LOW PAY, THE WORKING OF THE LABOUR MARKET AND THE ROLE OF A MINIMUM WAGE BY SANJIV SACHDEV AND FRANK WILKINSON
Sanjiv Sachdev is a Research Fellow at the ERCS Centre for Business Research at Cambridge University. Prior to that he was a Research Officer with public sector union UNISON. Frank Wilkinson is a member of the Department of Applied Economics at Cambridge University. He is a Executive member of the Institute of Employment Rights. This publication, like all publications of the Institute, represents not the collective views of the Institute but only the views of the author. The responsibility of the Institute is limited to approving its publication as worthy of consideration within the labour movement.
ISBN 1 8732 71611 May 1998 published by the Institute of Employment Rights 160 Falcon Road London SW11 2LN 0171 738 9511 e-mail ier@gn.apc.org designed by Megan Dobney 0181 761 7532 printed by Upstream (TU) 0171 358 1344 ÂŁ6.50 for trade unions and students ÂŁ20 others
contents
foreword
iv
executive summary
1
CHAPTER 1
introduction
4
CHAPTER 2
why are the low paid, low paid: theoretical perspectives
6
CHAPTER 3
low pay, the working of the labour market and the role of a minimum wage
who are the low paid?
ii
12
CHAPTER 4
the growth of low pay
17
CHAPTER 5
the dynamics of labour markets
22
CHAPTER 6
reconstituting the labour market
27
CHAPTER 7
the effects of a legal minimum wage
33
CHAPTER 8
the dynamics of a minimum wage
47
CHAPTER 9
the contribution of a minimum wage
54
APPENDIX 1
61
APPENDIX 2
63
APPENDIX 3
65
bibliography
66
endnotes
69
recent publications
74
GLOSSARY
Quartile: a division at 25 per cent.
contents
Median: the middle point in a group of items arranged in order of size.
iii
foreword
low pay, the working of the labour market and the role of a minimum wage
This is a timely and powerful argument, based on detailed empirical research, for the case that low pay is primarily the result of the low value placed on the skills and experience of disadvantaged workers rather than their personal shortcomings. Low pay remains overwhelmingly a problem of women’s pay. Skills like cleaning, cooking, sewing or caring, associated with women’s work, have been consistently undervalued and accordingly badly paid. Disadvantage is often reinforced by race and other kinds of discrimination.
iv
The authors argue persuasively that the progressive erosion of labour market and social standards over the last 20 years has allowed the economically powerful to secure the lion’s share of the productivity gains at the expense of the low paid, who have largely carried the cost of change. There has been an explosion in inequality. Over a quarter of the population have not gained from economic growth. In sectors like contract cleaning or fast foods any wage floor has collapsed. The century-long argument for national minimum wage legislation (well documented in the booklet) has finally been won. The new law is well drafted. It is broad in its scope, explicitly including groups like homeworkers and agency staff whose employment status has in the past been uncertain or insecure. The enforcement provisions are tough. There will be a single, widely advertised rate, which should mean that the law is largely self enforcing. The level at which the minimum wage should be introduced is a matter now for the Low Pay Commission (who have also been asked to report whether there should be an exemption or differen-
tial rate for under 26-year olds). There is a lot in Wilkinson and Sachdev’s detailed evidence that makes the case for a higher rather than a lower level as part of a broader strategy for modernising the economy, connecting up low wage sectors with union bargaining agendas, an instrument for economic efficiency as well as social justice. I hope this valuable contribution will be a spur to action as well as debate.
foreword
Rodney Bickerstaffe General Secretary, UNISON
v
executive summary
I This paper examines arguments surrounding the minimum wage and its potential impact. It challenges the orthodox view of the labour market, in particular, the view that low pay reflects the low skill and poor work attitudes of workers. Instead, the labour market is segmented by power relations that determine the structure of pay and job opportunities. I Low pay is mainly an outcome of the undervaluation of work. “Skill� is partially socially determined; low paid workers are not low paid because they lack skill, but because their skills are not recognised or valued. It follows that there is a need for a concerted effort to increase the number of good jobs; the minimum wage can be used as part of a broader package of reforms to counter the undervaluation of jobs. I The paper considers the current occupational structure of low pay. There are three dimensions to low pay; those of occupation, gender and part-time work. Using official data it finds a striking pay gap between the pay of men and women workers, even when they are employed in the same occupational group.
I The implications of measures to render the labour market more flexible are considered. This reconstitution of the labour market has led to a sharp increase in the downward pressure on wages and terms and conditions of employment at its lower end. It has also led
executive summary
I The growth of low pay since the late 1970s has led to high levels of labour market instability. The costs of such instability, include very high rates of turnover and dramatic shifts in the number of vacancies in low paying sectors, as economic conditions change.
1
to a greater concentration of ownership among firms in low paying sectors. Firms in such sectors have used legal, economic and technological changes to maximise their control over their workforces. I The paper explores business attitudes to the minimum wage and the likely business response to its implementation such as the reorganisation of pay packages. The exemption of workers aged under 26 would seriously weaken the effectiveness of the minimum wage, as they are central to many low paying industries. There is also the danger that, if exempted, young workers will displace older ones. I There is a complex relationship between changes in relative wages, the structure of employment, the level of demand and the pattern and level of prices. A minimum wage is unlikely to lead to a widespread substitution of jobs by machines. However, a further concentration of low paying employers is likely.
low pay, the working of the labour market and the role of a minimum wage
I Most of the jobs likely to be affected by the minimum wage are in the non-tradable sector and will not become less competitive if the minimum wages of all British low paid workers are raised. Those that are in the tradable sector, such as textiles and clothing, have seen a long term decline in their employment levels; a competitive strategy for them which is based on low pay is not viable.
2
I The evidence suggests that a minimum wage will have a significant impact on the wage structure, but that wage increases to maintain differentials will be confined to those sectors where pay is generally low and is unlikely to extend to the whole economy. Even in the low paid sectors, experience with equal pay legislation suggests that differentials can be changed without a significant knock-on effects. There is therefore a tendency to overstate the static costs of introducing a minimum wage. I There have been growing realisations of the dynamic benefits of a minimum wage; a recurring theme since the late nineteenth century in social and economic debate over low pay eradication and its consequences. It has been repeatedly argued that work should pay a living wage and that this will be a spur to better management, technology, training and organisation of work. It also raises the level of demand in an economy as it redistributes income to poorer workers who spend a high proportion of their earnings.
I But to make a significant impact a minimum wage needs setting at a high level and be part of a broader strategy to strengthen unions, remove discrimination and restore fairness to the labour market. The setting of a low level minimum wage could undermine its integrity and effectiveness. I Indeed, a low minimum wage could actually entrench low pay, driving down earnings in low paying sectors. Instead it should be used as a crucial part of a strategy towards better, more rewarding jobs, lower turnover, a weakened poverty trap and an innovative economy.
executive summary
I Trade unions are central to monitoring and enforcing the minimum wage. It offers them a foothold to organise in badly paid sectors of the economy. These are not confined to small firms, but now include some of the largest employers in Britain.
3
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