Tackling Low Pay Britain: A report from the JRF

kamsandhu —  May 20, 2014 — Leave a comment

“As the Social Mobility and Child Poverty Commission (2013: 6) recently concluded, ‘a comprehensive approach to tackling in-work poverty is the missing piece of the Government’s policy jigsaw’.”

Joseph-Rowntree-Foundation

The Joseph Rowntree Foundation has released some research on tackling low-pay. The report, Rewarding Work For Low Pay Workers, looked at possible ways to deal with the growing problem of low pay, and to find the causes of it’s prevalence. The growth of in-work poverty is damaging, and tackling low pay is one way of addressing the issue, though the JRF noted, it is not the full story.

The report found that the complexity of the issue could lead to no single one size fits all approach, but there are definite actions that could improve the jobs landscape and opportunities for jobseekers.

Image: The Telegraph

Image: The Telegraph

Encouraging better pay from those who can afford it

“There are organisations, including large organisations in sectors with a high incidence of low pay such as retail, that could clearly pay substantially more to those they employ, either directly or through contractors, without this having any discernible impact on costs or profits,” according to the JRF report.

However, the report also highlights that this is not universally true, and smaller companies or contractors struggle to pay the National Minimum Wage, thus “policymakers prefer to play safe and combine a modest NMW with tax credits for low-income households.” This has meant that while the NMW has abolished “extreme low pay,” it hasn’t stopped the widening numbers of those on low pay, as large companies who can afford to pay more take advantage of tax credits and the state help to top up wages.

Concentrating the help the state can give to those who most need it would be helpful here, but this over-widening of resources and help to the point of benefitting those that don’t need benefitting is common in other areas of policy too.

Take for example the introduction of childcare vouchers by George Osbourne last year. Families earning up to £300,000 can claim £1200 in childcare vouchers to help them get into work or work more. However, the scope to upper levels of income in this scheme take away concentrated life-changing help from those in need, who are at the bottom of the pay scale. We spoke about this with Giselle Cory, from the Resolution Foundation a while back:

“I think a much better way to spend the money, is to make sure the people who can be persuaded into work and can be helped into work… we focus whatever funds we can on childcare for these families, because it’s firstly, unlikely that higher income families would change their decision about work based on that support, and secondly, it’s unlikely that a large proportion of their income would be taken up by childcare. So we’re not changing their lives much. We’re helping them a little bit, but the life changing stuff is for the people on low incomes. The government have proposed £200 million of extra childcare for this group, but the problem is that £200 million doesn’t really go far enough. You either have to target a specific sub-group or it’s spread out amongst everyone and you lessen it’s bite significantly.”

In a similar way, concentrating tax credits and help to smaller companies who are struggling to pay the NMW would allow more resources for those who distinctly need it, and less cost to the taxpayer for topping up wages that can be afforded by the employer.

“Influence of Conceptual frameworks”

Amongst the organisations where low pay is present but not necessary, conceptual motivations can help push them to pay more. Hence when the Living Wage concept entered the mainstream and companies were called on to adopt the wage voluntarily, many did in order to align themselves with being good employers. Awareness in the public field and reputation can encourage employers who are able to raise wages to do so.

“It is no wonder that organisations most willing to sign the pledge on the Living Wage are large, highly profitable corporates in sectors such as banking and finance (Bain, 2013).”

One very successful example of this is the “Best Companies to Work For” list. This has often been “cited as a reason why some large employers in sectors such as retail choose to pay employees more than the NMW or offer an array of non-wage benefits to boost their reputation in the eyes of employees, potential employees, customers and the community at large.”

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Adding value to low wage employers

“But what would be of little consequence for these organisations is at the same time likely to result in a significant profit squeeze for many low-paying organisations. Those that find this difficult – where raising prices means less business and they’re unable to absorb costs through increased efficiency – may have little choice other than to cut the number of people they employ or the hours of work they offer simply in order to survive, to the detriment of low-paid workers themselves.”

On the other side of the scale are the companies who would struggle with raising wages, and this JRF report looked into ways to improve the working conditions and benefits for employees that could see an increase in value in the job and employee experiences.

“With increased demand for higher level knowledge skills generally outstripping increased supply, the underlying tendency has been for pay at the top of the distribution to rise relative to the pay in the middle. By contrast, the supply of people seeking work in service-oriented jobs has generally exceeded demand, thereby depressing pay toward the level of the NMW, making the UK’s low-paid labour market, in the words of the first Chairman of the Low Pay Commission, ’increasingly bottom heavy’ (Bain 2013).”

As well as this, rewards and non-pay benefits have also stalled in the make up of low pay organisations. Between 2004-2011 there was “no general increase in the provision of flexible working practices; indeed, the proportion of workplace managers who consider balancing work and family responsibilities as down to individual employees rather than the organisation increased from 56% to 71%.”

These attitudes are also symptomatic of a jobs market which is moving in the direction of greater (undue) power to the employer, whilst reducing power and stability for the employee. These conditions are growing in the jobs market with statistics from the ONS last week revealing that 1.4 million Brits are not on Zero hour contracts with one in ten employers now using these casual employment contracts, that do not commit employers to holiday pay, sick pay or a minimum promise of work.

The JRF report stated, “given that labour turnover is costly and low employee morale can be detrimental to their productivity or overall organisational performance, it is thus contended that low-paying organisations could improve their financial bottom line by improving the working conditions of their employees.”

