Priced Into Poverty


An Analysis of pay rates in former wages council industries


INTRODUCTION
Until the end of August 1993 twenty-six Wages Councils set legal minimum rates of pay for adult workers in industries such as hotel and catering, retail, hairdressing and clothing manufacture. Over 2.5 million workers were covered by these minimum pay rates, which were uprated annually.

Under the 1993 Trade Union Reform and Employment Rights Act Wages Councils were abolished. Prior to abolition the Low Pay Network argued that the removal of rights to minimum pay rates would result in falls in pay for many workers. This report is the fourth in a series produced by the Low Pay Network to monitor the effect of abolition.

In February 1994 the Network published an interim report based on a survey of pay rates in Wages Council sector jobs on offer in 46 Job centres around the country. Based mainly on data collected in the first week of November 1993, only two months after abolition, the survey showed that over a fifth of jobs on offer were paying less than the Wages Council rate.

At the end of August 1994, to coincide with the first anniversary of abolition, the Network published a further report, based on data collected in 128 Job centres around the country in April and May, which showed that over a third of vacancies in former Wages Council sectors were paying less than the Wages Council rates uprated by inflation, and 17.0% were paying less than the rates at abolition.

In May 1995 the Network undertook an analysis of average pay rates in ex Wages Council sectors as recorded in the Labour Force Survey and in the New Earnings Survey. Both sets of data showed average real pay falling in the year following abolition in all but one of the sectors. though the sectors unaffected were different in the different surveys. In some sectors pay had also fallen in cash terms (eg by 22p per hour in clothing manufacture according to the Labour Force Survey). The report also called into question the level of coverage of former Wages Council sectors within official statistics.

This report, which is being published to coincide with the second anniversary of abolition, continues the process of monitoring the rates of pay on offer in Job centres in sectors formerly covered by Wages Council minimum pay rates.

THE SURVEY
The data used in this report were collected by Low Pay Units in forty Job centres in April and May 1995. Low Pay Unit staff visited Job centres and took down details of all vacancies in hotel and catering, retail, hairdressing and clothing manufacture. These four sectors represent the vast majority (96.7%) of lobs which were formerly covered by Wages Councils.48.0% of Wages Council jobs were in retail, 41.6% in hotel and catering, 4.6% in clothing manufacture, and 2.7% in hairdressing.

The analysis in this report is based on details from 4,673 jobs. of which 2,089 (44.7%) were full-time and 2,584 (55.3%) were part-time. (Where a job was either full-time or part-time, or where it was not clear, it was counted as full-time-) These proportions are very similar to those found in the two surveys in 1994, where respectively 43.3% and 44.1 % of jobs were full-time and 56.7% and 55.9% were part-time. Jobs which were for young people have been excluded from the total, as have certain jobs which were riot covered by Wages Councils, of which more detail is given in the analysis of each sector.

3,888 jobs (78.8%) either gave an hourly pay rate or gave sufficient detail for an hourly pay rate to be worked out. This is just above the proportions in the 1994 surveys, where respectively 77.6% and 75.9% gave an hourly rate. Hourly rates have been determined by using the adult rate. If jobs gave rates related to ages. then the highest rate was used. Where training and normal rates have been given, the normal rate has been used.

In many cases the hourly rate was given on the job advert. Where this was not the case the hourly rate was calculated wherever possible by reference to the weekly, monthly or annual rate, divided by the number of hours to be worked where these were available. Some jobs gave the number of hours to be worked, but others gave start and finish times. In such cases the weekly hours have been calculated assuming that there was an hour for lunch each day (except for part-time jobs which were clearly only for portions of the day). Such an assumption will in some cases have led to an under-estimate of the hours to be worked and thus an over-estimate of the hourly rate. For example we know that many clothing machining jobs only allow half or three quarters of an hour for lunch, but since these could not be identified the hour break has been applied across the board. This will have reduced the proportion of jobs which appear as paying less than Wages Council rates.

A further factor which will mean that jobs paying below the Wages Council rate have been under-estimated is that some jobs were for more than 39 hours a week Under the Wages Councils overtime at time and a half was paid for all hours in excess of 39. However, for the purposes of this survey weekly pay has been simply divided by numbers of hours, without adjusting for the component of weekly pay which should be overtime. Thus a job for 50 hours a week at £175 would count as paying an hourly rate of £3.50 for the purposes of this survey, above Wages Council rates. However, if overtime at time and a half were added to the calculation the basic hourly rate would be £3.15, lower than the retail Wages Council rate at abolition.

The 4,673 jobs fell into the following sectors (with proportions from the major 1994 survey in brackets):
Hotel and catering2,71058.0%(56.2%)
Shops1,45131.1%(30.4%)
Clothing manufacture3066.6%(7.0%)
Hairdressing2064.4%(6.4%)


The breakdown of jobs by sector was very similar in 1995 to that in 1994, though there were proportionately slightly fewer jobs in hairdressing and clothing manufacture and slightly more in hotel and catering and in shops.

In those jobs where the hourly pay rate was given or could be estimated, that rate of pay was compared to two benchmarks:

This analysis enables three sets of figures to be determined:

The extent of underpayment has been assessed by comparing the average hourly rate in "underpaying" jobs with the new rate. It should be noted that estimates of what the Wages Council rates would now be have been worked out solely on the basis of changes in the Retail Price Index. In reality it is likely that many of the rates would now be higher than this exercise indicates, given that in the past Wages Council rates had often risen by more than the rate of inflation, and given that pay settlements and average earnings have tended to rise by more than inflation.

