the impact of a national minimum wage on the northern...

Northern Ireland Economic Council

The Impact of a NationalMinimum Wage on the

Northern Ireland Economy

A Response to theLow Pay Commission

Occasional Paper 9: February 1998

The Northern Ireland Economic Council is an independentadvisory body, set up by the Secretary of State for Northern Irelandin 1977. The Council has a wide remit to provide independentadvice to the Secretary of State on the development of economicpolicy for Northern Ireland. It carries out this role through threeseries of publications. Reports generally make specific policyrecommendations endorsed by the Council. Occasional papers areintended to promote discussion on topical issues whilecommissioned research monographs are published under theauthor's name. The Council also publishes an Annual Report andthe text of the annual Sir Charles Carter Lecture, which the Councilsponsors in honour of its first chairman. It also holds seminars andconferences designed to promote debate, whose proceedings mayfrom time to time be published. A list of the more recentpublications is presented at the end of this publication.

The Council is composed of 15 members, one of whom is theChairman, Sir George Quigley who is appointed by the Secretary ofState. There are four other independent members. Five membersrepresent trade union interests and are nominated by the NorthernIreland Committee of the Irish Congress of Trade Unions. Fivemembers represent industrial and commercial interests and arenominated jointly by the Confederation of British Industry forNorthern Ireland and the Northern Ireland Chamber of Commerceand Industry. Members serve four year terms, which may berenewed. A list of Members is included in this report.

The Council has a small staff, including the Director, economistsand administration support staff (including the Secretary to theCouncil). Council publications are normally prepared by theeconomists but outside consultants are also engaged for particularprojects. All publications go before the Council for comment priorto publication. It is the Council which bears final responsibility fortheir publication but not necessarily for the content orrecommendations of commissioned research monographs.

The Impact of a NationalMinimum Wage on the

Northern Ireland Economy

A Response to theLow Pay Commission

ISBN: 1 897614 44 6

© Northern Ireland Economic Development OfficeBulloch House, 2 Linenhall Street

BELFAST BT2 8BATel (01232) 232125 Fax (01232) 331250

e-mail: [email protected] website: www.niec.org.uk

NORTHERN IRELAND ECONOMIC COUNCIL MEMBERS

Chairman: Sir George Quigley

Members: Independents

Professor B AshcroftProfessor R P KinsellaP D Montgomery MAJ M Trewsdale BA C Stat FSS

Nominated by the Northern Ireland Committee of theIrish Congress of Trade Unions

F BuntingT CarlinP HollowayJ McCuskerM Morrissey

Nominated by the Confederation of British Industry forNorthern Ireland and the Northern Ireland Chamber ofCommerce and Industry

H A EnnisA Jackson FCAR Johnston BA MBAG P McGrathN P E Smyth MSc C Eng MIMM

Director: P K Gorecki

CONTENTS

1 INTRODUCTION 1

2 DEFINITIONS AND DATA SOURCES 4Introduction 4Definitions 4 An Hourly Rate of Pay? 4 Rate 4Data Sources 5Conclusion 8

3 THE CHARACTERISTICS OF THE LOW PAID 9Introduction 9Low Pay by UK Region 9Low Pay by Industry 14Low Pay by Occupation 19Low Pay by Manual/Non-Manual, Male/Female, Full-Time/Part- Time 20Low Pay by Age 23Low Pay by Firm Size 24Sub-regional Spatial Impact of a NMW 26Implications 30Conclusion 33

4 THE IMPACT OF A NMW ON HOUSEHOLDINEQUALITY AND POVERTY 35Introduction 35Who Gains? Who Loses? 36Escaping the Poverty Trap? 38Conclusion 42

Contents

5 THE IMPACT OF A NMW ON LABOUR AND PRODUCTMARKETS 43Introduction 43Some Theoretical Considerations 43Monopsony Power 44Wage Differentials 46Industry Competitiveness 48Sectoral Considerations 50 Wholesale and Retail Distribution 51 Manufacturing 52 Tourism 55 Discussion 56Empirical Research 56

6 SUMMARY AND CONCLUSIONS 63Introduction 63Findings 63 Compared to Great Britain 63 Sectoral and Industrial Distribution 64 Spatial Dimension 64 Occupational Distribution 64 Part-time vs Full-time 65 Gender 65 Age 65 Households 65 Reducing the Poverty Trap 66 Firm Size 66 Firm Strategy 66 What Rate? 67Management, Monitoring and Evaluation 67

