Low Pay Commission

https://minimumwage.blog.gov.uk/2020/01/31/a-tale-of-two-similar-cities-the-impact-of-the-minimum-wage-on-retail-and-hospitality-in-sheffield-and-manchester/

A tale of two (similar) cities: the impact of the minimum wage on retail and hospitality in Sheffield and Manchester

How have employers in the retail and hospitality sectors responded to the National Living Wage (NLW)? Last year researchers from Sheffield University Management School's Centre for Decent Work (Dragoș Adăscălitei, Gareth Crockett, Jason Heyes, Kirsty Newsome and Edward Yates) conducted research for the LPC to find out how retail and hospitality businesses had coped in Sheffield and Greater Manchester, areas identified them as persistently poor productivity performers. We published their report in December.

This qualitative study looked in more detail at the issues retail and hospitality firms have told us about in past research and on visits. Its findings are consistent with previous evidence but look more closely at how firms in two of the largest low-paying sectors are coping with recent NLW increases.

The research combined a questionnaire survey with face-to-face interviews with owners and managers. The survey and interviews covered pay, recruitment and how work is organised. Interviewees generally supported the NLW in principle but were concerned about the potential impact on their businesses. The full research report gives detail on the range of impacts, but in this blog, we look at two themes in particular: work intensity and non-compliance.

Work intensity and productivity

On the organisation of work and productivity, the research found that employers’ responses to the NLW have often followed a ‘low road’ approach, looking for short-term fixes to reduce costs. They have tried to minimise the financial impact of the NLW through organisational changes that have involved staffing cuts, reorganised roles and responsibilities and increased work intensity.

Before I used to have two people on a certain shift because it's busy. I now only have one person on and they have to cope… They don’t like it because they’re under pressure to do the job of two people but I can’t compete in the market if I have to keep putting my prices up.” (Catering owner, small firm, Sheffield)

“I think there was a net loss of one [employee]. So, you know, doesn’t sound a lot but in a small team, one person is [a lot]. So, everyone suddenly found themselves working harder, covering certain roles…” (Restaurant owner, small firm, Greater Manchester)

“In the past, when there were quiet periods, in one area of the business, the staff were left to their own devices. Now we sort of encourage them to use that dead time more efficiently to help the business.” (Shop manager, small firm, Manchester)

One case exemplifies the challenges of raising productivity through technology in customer-facing roles, with the employer instead focusing on ways of making staff work harder:

This business is centred around being a community hub … and that requires human interaction. So, it literally makes no sense to us to reduce the amount of human contact that we can provide. And also, knowledge and expertise is a big part of our selling. Again, that's not going to be replaced by an automated tool. So, the other ways we can cut costs are be more efficient in what we do. We're now trying to get everyone to work harder to increase their productivity….” (Shop manager, small firm, Sheffield)

This impact on work intensification is consistent with evidence in our 2019 Report.  Respondents to a CIPD survey of employers affected by the NLW reported giving staff extra tasks (25 per cent), requiring more flexibility on hours (23 per cent), tightening restrictions on absenteeism (9 per cent) and increasing the pace of work or raising performance standards (14 per cent).

The research into Greater Manchester and Sheffield concluded that establishments in retail and hospitality may have limited capacity to respond to cost pressures by investing in ‘good work’ measures such as better training and development and the promotion of internal labour markets.

Non-compliance

The increased cost pressures faced by businesses, resulting from the NLW and other sources, have led some to reduce non-wage benefits such as overtime and bonus pay. We might expect to see an impact on compliance as well, with more businesses choosing to (illegally) pay below the NLW. Although many of the survey respondents believed that non-compliance was a problem in their sector – especially in relation to hiring migrant workers and young workers without a contract, or paying workers less than the statutory rate – relatively few interviewees believed that, although they gave a number of examples concerning rival firms. The practices reported included underpayment of wages, cash-in-hand payments and counting tips as a contribution to wages.

I'm also aware of another business locally. We have picked staff up from them who have said they are employing Romanians that work 70, 80 hours a week for like £12,000 a year. They’re probably only being paid about £3 an hour.” (Restaurant and pub owner, small firm, Manchester)

“I know a lot of businesses will pay cash in hand, because then they can pay what they want.” (Café owner, small firm, Sheffield)

“There’s a couple of bigger companies that […] in Manchester, they topped up hourly wages with tips.” (Bar owner, small firm, Manchester)

Measuring minimum wage underpayment is a major challenge. Later this year, the LPC will publish a report on non-compliance and enforcement in which we will explore the extent of non-compliance across different groups and sectors and reflect on policy responses.

Overall, this research has added to our understanding of the impacts of the NLW by taking a deep dive into two significant sectors in two local areas – retail and hospitality in Manchester and Sheffield. It has highlighted some ways that businesses have responded to increases in the NLW, including some responses that may be less positive, such as work intensification and underpayment. We will continue to look at these areas as we continue to monitor the impact of the NLW on businesses.

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