For the first time this year we have also included a further section in the report which looks at the weekly income to be derived from jobs in former Wages Council sectors. Given the importance of these sectors within the economy as a whole, the effect of low pay has to be considered in terms not only of hourly rates but also of weekly income, particularly the implications for family poverty and for fiscal balance.

HOTEL AND CATERING
There were 2,710 hotel and catering jobs, a figure which excludes jobs which were clearly in areas not previously covered by Wages Councils, such as staff canteens, hospitals, and private residential homes. All catering jobs which did not clearly fall into excluded categories were analysed as follows:

Hotels and licensed restaurants694(25.6%)
Cafes and unlicensed restaurants120(4.4%)
Pubs and dubs616(22.7%)
Unknown1,280(47.2%)

The first three categories are the three Wages Councils which previously covered the hotel and catering sector. The fourth, and largest, category covers all those jobs where it was not possible to decide what kind of establishment was covered (eg a job for waiter/waitress could fall under any one of the three Wages Councils, or be in an excluded establishment).

Pay rates for each hotel and catering Wages Council were different prior to abolition, and they were also uprated at different times. The following analysis looks at the jobs in each of the three Wages Council areas, and then compares the unknown jobs with the rates on offer in the Wages Council which had the lowest rate prior to abolition.

Hotels and licensed restaurants
694 jobs were either in hotels or restaurants. In each case where the Job centre card specified restaurant the job has been placed in this category, even though some of these jobs may have been in unlicensed restaurants. The Wages Council rate for unlicensed restaurants was higher than for licensed restaurants, so this may mean that there is an underestimate of the number of restaurant jobs which were paying below the rate.

396 (57.1 %) of the jobs were full-time and 298 (42.9%) were part-time. 302 (76.3%) of the full-time jobs and 267 (39.6%) of the part-time jobs gave hourly rates, making a total of 569 (82.0%) of all jobs giving an hourly rate.

The Wages Council rate for hotels and licensed restaurants was £2.92 at abolition, having last been uprated on 1st November 1992. Inflation from November 1992 to November 1993 was 1.4%, and from November 1993 to November 1994 it was 2.6%. Using these inflators the new Wages Council rate should be £3.04. In the following and subsequent similar tables the results from this survey are compared with the major 1994 survey ("After the Safety Net"). Analysis of the jobs with hourly pay rates shows the following:

19951994
Full-Time
Below the old rate72.3%9.7%
Between old and new rate6120.2%13.0%
Below the new rate6822.5%22.7%
Part-Time
Below the old rate124.5%9.5%
Between old and new rate9134.1%20.2%
Below the new rate10338.6%29.7%
All
Below the old rate193.4%9.6%
Between old and new rate15226.7%16.8%
Below the new rate17130.1%26.4%

As the above table shows, the proportion of jobs paying below the new rate rose from 26.4% in 1994 to 30.1% in 1995. The proportion of jobs paying below the rate at abolition fell from 9.6% to 3.4%, but this would be expected given that in the space of a year some uprating would be expected to occur which would take some jobs above the abolition rate.

The rise in the proportion of jobs falling below the new rate is due to the significant increase in the proportion of part-time jobs falling into this category, from 29.7% to 38.6%. Whilst just over a fifth of full-time jobs were paying below the rate, nearly two-fifths of part-time jobs were underpaying.

Whilst much higher proportions of part-time jobs were paying less than the new rate, the average hourly pay rate of full-time and part-time underpaying jobs was similar.



Cafes and unlicensed restaurants
120 jobs fell into the cafes and unlicensed restaurants category. 61(50.8%) of the jobs were full-time and 59 (49.2%) were part-time. 58 (95.1%) of the full-time jobs and 57 (96.6%) of the part-time jobs gave hourly rates, making a total of 115 (95.8%) of all jobs giving an hourly rate.

The Wages Council rate for cafes and unlicensed restaurants was £2.99 at abolition, having last been uprated on 14th June 1993. Inflation from June 1993 to June 1994 was 2.6%, and since the survey was conducted in April and May 1995 there would have been no further uprating at the time the survey was being undertaken. Using inflation of 2.6% the new Wages Council rate should be £3.07. Analysis of the jobs with hourly pay rates on offer shows the following:

* No comparable figure as there would have been no "new" rate at the time of the 1994 survey
19951994
Full-Time
Below the old rate610.3%9.4%
Between old and new rate2543.1%*
Below the new rate3153.4%*
Part-Time
Below the old rate810.5%21.3%
Between old and new rate2645.6%*
Below the new rate3256.1%*
All
Below the old rate1210.4%15.6%
Between old and new rate5144.3%*
Below the new rate6354.8%*


The table shows a remarkable consistency between the results for full-time and part-time jobs. Despite the fact that, due to the date of uprating, the analysis allows for only one uprating for cafes and unlicensed restaurants, more than half the jobs were offering less than the new rate.

Although a further year has passed, the proportion of full-time jobs which paid below the old Wages Council rates was marginally higher in 1995 than in 1994.

The average hourly pay rate of full-time and part-time underpaying jobs was similar.