ANNEX A: DISTRIBUTION OF GROSS HOURLYEARNINGS BY DETAILED INDUSTRY, NORTHERNIRELAND, 1996 69

REFERENCES 72

TABLES

2.1 Proportion of Employees Earning Less Than Selected Gross

Hourly Earnings, Full and Part-Time Employment, Northern

Ireland, 1995 6


Hourly Earnings, Broad Industrial Classification, Northern

Ireland, 1995 7


Hourly Earnings, Northern Ireland and Great Britain, 1995 10


Hourly Earnings, by Industry, Northern Ireland, 1996 15

3.3 Number of Employees Earning Less Than Selected Gross

Hourly Earnings, by Industry, Northern Ireland, 1996 17


Hourly Earnings, by Selected Detailed Industry, Northern

Ireland, 1996 18


Hourly Earnings, by Occupation, Northern Ireland, 1996 20

3.6 Proportion of Full-time Employees Earning Less Than Selected

Gross Hourly Earnings, by Manual/Non-Manual and Gender,

Northern Ireland, 1996 21

3.7 Proportion of Part-time Employees Earning Less Than Selected

Gross Hourly Earnings, by Manual/Non-Manual and Gender,


Tables


Hourly Earnings, by Age, Northern Ireland, 1996 23

3.9 Distribution of Gross Hourly Earnings, by Establishment Size,

Great Britain, 1996 25

3.10 The Share of Employment in TTWAs Accounted for by

Selected Industries, Northern Ireland, 1995 26

3.11 The Share of Employment Accounted for by Females, by

TTWA, Northern Ireland, 1995 28

3.12 Average Gross Hourly Earnings by TTWA and Gender,


3.13 Patterns of Variation in Minimum Wage Systems in Various

OECD Countries 31

5.1 Low Pay, Profitability and the Destination of Sales of Northern

Ireland Manufacturing, Mid-1990s 53

5.2 Minimum Statutory Hourly Wage Rates Set by Wage Councils,

Persons Aged 21 Years and Older, Northern Ireland, 1992-93

Uprated to 1996 59

5.3 The Coverage of Minimum Wages in Selected OECD

Countries 60

FIGURES

3A Average Gross Hourly Earnings by Region, UK, 1996

(GB=100) 10

3B Manufacturing Labour Productivity, by Region, UK, 1995,

(UK=100) 11

3C Proportion of Employees Earning Less Than £4.00 ph, by

Region, UK, 1996 12

3D Male Average Gross Weekly Earnings by Industry in Scotland,

Wales, England and Northern Ireland as a Percentage of the

UK Industry Average, April 1996 13

4A Percentage Gain in Weekly (Post Tax) Household Income,

Selected National Minimum Wage Levels, Northern Ireland 36

4B Percentage of Households Gaining at Selected National

Minimum Wage Levels, Northern Ireland 37

4C Proportion of Households Gaining at Selected National

Minimum Wages, by Benefit Unit Type, Northern Ireland 39

4D Percentage Fall in Government Expenditure Means-Tested

Benefits at Selected National Minimum Wages, Northern

Ireland 41

5A Distribution of Gross Hourly Earnings, Northern Ireland, 1996 47

ABBREVIATIONS USED

CBI Confederation of British Industry

DED Department of Economic Development

DTI Department of Trade and Industry

GB Great Britain

HANI Hospitality Association of Northern Ireland

IDB Industrial Development Board

IFS Institute for Fiscal Studies

LFS Labour Force Survey

LPC Low Pay Commission

NES New Earnings Survey

NI Northern Ireland

NIAPN Northern Ireland Anti-Poverty Network

NIEC Northern Ireland Economic Council

NMW National Minimum Wage

OECD Organisation for Economic Co-operation and Development

ONS Office of National Statistics

PAYE Pay-As-You-Earn

ph per hour

R&D Research and Development

RoI Republic of Ireland

T&EA Training and Employment Agency

Taxben Tax and Benefits Model

TTWA Travel To Work Area

TUC Trades Union Congress

UK United Kingdom

FOREWORD

The intention of the Government to introduce a National Minimum Wage(NMW) throughout the UK has generated widespread interest andconsiderable debate even though it is by no means an entirely novelpolicy initiative. In fact for most of this century there has been someform of protection for particular groups of low paid workers, preventingwage rates from falling below a stipulated minimum.

The 1909 Trade Boards Act established Trade Boards to set minimumwage rates in the 'sweated trades' and by 1916 five Boards wereestablished in Ireland. In 1945 the Trade Boards were replaced withWages Councils, a system which was to remain with only somemodification until its abolition in 1993. This decision to abolish theWages Councils in all industries with the exception of agriculture left theUK as one of the few industrialised countries without some form ofminimum wage protection.

So the proposal to introduce a floor on earnings is simply returning to ageneral principle which has been accepted by successive UKGovernments for most of this century and which is internationallyrecognised. Nevertheless, the proposal for a NMW is likely to go muchfurther than the old Wages Councils system in terms of coverage. It willintroduce a new dynamic into the labour market and it is important thatthe implications are thought through so that the optimum balance isachieved between employee protection on the one hand and efficiencyand jobs on the other.

There has been a considerable amount of research on the impact of aNMW, much of it prompted by the Low Pay Commission's call for adviceand comment. However, much of the research focuses on the impactnationally and very little on regional implications. As the NorthernIreland Economic Council has shown in successive analyses of theeconomic implications for Northern Ireland of the UK Budget, the localeconomy is not simply a microcosm of the UK economy. Differentindustrial structure, generally smaller firms and dissimilar household

Foreword

composition combine to give an incidence of low pay in Northern Irelandwhich is proportionately 50 per cent more than in Great Britain. Thehigher incidence of low pay suggests a bias in the strategies of NorthernIreland firms towards low cost/price rather than higher value/non-pricestrategies. Many firms are therefore likely to face difficult adjustmentprocesses in order to maintain competitiveness.

In this Occasional Paper the Council outlines the characteristics of thelow paid in Northern Ireland and the impact of a NMW on the localeconomy, flagging up issues and potential threats as well asopportunities. It is therefore vitally important that the Governmentshould carefully monitor and evaluate its impact over time and adjustpolicy accordingly, particularly in view of the fact that the NMW will, nodoubt, be uprated from time to time.

Sir George Quigley

1

1 INTRODUCTION

1.1 In The Queen's speech in May 1997 the Government announcedits intention to introduce legislation in the forthcoming session ofParliament for a National Minimum Wage (NMW). Following thisannouncement, in July 1997 the Government set up the Low PayCommission (LPC) as an independent advisory body to recommend to thePrime Minister the initial level at which the NMW might be set. Thenecessary legislation was introduced in November 1997.

1.2 The terms of reference of the LPC are to:

(i) recommend the initial level at which the NMW might beintroduced;

(ii) make recommendations on lower rates or exemptions for thoseaged 16-25;

(iii) consider and report on any matters referred to it by Ministers.

In making its recommendations, the Commission should have regard to:

• the wider economic and social implications;

• the likely effect on the level of employment and inflation; and,

• the impact on the competitiveness of business, particularly thesmall firms sector; and the potential impact on the costs toindustry and the Exchequer.

The LPC is to report to the Prime Minister on these matters by the end ofMay 1998, following which the Government will make the final decisionson the level of the NMW.

1.3 In pursuit of its remit, the LPC has undertaken an extensiveconsultation process involving calls for written submissions fromemployers, unions, trade associations, voluntary groups, academics andall other interested individuals and organisations. The LPC is alsogathering formal evidence in a number of oral hearings and visits across

Introduction

2

the United Kingdom (UK), including Northern Ireland. This process hasled to a lively debate in the media and elsewhere.