This is also conducive to other benefits for the employee and wider society:

“The Government Office for Science, through the Foresight Unit, has stressed the importance of good working conditions to mental well-being in the workplace and society as a whole (Foresight Unit, 2008).”

The JRF used the example of the care sector, to demonstrate where rewarding workplaces are necessary in low pay sectors, to provide a good service, as documented in the final report of the Commission on Dignity in Care for Older People (2012:13):

“Caring for older people is skilled, demanding and often stressful work. Staff who are appropriately trained and who feel valued and empowered to make decisions will be the ones who support dignified care. Staff who are denied the right to training and development, who do not feel valued by their organisation, who are not encouraged by their managers, and who do not feel that they have the freedom to make the right decisions for patients and residents are far more likely to deliver poor care.”

However, improving working conditions can differ in meaning and approach from workplace to workplace. “The Good Work Commission, established by the Work Foundation, describes the concept of GW (Good Work) as ‘inherently ambiguous’, with some definitions emphasising the interests of the employees while others focus on what it means for employers and the wider community. According to the Commission, for employees GW concerns the development of skills; choice, flexibility and control over working hours and the pace of work; trust, communication and the ability to have a say in decisions that affect them; and a balance between effort and reward. For employers, GW is about engaging employees to encourage their contribution to organisational success. For the community, GW is about organisations being socially aware, ethical and sustainable.”

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This requires the close attention and respect of the role of human resources and development (HRM/D). Managers and owners would need to lock into what would make a difference to their employees. The JRF noted that the presence of HRM/D personnel lowered the smaller a company or workplace got, however, their presence is also not useful unless they are committed to making a difference.

“If managers merely pay lip service to HRM/D practices, this will limit their effectiveness. But this lip-service effect might itself be a reflection of deeper inadequacy in leadership and management, or indicative of a low-trust organisational cultures that also impinges on performance.”

The effect of creating better working environments and resourceful, supportive management approaches has long been considered effective for employee, who gains the benefits of this environment, and employer, who gains a more efficient and productive employee. The ideas behind improving HRM/D have gathered pace in the last few years, “so much so that ‘personnel economics’ is now considered a major sub-field in labour economics” (Bloom & van Reenan, 2010).

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But it is the application of these approaches which could see their downfall for low wage employers, especially when taking into consideration the poor skill levels of managers in the UK:

“Given this, improving the quality of management and leadership might be a more appropriate means of improving organisational performance than the adoption of HRM/D practices per se – a possibility strengthened by evidence that UK managers are less well qualified than managers in other advanced economies despite being far greater in number (there are 4.8 million ‘managers and senior officials’ in the UK, accounting for one in six people in employment; Department for Business, Innovation and Skills (BIS) 2012).

“The definition of ‘manager’ is more loosely applied in the UK compared with other countries – hence the large management cadre – but only one in five has a management-related qualification and of these fewer than two in five are qualified at NVQ level 44 or above. According to the UKCES, only one in three organisations provide management training, another report for the government also commenting that ‘UK provision of leadership and management training tends to be ad hoc rather than strategic’ (BIS 2012: 20).

“Studies suggest that this comparative deficit in management quality contributes to the UK’s well-known productivity gap with major competitors and results in the UK having a ‘long-tail of poorly managed firms’ (ibid).

“One consequence of this is that UK managers are found to be slower and less successful at translating new management practices into improved performance than their counterparts in France, Germany and the United States. Survey-based analysis also shows a statistical relationship between organisations’ commitment to management and leadership development, related HRM/D practices and organisational performance measures (McBain et al 2012). The relationship was found to be associated with a 23% variation in organisational performance measures, though no direct causal process was demonstrated.”

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The report concluded that there was no clear single answer to tackling low pay, but that a campaign that encourages workplaces to become ‘Anti-poverty Employers’ or something similar could help improve the working conditions and pay in some companies.

Further, HRM/D could help companies who already struggle to pay their staff at NMW to add value to the employment they offer. However, certain industries such as care and hospitality which may be contracted and thus, the aim is to keep costs as low as possible, or that the sector is historically a low paid industry with factors that maintain the pressure on low wages, need closer attention, as the effects of improving the working conditions and pay in these sectors can bear the fruit of better service and efficiency – which these sectors are built to provide.

Facts from Rewarding Work For Low Paid Workers:

  • “At one in six private-sector workplaces, at least a quarter of employees were paid an hourly rate at or below the adult National Minimum Wage (the proportion is as high as two in five in the wholesale and retail sectors; and one in four in the hotel and restaurant sectors). The corresponding proportion in the public sector is 1 in 40.”
  • “The hospitality, retail and cleaning sectors together account for over half (54%) of minimum wage jobs, while social are, childcare, transport, food processing and storage each account for between 3% and 4%.”
  • “The incidence of low pay rises as the size of organisation falls: minimum wage jobs account for one in 20 jobs in large firms (250 or more
    employees) but one in twelve in small firms (10–49 employees) and one in eight in micro-firms (1–9) employees.”
  • “If the Living Wage were paid universally in the private sector, the government would at present save £3.6 billion from increased tax revenues, higher National Insurance contributions and reduced spending on tax credits to the low paid.”

by Kam Sandhu @KamBass

kamsandhu

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kambass@hotmail.co.uk

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