Pubs and Clubs
616 jobs fell into the pubs and dubs category. 118 (19.2%) of the jobs were full-time and 498 (80.8%) were part-time. 91 (77.1%) of the full-time jobs and 468 (94.0%) of the part-time lobs gave hourly rates, making a total of 559 (90.7%) of all jobs going an hourly rate.

The Wages Council rate for pubs and clubs was £3.01 at abolition, having last been uprated on 15th January 1993. Inflation from January 1993 to January 1994 was 2.5%, and from January 1994 to January 1995 it was 3.3%. Using these inflators the new Wages Council rate should be £3.19. Analysis of the jobs with hourly pay rates on offer shows the following:

19951994
Full-Time
Below the old rate2527.5%22.9%
Between old and new rate2830.8%45.8%
Below the new rate5358.2%68.7%
Part-Time
Below the old rate9520.3%14.0%
Between old and new rate29462.8%61.0%
Below the new rate38983.1%74.9%
All
Below the old rate12021.5%15.5%
Between old and new rate32257.6%58.3%
Below the new rate44279.1%73.8%


For both full-time and part-time jobs the proportion paying less than the rate at abolition has risen, despite a further year having passed. Thus over a fifth of all the jobs on offer in pubs and clubs were paying less than the old rate. Whilst there was a higher proportion of full-time jobs paying below the old rate than part-time, there was a much higher proportion of part-time jobs paying between the old and new rates. Nearly six in ten full-time and over eight in ten part-time jobs were paying less than the new rate, making a figure of eight in ten in all.

The average hourly pay rate for full-time underpaying jobs was slightly lower than the average for part-time underpaying jobs.


Other hotel and catering Jobs
This category covers those jobs which it was not possible to allocate to specific Wages Council sectors.
For this reason the rates of pay on offer have been compared to the lowest hotel and catering Wages
Council rate, that relating to hotels and licensed restaurants.

There were 1,280 of these "unknown" jobs, of which 667 (52.1%) were full-time and 613 (47.9%) were part-time. 434 (65.1%) of the full-time jobs and 520 (84.8%) of the part-time jobs gave hourly rates, making a total of 954 (74.5%) of all jobs giving an hourly rate. Comparing these jobs with the hotels and licensed restaurants rate gives the following:


19951994
Full-Time
Below the old rate317.1%12.0%
Between old and new rate11025.3%1.3%
Below the new rate14132.5%13.3%
Part-Time
Below the old rate479.0%11.8%
Between old and new rate14227.3%3.1%
Below the new rate18936.3%14.9%
All
Below the old rate788.2%11.9%
Between old and new rate25226.4%2.5%
Below the new rate33034.6%14.3%


Full-time and part-time jobs had very similar rates of underpayment, both In 1994 and 1995. Whilst the proportions paying less than the old rate fell by some 4 percentage points between 1994 and 1995, there was a marked increase in the proportions paying between the old and new rates, resulting in over a third of all the jobs paying less than the new rate. This compares very unfavourably with 1994, when less than 15% were paying below the new rate.

The average hourly pay rate for full-time and part-time underpaying jobs was similar.


All hotel and catering jobs
Combining the data for all the hotel and catering jobs shows the following:

19951994
Full-Time
Below the old rate697.8%11.9%
Between old and new rate22425.3%9.2%
Below the new rate29333.1%21.1%
Part-Time
Below the old rate16012.2%12.3%
Between old and new rate55342.1%20.7%
Below the new rate71354.3%33.1%
All
Below the old rate22910.4%12.2%
Between old and new rate77735.4%16.5%
Below the new rate100645.8%28.6%


As the table shows, underpayment continued to be higher for part-time hotel and catering workers than for full-time, with over a half of part-time workers being underpaid, compared with a third of full-time. Whilst the proportion of full-time workers who were paid less than the old rate fell slightly, the proportion of part-time workers under the old rate remained stable. There were very marked rises, however, in the proportions of workers being paid between the old and new rates, so that in total the proportion of workers underpaid rose from 29% in 1994 to 46% in 1995.

SHOPS
There were two Wages Councils which covered shop jobs prior to abolition: one was for retail food and one for retail non-food. There were also a number of shops which, mainly for historical reasons, were excluded from coverage, such as florists, chemists, and butchers (unless they predominantly sold cooked meat).

Whilst the vast majority of shop workers were covered by Wages Councils, the situation whereby some were excluded from minimum wage protection was always anomalous and unfair. There was no logical basis for the exemptions. Within this survey, therefore, no attempt has been made to identity jobs which might have been exempt from Wages Council rates. The view of the Low Pay Network is that if such jobs were paying less than the rate prior to abolition this demonstrated the value of Wages Councils in maintaining wages.


There were 1,451 retail jobs, which broke down into the following categories:
Retail food19013.1%
Retail non-food18813.0%
Other retail jobs107373.9%


As the table demonstrates, it was not possible to allocate jobs between food and non-food shops in about three quarters of the cases. This was because the information available on the Job centre card was insufficient.

Retail food
of the 190 jobs in food shops, 60 (31.6%) were full-time and 130 (68.4%) part-time. 45 (75.0%) of the full-time jobs and 121 (93.1%) of the part-time jobs gave hourly rates, making a total of 166 (87.4%) of all jobs giving an hourly rate.