1.4 The Northern Ireland Economic Council (NIEC) welcomed theopportunity to comment on the impact of a NMW on the Northern Irelandeconomy and made a written submission to the LPC in October 1997.This Occasional Paper builds upon the Council's initial submission. Inaccordance with the guidelines set by the LPC, the Council concentratedon providing an indication of the impact of a NMW on Northern Irelandrather than on evaluating the arguments for and against a NMW or onrecommending the rate at which a NMW should be set.

1.5 It is widely accepted that the NMW should be set at a level whichwill alleviate some of the effects of poverty and inequality but whichdoes not restrict industrial competitiveness nor impact significantly onemployment. However, national competitiveness is rather different tocompetitiveness in the context of the Northern Ireland economy. In thispaper the Council will assess the differential impact of a NMW oneconomic activity in Northern Ireland, providing as far as possiblequantifiable evidence to support our analysis. In Section 2 the caveatsconcerning the data sources on which this analysis is based are discussed,together with related definitional issues.

1.6 The implications of a NMW for Northern Ireland will depend onfour factors. First, who will be affected? What groups of workers, andnon-workers, and in what numbers will benefit most from theintroduction of a NMW (Section 3)? The impact on poor households isan important related issue (Section 4). Second, given that a NMW willraise labour costs, how sensitive is employment to wage increases in thelocal economy (Section 5)? This will depend directly on the degree towhich the local labour market is functioning competitively, ie dorelatively low wage rates reflect productivity levels at the margin and,indirectly, on the extent to which workers initially unaffected by a NMWwill seek to retain wage differentials. It will also depend, and this brings

Introduction

3

us to our third factor, on the degree of competition within industries.Firms which operate in less than perfectly competitive markets may beable to:

• pass on any increase in costs caused by the introduction of aNMW to customers in the form of higher prices;

• absorb the increase internally in the form of lower profits; and/or,

• reduce or eliminate X-inefficiency1 so that productivity andwages increase.

On the other hand, firms which operate in highly competitive marketsmay, if their own competitiveness relies on low wage costs, find thatmore significant internal adjustments have to be made.

1.7 A fourth and longer term consideration in determining the effectof a NMW on a regional economy is the focus and strategic objectives ofindustrial policy (Section 5). The Council has set out a strategic vision ofa self-sustaining, growing and socially inclusive economy in which highproductivity levels are matched by commensurately high wages (NIEC,1997a). In such an environment, industrial competitiveness would bebased on high levels of Research and Development (R&D), a highlyeducated workforce and good infrastructural support, not on low wagesand low productivity. A NMW could have a catalytic impact on astrategy aimed at improving growth and competitiveness, by forcingfirms to seek and explore other areas of competitive advantage.Sometimes known as the 'shock effect', an increased wage rate couldinduce firms employing low-wage labour to improve other aspects of

1 X-inefficiency is defined as "the degree to which actual output is less than maximum

output (for given inputs)..." (Leibenstein, 1976, p.95).

Introduction

4

competitiveness such as management practices, training, use oftechnology etc, thereby improving productivity and, ultimately,increasing the demand for labour (McConnell and Brue, 1989). Each ofthese four factors will be considered, as indicated, in Sections 3 to 5, withthe summary and conclusions forming Section 6.

5

2 DEFINITIONS AND DATA SOURCES

Introduction

2.1 Before discussing the characteristics of the low paid in detail, itis important to clarify what is meant by an hourly wage rate and whatlevel should be used to indicate low pay. The strengths and weaknessesof the two data sources - the New Earnings Survey (NES) and the LabourForce Survey (LFS) - used to quantify low pay need to be appreciated sothat the reader is in a position to judge the credibility of the analysis inSections 3 to 5.

Definitions

An Hourly Rate of Pay?

2.2 An important definitional issue in identifying the low paid isdefining exactly what is meant by an hourly rate of pay. In the analysiswhich follows, based largely on NES data, the hourly wage is defined asgross earnings, excluding overtime, for those whose pay was unaffectedby absence. Thus there is no allowance made for benefits in kind, tips, orpiece rates, while family workers and the self employed are largelyexcluded. However, in the analysis of who are the low paid, someattention will be given to instances where low pay might be misleadingbecause of the omission of (say) tips.

Rate

2.3 There has been much discussion over the exact rate at which aNMW should be pitched, with various figures being recommended2.However, the object of the Council's analysis is not so much to determinethe appropriate NMW rate but rather to assess the implications of aNMW, at whatever rate it is set, on the Northern Ireland economy. Thus

2 For a discussion see Fernie and Metcalf (1996, Table 1, p.5)

Definitions and Data Sources

6

the analysis uses £3.00, £3.50 and £4.00 per hour (ph) corresponding tolow, medium and high estimates. The CBI (1997), for example,considers £3.00 ph to be "a modest minimum" while the TUC (1997,p.16) considers "that a minimum wage level of somewhat above £4.00 anhour is practical".

Data Sources

2.4 Clearly the data source is important. It should allow an accurateassessment of the pay distribution. The NES is an annual employer basedsurvey. In 1996 it covered 1 per cent of all employees in NorthernIreland who were covered by Pay-As-You-Earn (PAYE) schemes orapproximately 4,900 returns (DED, 1996a, pp.1-2). In contrast, the LFSis a quarterly survey conducted by interviewing individuals in theirhomes. Although the quarterly sample is 3,250 addresses, the number of'active' addresses is about 2,700 per quarter (DED, 1996b, pp.1-2). Bothsurveys, however, have important weaknesses , particularly with regardto the measurement of low pay.

2.5 The NES is "worrisome" because, by including only those whosepay is above the PAYE threshold, it under-samples those on low pay(Machin, 1997, p.18). In fact the NES covers only

those employees who were incorporated in Pay-As-YouEarn (PAYE) schemes and for whom the InlandRevenue tax offices held deduction cards in March1996 (incorporating national insurance referencenumbers). The Survey does not cover those withearnings below the deduction card limits for taxpurposes - these are mostly young people and persons inpart-time employment (DED, 1996a, p.1).

Analysis for 1994 for Northern Ireland found that 15.5 per cent ofworking women were below the PAYE threshold and 3 per cent of


7

working men3.

