IRS Research was commissioned by the Low Pay Commission (LPC) to undertake research into the extent to which the introduction of the National Minimum Wage (NMW) had impacted upon employer's training decisions. Some of the occupational sectors most affected by the introduction of the NMW are also those with particularly strong traditions of vocational training and education: hairdressing, hospitality and retail. These three sectors have large numbers of people on minimum and low pay rates, including young workers, one of the employee groups particularly affected by the introduction of the NMW. In general, organisations that provide access to training for their employees tend to do so for strategic reasons, including:
Reduction of training to compensate for increased costs arising from the NMW Some work (particularly in the USA) has suggested that employers may seek to compensate for increased costs arising from implementation of a NMW by reducing the costs incurred in training (see Neumark & Wascher, 1998). Neumark & Wascher’s research indicated that the NMW had resulted in a substantial reduction in the training received by younger workers. In contrast, an overview of more recent work for the Low Pay Commission in Britain indicated that, on the whole, there were few negative impacts of the NMW on training rates (Low Pay Commission, 2001). However, the Hairdressing sector in particular has expressed concerns that many of the micro-employers in this sector may be considering withdrawing from workplace training and apprenticeship schemes. Evidence gathered by the Confederation of British Industry (CBI, 2000) indicated that it was not concern about the NMW alone that was responsible for this situation, but worries about the cumulative impact of much recent government regulation such as the Working Time Regulations in concert with the NMW. Extending training provision While there was minimal evidence in Britain that the NMW had led employers to reduce training, neither was there very much evidence that the NMW had led to any increase in training. Heyes and Gray (2001) found that, where companies had improved quality of production as a strategic response to the NMW, this was accompanied by increased levels of training in 65% of establishments, compared to just 13% of those companies in which there had been no drive to improve quality. Nonetheless, only 3% of companies surveyed as part of the Employment Trends Survey 2000 (CBI, 2000) reported having increased training as a result of the NMW. This suggests that, while improvements to training provision may be a response in organisations adopting a high-quality approach, these companies constitute a minority of companies overall. Who gets trained? One fear was that, by raising the wage rates to be paid to older workers, the NMW might effectively price such workers out of the training market. Employers might feel reluctant to employ people who would require training (and hence not be fully productive) but whom the law would require to be paid the NMW. The National Minimum Wage Act therefore made special provision for organisations providing accredited training for workers aged 22 and over in the first six months of employment. This ‘development rate’ was introduced to encourage employers to provide training for older workers as well as for younger employees. One question that required investigation was the extent to which the adult development rate had been utilised by employers to facilitate the employment and training of older people. Mode of training Outside the UK, some employers have reduced training costs by changing the mode of training. For example, in Australia Howes (1998) cited data from five sectors that indicated that average training spend per employee fell from around $797 to around $500 during the period 1995-98. Kellie (1999) has observed that such figures do not necessarily indicate a decline in training per se, but rather, may indicate a move to less costly forms of training: on-the-job coaching as opposed to college-based course, for example. Such decisions however may have implications for the qualifications gained by trainees and for their future career prospects, although this need not be inevitable; Australia has a system similar to that of NVQs and hence these employees may be gaining qualifications by work-based certification of skills. Therefore a key question is whether employers in low-wage sectors are taking steps to minimise the costs of training as an alternative to cutting training efforts altogether. Such issues may of course have relevance for employers who increase training as well as those who decrease provision. Research priorities Therefore, in order to examine the above issues, it was proposed to target three sectors (Retail, Hospitality and Hairdressing) identified as having good track records in the provision of vocational training, and who employ large numbers of workers at the lower end of the wage distribution. These are also sectors that employ relatively large numbers of younger workers and women. The main aims of the programme of research and analysis were to determine:
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