The Wages Council rate for retail food was £3.175 at abolition, having last been uprated on 5th April 1993. Inflation from April 1993 to April 1994 was 2.6%, and from April 1994 to April 1995 it was 3.3%. Using these inflators the new Wages Council rate should be £3.37. Analysis of the jobs with hourly pay rates on offer shows the following:

19951994
Full-Time
Below the old rate715.6%32.7%
Between old and new rate1737.8%12.7%
Below the new rate2453.3%45.5%
Part-Time
Below the old rate2722.3%30.7%
Between old and new rate7562.0%39.1%
Below the new rate10284.3%69.7%
All
Below the old rate3420.5%31.1%
Between old and new rate9255.4%34.1%
Below the new rate12675.9%65.2%

The proportions of part-time jobs paying below the old and new rates was substantially higher than the proportions of full-time jobs. but for both full-time and part-time the proportions below the old rate fell from 1994 to 1995, and the proportions between the rates rose substantially. In total over a fifth of all the jobs were paying below the rate at abolition, whilst well over a half were paying on or above the old rate but below the rate which it is estimated would have been in force if Wages Councils had not been abolished. This means that more than three quarters of the retail food jobs on offer were adversely affected by Wages Council abolition. The average hourly pay rate for full-time and part-time underpaying jobs was similar:


Retail non-food
188 jobs were in non-food shops, of which 64 (34.0%) were full-time and 124 (66.0%) were part-time. 47 (73.4%) of the full-time jobs and 111(89.5%) of the part-time jobs gave hourly rates, making a total of 158 (84.0%) of all jobs giving an hourly rate.

The Wages Council rate for retail non-food was £3.155 at abolition, having last been uprated on 4th April 1993. Using the same inflators as for retail food, the new Wages Council rate should be £3.35. Analysis of the jobs with hourly pay rates on offer shows the following:

19951994
Full-Time
Below the old rate714.9%16.1%
Between old and new rate1123.4%6.8%
Below the new rate1838.3%22.9%
Part-Time
Below the old rate1614.4%19.0%
Between old and new rate5751.4%31.6%
Below the new rate7365.8%50.6%
All
Below the old rate2314.6%18.2%
Between old and new rate6843.0%25.3%
Below the new rate9157.6%43.6%

As with retail food, the proportion of part-time jobs underpaying was substantially higher than the proportion of full-time jobs, although for retail non-food the proportions paying below the old rate were similar for full-time and part-time. There were small falls in the proportions paying below the old rate but substantial rises in the proportions paying between the rates, resulting in nearly six out of ten retail non-food jobs paying less than the estimated Wages Council rate. The average hourly pay rate for full-time underpaying jobs was lower than the average for part-time underpaying jobs.


Other retail jobs
The majority of shop jobs could not be allocated between food or non-food, and they have therefore been compared with the non-food rate, which was the lower of the two retail Wages Council rates at abolition.

1073 jobs fell into the "other" retail category. 308 (28.7%) of the jobs were full-time and 765 (71.3%) were part-time. 224 (72.7%) of the full-time jobs and 694 (90.7%) of the part-time jobs gave hourly rates, making a total of 918 (85.6%) of all jobs giving an hourly rate. Comparing these jobs with the retail non-food rates shows the following:

19951994
Full-Time
Below the old rate5625.0%33.3%
Between old and new rate5725.4%9.9%
Below the new rate11350.4%43.3%
Part-Time
Below the old rate14420.7%25.4%
Between old and new rate26538.2%27.7%
Below the new rate40958.9%53.1%
All
Below the old rate20021.8%27.2%
Between old and new rate32235.1%23.8%
Below the new rate52256.9%50.9%

As in 1994, the proportions of full-time jobs paying less than the old rate were higher than for part-time, though the gap has narrowed. Much higher proportions of part-time jobs were paying between the old and new rates, although the proportional rise in this category was higher for full-time jobs. In total, over a fifth of all the jobs were paying below the Wages Council rate at abolition, and over a third were paying on or above the old rate but below what the rate should now be.

The average hourly pay rate for full-time underpaying jobs was lower than the average for part-time underpaying jobs.

All retail Jobs
Combining the data for all the shop jobs shows the following:

19951994
Full-Time
Below the old rate7022.2%27.3%
Between old and new rate8526.9%9.3%
Below the new rate15549.1%36.6%
Part-Time
Below the old rate18720.2%24.6%
Between old and new rate39742.9%31.2%
Below the new rate58463.1%55.7%
All
Below the old rate25720.7%25.2%
Between old and new rate48238.8%26.2%
Below the new rate73959.5%51.4%

There were similar proportions of full-time and part-time jobs which were paying below the old Wages Council rate, making about a fifth of all retail jobs falling into this category. Whilst there were fewer full-time than part-time jobs paying between the old and new rates, in total nearly four out of ten retail jobs fell into this category. In all nearly 60% of retail jobs had been adversely affected by Wages Council abolition, compared to just over a half in 1994.

CLOTHING MANUFACTURE
Workers involved in the manufacture of clothing (though not knitted clothing) were covered by a Wages Council which set a minimum hourly rate of pay, a rate which was also Supposed to be achieved if piecework rates were paid. Workers Involved in other kinds of machining. such as making bedding, were not covered.

In this survey it was not possible usually to identity what kind of machining was involved in each vacancy, and for this reason all machining and allied jobs have been included. The Network would argue that it was, in any case, illogical to exclude non-clothing machinists, and that if such machinists had been earning less than the Wages Council rate this in itself would demonstrate the importance of the rate to clothing workers.