2.6 The alternative data source - the LFS - is based on a very smallsample size in Northern Ireland, which effectively precludes the reportingof all but the most highly aggregated statistics. Moreover, LFS figuresmay overstate the extent of low pay since they do not allow for absencein the calculation of the hourly rate.

2.7 Table 2.1 details the extent of the difference between the NESand the LFS estimates of the incidence of low pay. The table confirmsthe discussion above concerning the under representation of low paidpart-time workers in the NES sample. According to the NES only 4.4 per

TABLE 2.1

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, Full and Part-Time Employment, Northern Ireland, 1995*

< £3.00 ph < £3.50 ph < £4.00 ph% % %

NES LFS NES LFS NES LFS

Full-Time 4.4 8.5 9.1 17.1 16.2 26.1

Part-Time 12.5 26.8 27.6 39.3 46.2 53.1

* The LFS figures are annualised by compiling data from Spring 1995 to Winter 1996.

3 Data supplied by J. Trewsdale.


8

Source: Data supplied by the Department of Economic Development (DED) based onLFS and NES


9

cent of full-time workers and 12.5 per cent of part-time workers earn lessthan £3.00 ph compared to 8.5 per cent and 26.8 per cent respectively,using the LFS. In terms of overall numbers, roughly between 35,000 to75,500 workers will be affected at a rate of £3.00 ph4, 75,000 to 135,000at a rate of £3.50 ph and 130,000 to 195,000 at a rate of £4.00 ph, withthe lower estimate in each case being based on the NES and the higher onthe LFS. Table 2.2 shows the differences in the incidence of low paybetween the two surveys across industries. Typically, the LFS estimateof the importance of low pay is 2.5 to 1.5 times that of the NES, with thedifference being particularly marked for construction.

TABLE 2.2

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, Broad Industrial Classification, Northern Ireland, 1995*

< £3.00 ph < £3.50 ph < £4.00 ph% % %

NES LFS NES LFS NES LFS

Manufacturing 5.7 14.2 11.8 22.5 21.7 32.5Construction ** ** 9.2 21.1 13.8 32.6Service 6.4 12.6 13.6 23.4 23.0 33.7Other Industry ** ** ** ** 16.7 **ALL INDUSTRY 6.0 12.9 12.8 23.0 22.2 33.3

* The LFS figures are annualised by compiling data from Spring 1995 to Winter 1996.** Sample size too small to be reported.

4 ie they earn £3.00 ph or less.


10

Source: Data supplied by DED based on LFS and NES


11

2.8 The larger sample size of the NES permits a more detailedexamination into the characteristics of people who will be affected by theNMW. Thus, despite the fact that the NES is likely to underestimate theextent of low pay - although by quite how much is difficult to say - it islargely on this survey that our analysis is based. In most of the analysis1996 will be used, the latest year for which data is available. However,in comparisons between the LFS and NES, 1995 is used instead5.

Conclusion

2.9 Although the issues of definition and data sources might seemrather pedantic, they are critically important in the context of the NMW.The definition of what constitutes the hourly wage will be ofconsiderable significance in the operation of a NMW. A narrowdefinition, for example, might lead to change in the way in which aperson is compensated. Benefits in kind could be explicitly included in aperson's wage. However, while such detailed issues are clearly ofimportance, they are beyond the scope of this paper.

5 The LFS figures are annualised by compiling data from Spring 1995 to Winter 1996.

12

3 THE CHARACTERISTICS OF THE LOW PAID

Introduction

3.1 The first step in assessing the impact of a NMW is to identify thenumber and the characteristics of the people who will be affected.Obviously the most important group is the low paid and it is onidentifying the characteristics of this group that this section concentrates.Attention will be paid to both characteristics of the employee (eg gender,age and qualifications) and the workplace (eg firm size, industry andlocation) that lead to low pay. The section concludes with a discussionof the implications of the characteristics of the low paid for setting aNMW.

Low Pay by UK Region

3.2 The Council has emphasised on a number of occasions that theNorthern Ireland economy is not a microcosm of the larger UK economy.Differences exist, for example, in industry structure, the size distributionof firms, the degree of competition and the segmentation in the labourmarket. These dissimilarities are likely to manifest themselves indifferences in wage rates.

3.3 The evidence suggests that there are significant divergences inthe importance of low pay between Northern Ireland and Great Britain(GB). Table 3.1 shows that, according to the LFS, low pay isapproximately 50 per cent more prevalent in Northern Ireland than in GBand this is the case whether a NMW is set at either £3.00 ph, £3.50 ph or£4.00 ph. Figure 3A, using information contained in the NES for full-time employees only, presents average hourly earnings by region.Northern Ireland is one of the lowest paid regions in the UK, with wagesapproximately 88 per cent of the GB average, somewhat above Wales,but well below Scotland and England.

3.4 Not surprisingly low pay is matched by low productivity. Figure3B shows that manufacturing productivity in Northern Ireland is the

The Characteristics of the Low Paid

13


14

TABLE 3.1

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, Northern Ireland and Great Britain, 1995

< £3.00 ph < £3.50 ph < £4.00 ph

Northern Ireland (%) 12.9 23.0 33.3Great Britain (%) 8.7 15.8 23.3

Source: Machin (1997, Table 1, p.19) for GB and data supplied by DED for NorthernIreland, based on LFS

FIGURE 3A

Average Gross Hourly Earnings by Region, UK, 1996 (GB=100)

80.00

85.00

90.00

95.00

100.00

105.00

110.00

115.00

120.00

125.00

South East

East Anglia

South West

West Mid

East Mid

York & Humb

North West

North

Eng

Wales

Scot

GB NI

Note: For all full-time persons on adult rates whose pay was not affected by absence,excluding overtime.


