National report: UK

Eleven years since the introduction of the UK’s first statutory national minimum wage (NMW), most commentators regard it as having made a positive contribution to pay equity – both to raising the position of the lowest paid workers and to narrowing the gender pay gap. It is also associated with the fostering of improved social dialogue in the arena of wage-setting, largely as a result of the perceived effectiveness of the independent, tripartite organisation, the Low Pay Commission. Today, all major trade unions and most mainstream employer bodies support the NMW and accept that it provides much needed protection in a labour market characterised by weak and patchy collective bargaining coverage.The aim of this report is to provide further critical insight into these two issues – pay equity and social dialogue – in order to highlight the issues for policy and practice in the context of continuing developments in the operation of the NMW. We know very little about how employers and trade unions adapt their pay bargaining strategies in response to the NMW. For example, is there a consensus among social partners that the lowest paid in their particular sector or organisation ought to be paid higher than the adult NMW? How do unions ‘sell’ the idea of improving the position of the lowest paid to their members if it means a compression of differentials with more skilled and experienced members? Where an individual employer is willing to sustain a ‘gap’ between their bottom rate of pay and the statutory wage floor, is this possible in the absence of a broader industry-wide agreement? And what strategies do unions (and possibly employers) develop in order to address pay equity in the context of ongoing changes in the NMW?Developments in the NMWThe Low Pay Commission has been very effective in drawing on commissioned research to recommend changes in the rules governing the administration of the NMW. Examples of rule changes include the introduction of new rates for 16-17 year olds and for apprentices, as well as changes to what counts as pay in estimating the NMW, such as the exclusion of service charges and tips, for example. It also corrected an early overly cautious approach by explicitly recommending a rise in the level of the NMW that outpaced average earnings growth during 2003-6. There is significant evidence of a consensus approach and the fostering of genuine social dialogue within the Commission, although the current recession and recovery present a real test.The changing IR contextTrends in the industrial relations context on the one hand provide increasing justification for statutory minimum wage protection in the UK but on the other hand tend to work against efforts to use the NMW to improve the position of the low paid. Four in five workers in the private sector are not covered by collective bargaining and there is a great deal of evidence of vulnerability to exploitation in low paying sectors. Moreover, union density is systematically low among all low paid groups - men, women, full-timers and part-timers. A key problem is the limited use of extension mechanisms (compared with other European countries). At present, there is only one example, namely the extension of the National Health Service public sector pay agreement to private sector contractors.The impact on pay equityAt first, the NMW had limited impact on pay equity. However, after 2001 our analysis of UK earnings data reveals significant progress in measures of the gender pay gap and the position of the lowest paid. These improvements coincide with a period of increases in the relative level of the NMW:o Women’s average pay compared to men’s in full-time employment increased from 74% to 78% during 2002-2007o Women in part-time work experienced the strongest gains, although from a lower level, with a rise from 58% to 64% of average male full-time payo The bottom decile pay for all employees increased from 46% to 48% during 2002-2007, entirely the result of gains among female employees, especially in part-time jobso The overall share of workers in low paid jobs, defined as earning less than two thirds of the median, has not changed, fluctuating around 21-22% since 1999.Research findingsThe report draws insights for pay equity and social dialogue from three case studies of company-level pay agreements in the business cleaning sector, security sector and retail sector. The analysis draws on pay information, documentation of pay agreements and 15 interviews with leading pay negotiators from trade unions and employers as well as senior representatives of trade bodies and small and medium sized firms. The key results of each case are as follows:1. Business cleaning• Extension of a public sector pay agreement to private sector companies providing outsourced cleaning services supported by trade unions and several high performing global firms• A strongly focused low pay strategy of the trade union has improved the gap between the lowest rate of pay and the NMW• The union and employer are supportive of bottom-weighted pay deals, including lump sum payments and elimination of lowest pay points• A key obstacle to progress is the client organisation (in this case the individual National Health Service hospital trusts) since they can delay extension of the pay agreement2. Security sector• There is some employer support for an industry-wide minimum wage in order to provide a defence against the intensive cost-cutting competition to win contracts• In the company case-study there is mixed success in sustaining and growing a gap between the lowest pay rate and the NMW• A client-led system of pay determination means that some clients favour upskilling and uprating of pay but many favour a low cost approach. • The union has only had limited success in establishing a single company approach to pay across multiple clients despite a very strong and clearly focused low pay strategy• Improving union membership is a key foundation for the union’s low pay strategy3. Retail• The union has enjoyed the support of the employer in achieving significant improvements in the pay of young workers• The adult wage gap between the lowest pay rate and the NMW has narrowed and the lowest rate lies considerably below the low pay threshold for all UK workers• The union’s approach to low pay strategy mainly involves bottom-weighted pay deals such as elimination of bottom pay grades• The company has negotiated reductions in unsocial hours pay premiums and elimination of overtime pay enhancements.Issues for policy and practiceThe analysis of pay agreements sheds light not only on the interaction between NMW developments and the nature of social dialogue in low paying sectors, but also on some conundrums in pay equity trends. One notable issue is that while an overall rise in the NMW has improved the relative position of the lowest paid workers relative to the average worker, it has not changed the overall share of workers defined as ‘low wage’; this has remained stubbornly high at just over 20% since 1999. Our analysis highlights several possible factors. Certain types of bottom-weighted pay deals that benefit only the very lowest paid over other workers may overly compress pay differentials at the bottom and fail to lift workers above the low pay threshold. Also, the declining coverage of collective bargaining works against the rising NMW by weakening an important institutional instrument for negotiating ripple effects further up the wage scale; most workers in the private sector are only protected by the statutory wage floor and many in low paying sectors therefore do not enjoy the kind of pay scales typically negotiated in jointly regulated pay agreements. Finally, low paying jobs in the business services sector, such as cleaning and security, rely very strongly on the willingness of client organisations to pay an appropriate price for the contracted services. The exceptional case of outsourced cleaning for the public health service demonstrates how an industry wage standard can work without upsetting competition. In other areas of the economy, the cost-cutting focus of client businesses frustrates employer (and union) efforts to improve pay and skills, holding back efforts to build upon the improvements in the NMW.