306 jobs were in machining or associated tasks, of which 260 (85.0%) were full-time and 46 (15.0%) were part-time. 156 (60.0%) of the full-time jobs and 26 (56.5%) of the part-time jobs gave hourly rates, making a total of 182 (59.5%) of all jobs giving an hourly rate. Clothing machining had a lower proportion of jobs going an hourly rate because not only were there a number of jobs which were "wage negotiable" but also others which said piecework rates would be paid.

The Wages Council rate for clothing manufacture was £2.7166 at abolition, having last been uprated on 13th March 1993. Inflation rose by 2.3% between March 1993 and March 1994, and by 3.5% between March 1994 and March 1995. Using these inflators the new Wages Council rate should be £2.88. Analysis of the jobs with hourly pay rates on offer shows the following:

19951994
Full-Time
Below the old rate2516.0%16.1%
Between old and new rate2214.1%13.6%
Below the new rate4730.1%29.8%
Part-Time
Below the old rate13.8%10.3%
Between old and new rate311.5%6.9%
Below the new rate415.4%17.2%
All
Below the old rate2614.3%15.5%
Between old and new rate2513.7%12.9%
Below the new rate5128.0%28.4%

The table shows no change in the proportion of the total jobs which were paying less than the new rate. The number of part-time jobs is too small to draw any conclusions from changes between 1994 and 1995, but the full-time jobs show no fall in the proportion paying below the old rate and a very small rise in the proportion paying between the rates.

The average hourly pay rate for full-time underpaying jobs was lower than the average for part-time underpaying jobs.


HAIRDRESSING
There were 206 hairdressing jobs in the survey. This figure excludes other jobs on offer in hairdressing salons, such as beauty therapists and manicurists, who were not covered by the Wages Council. 155 (75.2%) were full-time and 51(24.8%) were part-time. 44 (28.4%) of the full-time jobs and 23 (45.1%) of the part-time jobs gave hourly rates, making a total of 67 (32.5%) of all jobs going an hourly rate. This figure of only about a third of jobs giving an hourly pay rate is similar to 1994, when 33.6% gave an hourly rate. This is because the majority of hairdressing jobs are now advertised as "wage negotiable", with no Indication of the level of pay likely to be offered.

We have long argued that the use of "wage negotiable" in job adverts puts job seekers at a disadvantage, since they have no idea of what the employer might be willing to pay. It is widely seen to be a device by which employers can bargain down wages, or find the person willing to do the job for the lowest wage.

The Wages Council rate for hairdressing was £2.88 at abolition, having last been uprated on 12th April 1993. Using the same inflators as for retail, the new Wages Council rate should be £3.05. Analysis of the jobs with hourly pay rates on offer shows the following:

19951994
Full-Time
Below the old rate1125.0%24.6%
Between old and new rate818.2%8.7%
Below the new rate1943.2%33.3%
Part-Time
Below the old rate313.0%13.8%
Between old and new rate1147.8%20.7%
Below the new rate1460.9%34.5%
All
Below the old rate1420.9%19.7%
Between old and new rate1928.4%14.2%
Below the new rate3349.3%33.9%

The table shows significant rises in the proportions of jobs which were paying below the rate, both for full-time and part-time jobs, with the highest total rate of underpayment being for part-time jobs, but with a larger proportion of full-time lobs paying below the old rate. With over two in ten hairdressing jobs paying below the old rate, and nearly three in ten paying between the rates, the final figure is nearly half the jobs paying below the rate.

The average hourly pay rate for full-time underpaying jobs was lower than the average for part-time underpaying jobs.


THE OVERALL PICTURE
Previous sections have given a detailed picture of the way in which Wages Council abolition has affected pay rates in jobs on offer in former Wages Council sectors. This section summarises the results and makes comparisons with those which were below the estimated current rate in previous surveys undertaken in November 1993 and in April / May 1994.

* very small sample
Below old rate Between rates Below new rate April 94 Nov 93
Hotel and catering
Full-time 7.8% 25.3% 33.1% 21.1%
Part-time 12.2%42.1%54.3%33.1%
All10.4%35.4%45.8%28.6%20.8%
Shops
Full-time22.2%26.9%49.1%36.6%
Part-time20.2%42.9%63.1%55.7%
All20.7%38.8%59.5%51.4%27.1%
Clothing Manufacture
Full-time16.0%14.1%30.1%29.8%
Part-time*3.8%11.5%15.4%17.2%
All14.3%13.7%28.0%28.4%13.9%
Hairdressing
Full-time25.0%18.2%43.2%33.3%
Part-time13.0%47.8%60.9%34.5%
All20.9%28.4%49.3%33.9%20.8%
All Jobs
Full-time12.5%24.2%36.7%26.3%
Part-time15.3%42.2%57.5%42.2%
All14.3%35.3%49.6%36.5%22.3%


As the table above clearly snows, the proportion of jobs paying less than the relevant Wages Council rate rose from just over one filth in November 1993 (two or three months after abolition) to over a third in April/May 1994, and stool at nearly a half in April/May 1995.

In the 1995 survey almost 15% of full-time and part-time jobs were paying below the old rate, despite the survey having been undertaken twenty months after abolition. More than a third were paying on or above the rate at abolition but less than the rate would now be if uprated by inflation. This demonstrates the way in which rates have been eroded because of the lack of a statutory rise in pay rates.