15

Source: ONS (1996, Part A, Table X5, np) and data supplied by DED based on NES


16

FIGURE 3B

Manufacturing Labour Productivity*, by Region, UK, 1995,(UK=100)

80

85

90

95

100

105

110

115

Nor

th E

ast

Nor

th W

est

Mer

seys

ide

Yor

k &

Hum

b

Eas

t Mid

Wes

t Mid

Eas

tern

Lon

don

Sou

th E

ast

Sou

th W

est

Eng

Wal

es

Scot N

I

*Measured as Gross Value Added per Head

Source: DTI (1997, Table 3, p.27)

lowest of any UK region. However, at 85 per cent of the UK average, itis not much different from the East and West Midlands whereproductivity is 87 per cent of the UK average in both instances, whileYorkshire and Humber at 90 per cent is closer to Northern Ireland than itis to the UK rate. Research by Roper (1995) suggests that two-thirds ofthe difference in productivity between Northern Ireland and GB is due tosmaller plant size and a bias toward low productivity industries such astextiles and clothing.


17

3.5 While Table 3.1 and Figure 3A show that low pay is a muchbigger problem in Northern Ireland than in GB, Figure 3C shows that thisholds for both males and females. Proportionately more men and womenin Northern Ireland earn less than £4.00 ph than any UK region, with thedifference particularly stark for females.

FIGURE 3C

Proportion of Employees Earning Less Than £4.00 ph,by Region, UK, 1996

%

0

2

4

6

8

10

12

14

16

18

20

South East

East Anglia

South West

West Mid

East Mid

York & Humb

North West

North

Eng

Wales

Scot

GB NI

Male

Female

Note: For all full-time persons on adult rates whose pay was not affected by absence.

Source: ONS (1996, Part E, Table 115, np) and data supplied by DED based on NES


18

3.6 Figure 3D shows male average weekly as opposed to hourlyearnings by industry in Scotland, England, Wales and Northern Ireland asa percentage of the UK industry average. Wages in all industries, withthe exception of the public sector, in Northern Ireland fall considerablyshort of the UK average, which is not surprising given the positive

FIGURE 3D

Male Average Gross Weekly Earnings by Industry in Scotland,Wales, England and Northern Ireland as a Percentage of the

UK Industry Average, April 1996

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19

influence of London and the Rest of the South East on national averages.However, in many industries such as Agriculture, Manufacturing,Mining, Construction and Education, wages in Northern Ireland are alsosignificantly lower than in the other regions. Where the information isnot constrained by sample size a similar pattern is seen to pertain forwomen6.

3.7 In conclusion, the NMW will affect proportionately up to 50 percent more employees in Northern Ireland than in the UK and will impactlargely on the private sector, part-time workers and females .

Low Pay by Industry

3.8 The incidence of low pay is likely to vary by industry, reflectingdifferences in the skills required, capital intensity, the degree ofcompetition, whether demand is expanding or contracting and thecharacteristics of new entrants to the labour market. At the industry levelthe evidence is consistent with such a view (Table 3.2).

3.9 A NMW of £3.00 ph will have a significant impact7 in the OtherCommunity, Social and Personal Service Activities; Real Estate, Rentingand Business Activities8; Hotels and Restaurants; and the Wholesale andRetail Distribution sectors. It will also affect at least 7.2 per cent ofConstruction workers, 6.3 per cent of Health and Social Work employeesand 4.5 per cent of Manufacturing workers. A NMW of £3.50 ph willaffect over half of workers in the Hotels and Restaurants sectors, nearly

6 Indeed, given the limitations of NES data pointed out earlier, the situation for

women in Northern Ireland could be even worse.

7 ie at least 10 per cent of employees earn less than £3.00 ph.

8 This sector includes typically low paid work such as security activities and industrialcleaning.


20

TABLE 3.2

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, by Industry, Northern Ireland, 1996

Percentage of Employees Earning:-____________________________________

< £3.00 ph < £3.50 ph < £4.00 ph

Agriculture etc * * 51.7Fishing * * *Mining & Quarrying * * 23.1Manufacturing 4.5 9.5 18.8Electricity, gas etc * * 1.9Construction 7.2 10.8 19.4Wholesale & Retail 10.2 19.6 39.1Hotels & Restaurants 28.0 50.6 64.5Transport etc * * 10.0Financial Services * * 6.7Real Estate etc 12.8 19.9 32.1Public Admin & Defence * * 5.1Education * 7.8 16.7Health & Social Work 6.3 12.1 18.9Other Community 15.9 23.2 35.1All Services 6.2 11.7 21.1All Industry 5.9 11.2 20.5

* Sample size too small to be reported.

Note: For all persons whose pay was not affected by absence, excluding overtime.

Source: Data supplied by DED based on NES


21

one quarter of employees in Other Community, Social and PersonalService Activities and almost one fifth of employees in the Real Estate,Renting and Business Activities and in the Wholesale and RetailDistribution sectors. Significant numbers will also be affected in theManufacturing, Construction and Health and Social Work sectors. At arate of £3.50 ph, almost 8 per cent of employees in the Education sectorwill also be affected. A NMW of £4.00 ph will affect 50 per cent ofAgricultural workers9. At this rate, very significant proportions ofworkers in a broad spectrum of industries will be affected but the greatestimpact will be on the Hotels and Restaurants, Wholesale and RetailDistribution, Other Community, Social and Personal Service Activitiesand Real Estates, Renting and Business Activities sectors, as well asAgriculture.

3.10 Table 3.3 shows a similar analysis but, this time, in terms ofnumbers of people affected. The biggest impact, according to numbersaffected, will be in the Wholesale and Retail Distribution sector where, atleast, 35,851 people will be affected by a NMW of £4.00 ph and 17,971if it is set at £3.50 ph. The second most affected sector would bemanufacturing at a rate of £4.00 ph, where 19,635 workers would beaffected, closely followed by Hotels and Restaurants, and Health andSocial Work. However, at a NMW of £3.50 ph, more employees will beaffected in Hotels and Restaurants and in Health and Social Work than inManufacturing. Even a low NMW of £3.00 ph will affect over 9,000employees in the Wholesale and Retail sector, over 8,000 employees inHotels and Restaurants, and nearly 6,000 employees in Health and SocialWork.

9 This may appear surprising since the agricultural industry is the only industry which

currently has a NMW and this wage was at £4.00 ph for those aged 19 or over withlower rates for younger workers. However, there are very large numbers of casualworkers in agriculture who are not covered by this agreement and there are alsovarious allowances for benefits in kind such as food and lodgings.