Once again, the worst sector for underpaying jobs was retail, with nearly six in ten of all retail vacancies paying less than the estimated rate. The sector with the lowest percentage of underpaying jobs was clothing manufacture, but even in this sector nearly three in ten jobs were underpaying. (The proportion of underpaying jobs in clothing is likely to be underestimated because of the way in which an assumed hour's lunch break will have inflated the hourly pay rate in many jobs.)

In all sectors except clothing part-time jobs had higher proportions of underpaying jobs than full-time, but there were very few part-time jobs in the clothing sample. Clothing was also the only sector which maintained a stable proportion of jobs below the new rate from April 1994 to April 1995, whilst for all other sectors there were continued rises, with the greatest rise being from nearly 29% to 48% in hotel and catering.

The following table summarises the data on average hourly pay rates for those jobs which were underpaying, comparing the average both to the Wages Council rate at abolition and to what it would have been at the time of the survey.

1992 WC rateUnderpaying average1994 "WC rate"Deficit on 94
Hotel/Licensed restaurant£2.92£2.95£3.04-3.0%
Cafe/unlicensed restaurant£2.99£2.94£3.07-4.2%
Pubs and clubs£3.01£3.03£3.19-5.0%
Other hotel and catering£2.92£2.90£3.04-4.6%
Food shops£3.175£3.16£3.37-6.2%
Non-food shops£3.155£3.14£3.35-6.3%
Other shops£3.155£3.10£3.35-7.5%
Clothing Manufacture£2.72£2.62£2.88-9.0%
Hairdressing£2.88£2.81£3.05-7.9%


In every sector except hotel/licensed restaurants and pubs/clubs the average hourly rate for underpaying jobs was less than the rate at abolition, with a shortfall of lOp in clothing manufacture and 7p in hairdressing. In five of the sectors the average rate for underpaying jobs was below £3.00 an hour.

None of the "uprated" rates could be regarded as a high rate of pay, with the highest being food shops at
3.37, and the clothing manufacture rate being only 2.88. The very low rates of pay which have been used as benchmarks in this survey therefore make the high levels of underpayment even more startling.

ANALYSIS BY JOBCENTRES

40 Jobcentres were surveyed for this report, and the results for each individual Jobcentre are given below, ranked in descending order according to the proportions which fell below the new rate.


Below old rateBetween ratesBelow new rate
Barnsley25.0%54.2%79.2%
West Bromwich22.6%48.4%71.0%
Ayr16.7%53.8%70.5%
Rotherham30.8%38.5%69.2%
Hull15.5%51.2%66.7%
WalsalI23.7%42.4%66.1 %
Galashlels11.1%50.0%61.1%
Stretford16.2%44.6%60.8%
Halifax 28.6%32.1%60.7%
Wigan21.4%39.3%60.7%
Telford15.6%44.8%60.4%
Bolton22.9%34.9%57.8%
Bury19.7%37.7%57.4%
Salford19.0%38.1%57.1%
Ashton21.7%34.8%56.5%
Wakefield21.1%35.1%56.1%
Inverness9.4%45.3%54.7%
Bradford14.3%39.8%54.1%
Dundee12.5%41.1%53.6%
Wolverhampton22.9%30.0%52.9%
Sheffield17.9%33.6%51.5%
Dunfermlme22.8%28.1%50.9%
Oldham26.7%23.3%50.0%
Edinburgh10.1%39.6%49.7%
York7.9%40.7%48.6%
Leeds10.6%37.6%48.3%
Rochdale26.1 %21.7%47.8%
Coventry13.3%34.4%47.8%
Dudley15.8%31.6%47.4%
Scunthorpe10.0%36.7%46.7%
Huddersfield5.7%40.0%45.7%
Falkirk18.5%25.9%44.4%
Birmingham10.9%32.8%43.7%
Manchester16.4%26.8%43.1%
Harrogate4.7%38.2%42.9%
Glasgow11.2%29.9%41.0%
Stockport11.5%24.1%35.6%
Aberdeen9.6%23.2%32.8%
Dumfries27.3%4.5%31.8%
Solihull9.2%21.4%30.6%


As the table shows, the Jobcentres covered by this survey included a number of major cities around the country. There was a wide variety of experience across Jobcentres, ranging from 79% underpayment in Barnsley to only 30% in Solihull. There were only 6 Jobcentres where the proportion of jobs below the abolition rate was less than 10%, and in Rotherham it was as high as 30%. 23 Jobcentres had 50% or more jobs paying below the new rate, and only 4 Jobcentres had less than 40%.

Whilst the table shows a wide range of outcomes for individual Jobcentres, aggregating the data into the four areas covered by the Low Pay Units involved in the survey shows similar outcomes:


Below old rateBetween ratesBelow new rate
Yorkshire & Humberside12.6%39.1%51.7%
Greater Manchester18.7%31.5%50.1%
West Midlands14.8%34.3%49.1%
Scotland12.3%34.9%47.2%


There was a gap of only 4.5 percentage points between the area with the highest proportion of underpaying jobs and the area with the lowest proportion. This demonstrates the consistency of the impact of Wages Council abolition across different areas of the country.


WEEKLY INCOME

The analysis of hourly pay rates which has formed the basis of the first part of this report shows that nearly half of all vacancies in former Wages Council sectors are paying below the rates which it is estimated would now be the legal minima if Wages Councils had not been abolished. The average levels of underpayment range from 3.0% to 9.0%, and in some cases the average for underpaying jobs is less even than the rate at abolition in 1993.

Falls in hourly pay will mean that more and more workers will find themselves with lower weekly pay packets. There are two issues related to weekly pay which are of particular importance. The first is the extent to which jobs pay below the Lower Earnings Limit for National Insurance (currently £58 per week). It is the Network's belief that increasing numbers of employers are choosing to create jobs which pay below this level, so that they can avoid paying employer's NI contributions. This has implications for individual workers, because if they earn below the LEL then they are not entitled to contributory benefits such as unemployment benefit, statutory sick pay, statutory maternity pay, and a state pension. However, it also has fiscal implications, in that the revenue generated for the government by such jobs is zero.

The second issue relating to weekly income is the extent to which jobs provide pay which takes people above benefit level. This is not easy to determine since the amount of benefit payable to any household is a function of circumstances, including the number of people in the household. However, the amount of Income Support which would be payable to a household which comprised a couple and two children (one aged under 11 and one aged between 11 and 15) would be £122.60 per week. In order to be better off a worker in such a household would need to earn substantially above this figure, in order to take account of tax, National Insurance, travel to work and possibly childcare costs. (This simplistic analysis ignores issues such as Housing Benefit, which it is assumed apply to the earning and non-earning household to the same degree. It also does not look at the interface between earnings and Family Credit.)

The data available from the former Wages Council sector jobs has therefore been analysed in relation to the proportion of jobs which paid below the NI Lower Earnings Limit, and those which paid below what a small family would get on Income Support.

Of the 4,673 jobs on offer, 3,051 (65.3%) gave a weekly income or sufficient information to work out a weekly income. Analysis of this data shows the following.


Below LELBetween LEL & ISBelow IS
Hotels/licensed restaurants
Full-time0.0%42.9%42.9%
Part-time51.4%48.0%99.4%
All20.0%44.9%64.9%
Cafes/unlicensed restaurants
Full-time0.0%79.4%79.4%
Part-time51.0%49.0%100.0%
All30.1%61.4%91.6%
Pubs and clubs
Full-time0.0%53.7%53.7%
Part-time85.7%14.3%100.0%
All70.0%21.5%91.6%
Other hotel and catering
Full-time0.0%50.0%50.0%
Part-time52.8%46.4%99.2%
All26.3%48.2%74.6%
All hotel and catering
Full-time0.0%49.1%49.1%
Part-time63.2%36.4%99.6%
All34.3%42.2%76.5%
Food shops
Full-time0.0%25.6%25.6%
Part-time72.0%28.0%100.0%
All50.3%27.3%77.6%
Non-food shops
Full-time0.0%27.3%27.3%
Part-time72.6%26.4%99.1%
All51.3%26.7%78.0%
Other shops
Full-time0.0%33.6%33.6%
Part-time67.1%32.7%99.8%
All49.9%33.0%82.9%
All shops
Full-time0.0%31.6%31.6%
Part-time68.4%31.4%99.8%
All50.1%31.4%81.5%
Clothing manufacture
Full-time0.0%75.7%75.7%
Part-time50.0%50.0%100.0%
All7.3%72.0%79.3%
Hairdressing
Full-time0.0%40.0%40.0%
Part-time45.0%55.0%100.0%
All 12.9%44.3%57.1%
All jobs in sample
Full-time0.0%47.5%47.5%
Part-time65.2%34.5%99.7%
All 38.2%39.9%78.1%


As the table shows, nearly four out of ten jobs which gave a weekly income were paying less than the NI threshold, and a further four out of ten were paying on or above the NI threshold but less than a small family would get on Income Support. In total, therefore, nearly eight out of ten of these former Wages Council jobs were paying less than IS level for a family with two children. In two sectors (cafes/unlicensed restaurants and pubs/clubs) over nine out of ten jobs paid less than IS level, and in pubs and clubs seven out of ten jobs paid less than the NI threshold.

It is clear, therefore, that not only are hourly rates of pay low within these sectors, but the majority fail to pay a "living wage" and many do not even pay enough for workers to be entitled to basic contributory benefits. Many women in particular will be disadvantaged by not having an entitlement to benefits such as statutory sick pay, maternity pay, unemployment benefit and a state pension, since it is women who are more likely to work part-time than men.

It is hardly surprising, therefore, that the image of many of these sectors is particularly poor. The CBI recently reported that the growth of Britain's tourism industry was being held up by a shortage of skills, caused in particular by difficulties in attracting young people. 46% of tourism businesses had difficulty in recruiting food preparation staff. A report in the Financial Times noted that the shortage of recruits in the hotel and catering industry is exacerbated by a high rate of turnover - 27% in 1992, one of the highest rates for any industry. The Hotel and Catering Training Company believes turnover is climbing and calculates the cost to the industry in 1992 was £430M. In the same article, Mr. David Owen, group human resources director at Forte, is quoted as saying, "We've been a low-pay, low-skills, high-turnover industry and it can't go on this way".

The overwhelming evidence from a series of studies is that Wages Council abolition has forced down pay rates in sectors which were already low-paid and suffering from high turnover. This continuing erosion of pay is unlikely to help these industries to attract staff, leading to increasing difficulties in competing effectively for the tourist trade.