22

TABLE 3.3

Number of Employees Earning Less Than Selected Gross Hourly Earnings,by Industry, Northern Ireland, 1996

Number of Employees Earning:-_____________________________________

<£3.00 ph <£3.50 ph <£4.00 ph

Agriculture etc 0 0 9,709Mining & Quarrying 0 0 448Manufacturing 4,700 9,922 19,635Electricity 0 0 82Construction 1,745 2,618 4,703Wholesale & Retail 9,352 17,971 35,851Hotels & Restaurants 8,137 14,704 18,744Transport etc 0 0 2,502Financial Services 0 0 2,502Real Estate etc 4,415 6,864 11,071Public Admin & Defence 0 0 3,008Education 0 4,779 10,232Health & Social Work 5,860 11,255 17,581Other Community 4,201 6,129 9,273

Total 38,410 74,242 145,341

Note: For all persons whose pay was not affected by absence, excluding overtime. Thetotal number of employees in employment in March 1996 was 573,930.

Source: NIEC based on data supplied by DED based on NES and DED (1997a)


23

3.11 A more disaggregated breakdown of low pay by industry forNorthern Ireland is presented in Table 3.4. It shows all those industriesin

TABLE 3.4

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, by Selected Detailed Industry*, Northern Ireland, 1996

Percentage of Employees Earning:-______________________________

Industry <£3.00 ph <£3.50 ph <£4.00 ph

Investigation & security activities 60.0 73.3 80.0Restaurants ** 63.7 72.7Retail sale of food, beverages & tobacco in specialised stores ** 48.0 72.0Canteens & catering ** 52.3 71.3Bars ** 55.0 65.0Other service activities ** 63.1 63.1Retail sale in non-specialised stores ** 23.3 61.1Retail sale of pharmaceutical & medical goods, cosmetic & toilet articles ** ** 53.8Hotels ** 36.6 53.3Manufacture of made-up textile articles, except apparel ** ** 50.0Real estate activities on a fee or contract basis ** ** 50.0Manufacture of other wearing apparel & accessories ** 24.6 45.1Other retail sale of new goods in specialised stores 15.6 27.1 45.1Activities of other membership organisations 24.1 32.7 44.8Social work activities 20.4 34.0 44.2Printing & service activities related to printing ** ** 40.0Industrial cleaning ** ** 38.5Manufacture of furniture ** ** 38.1Maintenance & repair of motor vehicles ** ** 33.3

* More than 30 per cent of employees earned less than £4.00 ph.** Sample size too small to be reported.



24



25

which over 30 per cent of employees earn less than £4.00 ph10. From thetable the four lowest paid industries in Northern Ireland are Investigationand Security activities, Restaurants11, Retail sale of food etc inspecialised stores, and Canteens and catering, all of which are privateservice sector activities. The lowest paid manufacturing industry is theManufacture of made-up textile articles, except apparel, in which 50 percent of employees earn less than £4.00 ph.

Low Pay by Occupation

3.12 To the extent that different occupations represent or reflectvarying amounts of human capital conditioned by demand and supply ofpersons with such skills, then there will be variations in wage rates byoccupation. Those with the least skills can be expected to earn lowerhourly wages than persons with more education and skills. In the past 20years or so this difference has been magnified by a shift in demand acrossall industries towards more skilled workers. This in turn has led to awidening inequality in earnings, from which Northern Ireland has notbeen exempt (NIEC, 1994).

3.13 The percentage of employees earning less than £3.00 ph, £3.50ph, £4.00 ph and £4.00 ph and more, by occupational group, is presentedin Table 3.5. The lowest paid occupation in Northern Ireland in terms ofthe percentage of employees earning less than £3.00 ph is Sales RelatedActivity in which 12.5 per cent of employees earned less than £3.00 ph,closely followed by Personal and Protective Services in which 11.1 percent earned less than £3.00 ph. In Sales Occupations almost half ofemployees earned less than £4.00 ph, a figure mirrored in the OtherOccupations category in which there is a big proportion of agricultural

10 A complete picture for all industries is contained in Annex A.

11 To the extent that employees receive tips the incidence of low pay will be overstated.


26

TABLE 3.5

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, by Occupation, Northern Ireland, 1996

Percentage of Employees Earning:-_____________________________________

Occupation <£3.00 ph <£3.50 ph <£4.00 ph �£4.00 ph

Managers & Administration * * * 95.3Professional * * * 97.9Assoc. Professional & Technical * 3 4.7 95.3Clerical & Secretarial 3.3 7 17.3 82.7Craft & Related 6.9 12.9 22.6 77.4Personal & Protective Services 11.1 21.4 29.2 70.8Sales 12.5 24.3 48.3 51.7Plant & Machine Operatives 4.1 8.9 20.4 79.7Other Occupations 8.4 19.4 44.7 55.4




workers. In contrast, in Managers and Administration, Professional, andAssociated Professional and Technical Occupations, virtually nobodyearns less than £4.00 ph.

Low Pay by Manual/Non-Manual, Male/Female, Full-Time/Part-Time


27

3.14 One of the important trends in the labour market has been thegrowth of part-time employment, especially for women, since the 1970s.Earlier Council research demonstrated quite marked disparities inaverage hourly wage rates between part-time and full-time workers(NIEC, 1992, Table 3.5, p.19). In part, this was due to the fact that part-time work is frequently low or unskilled as well as to the lack of tradeunion representation.