CONCLUSIONS

There has been a continuing argument relating to minimum wages (whether a National Minimum Wage or Wages Council minima) which holds that the setting of minimum rates of pay hinders job creation. Given that nearly half the vacancies in former Wages Council sectors pay less than the rate which it is estimated Wages Councils would now pay, and nearly 15% pay less than the rate at abolition, there should (by this argument) have been rises in employment in these sectors as pay falls.

It is arguable that it is not possible to make direct causal links between rises or falls in pay and changes in employment This is because there may be a number of other factors affecting the numbers in employment, eg if the economy is coming out of recession then a rise in employment would be expected whether or not pay fell. In the case of the British economy, such a factor could arguably have boosted employment in the period since Wages Council abolition. Despite the problems of making causal links, it is at least interesting to test the hypothesis that Wages Council abolition, by reducing pay levels, will have contributed to a rise in employment in the affected sectors.

The latest employment figures are to March 1995, a period of eighteen months since abolition of Wages Councils. The following table shows the changes in employment in hotel and catering, shops, hairdressing and clothing manufacture in the eighteen months prior to abolition and the eighteen months post abolition (figures may not add up due to rounding).

Full-timePart-timeAll
000's000's000's
March 1992-September 1993
(full-time equivalents)
-13.1+78.2
+31.3
+65.0
+18.2
September 1993-March 1995
(full-time equivalents)
-65.7+65.9
+26.4
+0.1
-39.3


As the table shows, in the eighteen months prior to abolition there was a net rise of 65,000 in Wages Council sectors, made up of a fall of 13,100 in full-time jobs and a rise of 78,200 in part-time jobs. Translating the part-time jobs into full-time equivalents gives a rise of 18,200 in full-time equivalent jobs. (Full-time equivalents are calculated on the basis that a part-time job is on average 40% of a full-time job, as consistently shown in Labour Force Survey statistics.) However, in the 18 months following abolition there was a rise of only 100 in the number of people in employment in these sectors, made up of a rise of 65,900 in part-time employees and a fall of 65,700 in full-time employees, which gives a net loss of 39,300 full-time equivalent jobs.

It could be argued that these two eighteen month periods are not comparable, because the figures are not seasonally adjusted. The following table, therefore, shows the changes in employment in the year before and the year after abolition, and since these figures are all drawn from September there is no problem about seasonal factors influencing the result.

Full-timePart-timeAll
000's000's000's
September 1992-September 1993
(full-time equivalents)
+17.3+53.0
+21.2
+70.4
+38.5
September 1993 - September 1994
(full-time equivalents)
-25.1+62.8
+25.1
+37.6
-


This table shows a similar pattern to the previous table, with greater employment growth prior to abolition than post abolition, but in this case translating the part-time jobs into full-time equivalent shows a nil growth in employment post abolition, compared with a rise of 38,500 full-time equivalent jobs in the year prior to abolition. These figures show clearly that the falls in pay associated with Wages Council abolition have not created more employment. Indeed, employment growth was more buoyant prior to abolition than subsequently.

Whilst Wages Council abolition has not resulted in more employment, the erosion of pay rates caused by abolition has resulted in more families having to endure poverty pay, and a probable increase in the benefits bill for the country as a whole caused by the need to top up low wages with social security payments.

The Low Pay Network campaigned against the abolition of Wages Councils because it argued that pay would fall for significant numbers of workers. All the studies which the Network has subsequently undertaken have shown this to be the case. However, the Network would not argue for the reinstatement of Wages Councils, valuable as they were in providing a safety net to over 10% of employees. There were always anomalies and inconsistencies in the coverage of the Wages Councils, even in the sectors where they operated, and many low-paying occupations were not given minimum wage protection at all.

The Low Pay Network believes that the effects of Wages Council abolition demonstrate the importance of bringing in a national minimum wage. Without legal minima there are falls in pay rates, yet falling pay does not create more employment as studies of Wages Council abolition have consistently demonstrated. There are substantial consequences for the nation as a whole in having to provide more and more benefits to top up low pay, and low-paying industries are particularly prone to high turnover and associated problems which undermine their effectiveness.

It has been argued that removing minimum wage protection from workers would enable them to be 'priced into jobs': as this study demonstrates, instead they have been priced into poverty.

References


Cox, G., "What Price Abolition?", Low Pay Network, February 1994

Cox, G., "After the Safety Net: A Study of Pay Rates in Wages Council Sectors Post Abolition", Low Pay Network, August 1994

Cox, G., "Wages Council Abolition: The Official Statistics", Low Pay Network, May 1995

Hansard, 22nd October 1993, cols. 357-8

For more detailed analysis of this issue see: Low Pay Network, "A Case Study of New Supermarket Vacancies in Stirling Joboentre", March 1994; and Cox, G., Evidence given on 2nd March 1994, in "Review of Expenditure on Social Security", Social Security Committee, House of Corrirnons, May 1995

Confederation of British Industry, "Filing the Gaps - Skills for Tourism", London, July 1995

"A recipe for staffing shortages", Financial Times, 21st July 1995

Employment Gazette Historical Supplement, October 1994, Table 1.4 and Employment Gazette, July 1995, Table 1.4

Employment Gazette Historical Supplement, October 1994, Table 1.4 and Employment Gazette, January 1995, Table 1.4