3.15 Taken together, Tables 3.6 and 3.7 are consistent with this earlier

TABLE 3.6

Proportion of Full-time Employees Earning Less Than Selected GrossHourly Earnings, by Manual/Non-Manual and Gender,

Northern Ireland, 1996

Earnings Band_____________________________________

<£3.00 ph <£3.50 ph < £4.00 ph

Male: Manual (%) 5.5 9.1 18.6Non-Manual (%) 1.3 2.9 5.9All (%) 3.3 6.0 12.1

Female: Manual (%) 12.7 27.5 49.2Non-Manual (%) 2.8 5.2 12.7All (%) 4.8 9.7 20.0

All: Manual (%) 7.0 12.9 24.9Non-Manual (%) 2.0 4.0 9.2All (%) 3.9 7.4 15.1



28



29

TABLE 3.7

Proportion of Part-time Employees Earning Less Than Selected GrossHourly Earnings, by Manual/Non-Manual and Gender,

Northern Ireland, 1996

Earnings Band_____________________________________

<£3.00 ph <£3.50 ph < £4.00 ph

Male: Manual (%) 20.5 45.5 56.8Non-Manual (%) 6.8 13.7 23.3All (%) 12.0 25.6 35.9

Female: Manual (%) 12.7 30.9 60.2Non-Manual (%) 9.7 18.4 31.0All (%) 10.9 23.4 42.8

All: Manual (%) 13.9 33.0 59.7Non-Manual (%) 9.3 17.6 29.7All (%) 11.1 23.8 41.7



research. In 1996, for example, while 3.3 per cent of full-time males hadaverage hourly earnings of less than £3.00 ph (Table 3.6), thecorresponding percentage for part-time males was 12 per cent (Table3.7). Turning to females, a similar picture emerges - 4.8 and 10.9 percent, respectively. Not surprisingly, low pay is much more important formanual workers than non-manual workers. In general low pay is moreimportant among women, particularly for full-time workers. However, as


30

noted above, the NES underestimates the incidence of low pay, especiallyamong women. Furthermore, it appears that women are much morelikely to remain in low paid jobs than men (Sloane and Theodossiou,1996).

Low Pay by Age

3.16 Typically, as a person's career progresses, earnings increase withage until a plateau is reached. Young workers earn low wages becausethey are being trained either on the job or in education and have lessexperience. Furthermore, younger persons frequently change jobs so asto match their preferences and their ability to do the job better. Asworkers gain seniority and acquire firm specific skills, wages tend toincrease. Thus a positive relationship should exist between wages andage.

3.17 Table 3.8 shows the coverage of a NMW set at £3.00 ph, £3.50

TABLE 3.8

Proportion of Employees Earning Less Than Selected Gross HourlyEarnings, by Age, Northern Ireland, 1996

Percentage of Employees Earning:-_________________________________________________

Age (years) < £3.00 ph < £3.50 ph < £4.00 ph

16-18 51.9 66.7 85.218-21 25.8 41.0 65.521-25 12.2 18.7 33.225+ 3.9 8.5 16.6


31

Note: All persons whose pay was not affected by absence, excluding overtime.



32

ph or £4.00 ph on different age cohorts in Northern Ireland. In the 16-18year old age group roughly 52 per cent of employees earn less than £3.00ph, 67 per cent earn less than £3.50 ph and a massive 85 per cent earnless than £4.00 ph. Much of this work will be part-time jobs, mainly inthe retailing and hospitality and tourism industries. In the 21 to 25 yearold age group almost one-fifth of people earn less than £3.50 ph and one-third less than £4.00 ph. Overall, the distribution shows a clear andconsistent pattern of earnings increasing with age.

Low Pay by Firm Size

3.18 International evidence suggest jobs in smaller firms pay lowerwages, consist of more part-time employment and are generally of lowerquality with regard to other components of the remuneration packagesuch as pension coverage (OECD, 1985, pp.64-82). Similar results arerecorded for GB. Storey and Johnson (1987, Table 6.32, p.199) report,for example, that the mean average weekly wage of a semi-skilled manualworker in an establishment employing 200-499 persons was 19 per centhigher than in an establishment employing 25 to 49 persons. More recentdata from the British Household Panel Survey also indicates that low payis more prevalent among small rather than larger establishments (Table3.9). Unfortunately similar data is not available for Northern Ireland, butthere is no reason to assume that the same pattern would not be foundhere.

3.19 Northern Ireland, moreover, is a predominately small firm basedeconomy with 56 per cent of total employment in the private sector of theeconomy in firms with fewer than 50 employees, compared to 48 per centin the UK (Buckland and Greer, 1997, p.36). Furthermore, 27.7 per centof manufacturing employment was in factories employing less than 50persons compared with 18.8 per cent in Scotland, 18.7 per cent in Walesand 22.9 per cent in the UK as a whole. In contrast, in Northern Ireland,only 24.3 per cent of employees work in factories employing more than


33

TABLE 3.9

Distribution of Gross Hourly Earnings, by Establishment Size,Great Britain, 1996

Percentages of Employees Earning:-_____________________________________

Establishment Size(Number of Employees) <£3.00 ph <£3.50 ph <£4.00 ph

1-2 22.8 37.9 43.73-9 15.9 30.3 40.910-24 9.3 18.7 26.125-49 6.3 14.6 20.450-99 3.4 5.7 9.6100-199 2.7 6.4 9.9200-499 2.7 6.3 9.9500-999 3.0 6.5 10.71,000 or more 1.3 5.6 6.9Don't know but under 25 11.2 51.4 65.5Don't know but over 24 6.7 10.5 28.1ALL 6.5 13.4 19.0

Source: Dickens (1997, Table 10, np) based on British Household Panel Survey

500 persons, compared with 35.6 per cent in Scotland, 31.9 per cent inWales and 30 per cent in the UK as a whole (NIEC, 1993). This suggeststhat a NMW will have proportionately greater impact in Northern Irelandas compared to the UK as a whole.


34

Sub-regional Spatial Impact of a NMW

3.20 The clustering effect whereby firms tend to locate together in oneparticular area, or where the location of one or two large firms accountsfor a disproportionately large number of employees in a small locality orsub-region could mean that a NMW would have very significant anddifferential impacts on local communities or sub-regional economies.Table 3.10 below shows the percentage of employment in Travel To

TABLE 3.10

The Share of Employment in TTWAs Accounted for by Selected Industries,Northern Ireland, 1995

Industry (% Employed)____________________________________________________

Real Estate,Wholesale Hotels Renting &

& & Business OtherTTWA Retail Restaurants Activities Services Total

Ballymena 18 4 9 4 34Belfast 16 5 7 5 33Coleraine 16 7 4 5 32Cookstown 18 8 4 4 34Craigavon 15 4 3 4 26Dungannon 15 3 3 2 23Enniskillen 16 5 2 4 27Londonderry 13 5 4 4 26Magherafelt 14 2 1 3 20Newry 20 3 4 4 32Omagh 12 4 3 7 26Strabane 13 2 1 3 20

Note: Numbers may not add due to rounding.


35

Source: DED (1997b)


36

Work Areas (TTWA) in Northern Ireland accounted for by thoseindustries which, according to Table 3.2, appear most vulnerable to aNMW.

3.21 In three TTWAs - Newry, Ballymena and Cookstown -approximately one fifth of employees work in the potentially vulnerableWholesale and Retail Distribution sector. Cookstown and Coleraine haveabove average employment in Hotels and Restaurants, while Ballymenaand Belfast have relatively high proportions in the Real Estates etcactivity which, as pointed out earlier, includes the low paid securitysector. Ballymena, Belfast, Coleraine, Cookstown and Newry haveapproximately one third of total employment in these vulnerable sectors.It is not possible to further disaggregate the manufacturing industry tomore finely map the spatial pattern of low pay based on the industryclassification used for Table 3.4. Nevertheless the Council would beconcerned about the concentration of the clothing industry in the NorthWest.

3.22 Since low pay is usually found to a greater extent among femalesthan males (Tables 3.6 and 3.7), areas with a high proportion of femaleemployment are likely to be disproportionately affected by a NMW.Omagh, Coleraine and Enniskillen TTWAs have the highest proportionof female workers (Table 3.11) and are therefore likely to be relativelymore affected, although the differences between TTWAs are small.

3.23 Ideally this sub-regional analysis should be informed by paydifferences in the same industry across Northern Ireland. In someinstances, hotels for example, pay may be higher in the Belfast TTWAthan in more rural TTWAs. Unfortunately, however, sample sizespreclude such a disaggregated sub-regional industrial analysis ofearnings. Nevertheless, Table 3.12, which shows hourly earnings inTTWAs for both males and females, indicates that there is substantialvariation in earnings across Northern Ireland though the picture is morecomplicated


37


38

TABLE 3.11

The Share of Employment Accounted for by Females, by TTWA,Northern Ireland, 1995

TTWA Share of Employment Accounted for by Females (%)

Ballymena 51Belfast 51Coleraine 54Cookstown 49Craigavon 51Dungannon 51Enniskillen 54Londonderry 52Magherafelt 49Newry 51Omagh 55Strabane 53

Source: DED (1997b)

than a straightforward urban rural divide. For males, wages vary from£6.14 ph in Ballymena to £7.38 ph in Coleraine and £7.35 ph in Belfast.For females the variation is even greater, with female employees inBallymena earning less than 80 per cent of the Northern Ireland averagecompared to 111 per cent in Enniskillen. Taking males and femalestogether, Ballymena and Strabane have rates of hourly pay only 84 and86 per cent respectively of the total for Northern Ireland.

3.24 It is not possible to come to any definitive conclusions from the


39

TABLE 3.12

Average Gross Hourly Earnings by TTWA and Gender,Northern Ireland, 1996

Male Female All______________ ______________ ______________

% of NI % of NI % of NITTWA £/hr Average £/hr Average £/hr Average

Ballymena 6.14 86.7 4.83 79.4 5.55 83.9Belfast 7.35 103.8 6.06 99.7 6.73 101.7Coleraine 7.38 104.2 6.17 101.5 6.95 104.9Cookstown 6.30 89.0 6.18 101.8 6.24 94.2Craigavon 7.07 99.9 6.23 102.5 6.68 100.9Dungannon 6.69 94.5 5.98 98.4 6.40 96.7Enniskillen 6.78 95.8 6.78 111.5 6.78 102.4Londonderry 6.92 97.8 6.21 102.2 6.55 98.9Magherafelt 7.14 101.0 6.70 110.2 6.98 105.5Newry 6.51 92.0 5.85 96.3 6.29 95.0Omagh 6.91 97.7 6.36 105.1 6.62 100.0Strabane 6.50 91.8 * * 5.71 86.3

NorthernIreland 7.08 100.0 6.08 100.0 6.62 100.0





40

information presented in Tables 3.10, 3.11 and 3.12 without finerknowledge of the industrial structure within each TTWA, particularly inthe manufacturing sector, other than that there is substantial sub-regionalvariation in industrial structures and earnings across Northern Ireland andthat a NMW will, therefore, have very localised repercussions.Nevertheless some rather tentative conclusions can be drawn from theanalysis at least in terms of identifying areas which are potentially mostvulnerable. Ballymena, for example, has a high proportion of peopleworking in exposed sectors and hourly wage rates which are only 84 percent of the Northern Ireland average. Similarly, Newry and Cookstownhave high proportions of employees in vulnerable sectors particularlyWholesale and Retail Distribution and below average hourly rates of pay,although, in Cookstown, women's pay is above average.

3.25 The gaps in this analysis are, however, shown in the case ofStrabane. Strabane TTWA has the lowest share of employment of anyTTWA in sensitive sectors, indicating that a NMW will not have a majorimpact. On the other hand, Strabane has the second lowest hourly rate ofpay which would indicate that a NMW could have a big effect,particularly if the relatively low rate of pay in Strabane reflects adisproportionate level of employment in low-paying manufacturingsectors such as textiles and clothing.

Implications

3.26 Low pay varies considerably by the characteristics of theindividual employee (eg gender, age and occupation) and their workplace (eg firm size, industry and location). These results pose a difficulttask for those setting a NMW. What might be appropriate for a largefirm or the South-East of England may not be appropriate for a small firmor Northern Ireland. One way out of this apparent conundrum is to varythe minimum wage by region, age, industry and so on. Such an approachhas been adopted by a number of Organisation for Economic Co-operation and Development (OECD) countries (Table 3.13)


41

TABLE 3.13

Patterns of Variation in Minimum Wage Systems* in VariousOECD Countries

Type of Variation Countries

Age Austria, Belgium, Denmark, Finland, France,Germany, Ireland, Italy, Luxembourg, Netherlands,Norway, Portugal, Spain, Sweden, Switzerland

Region Austria, Finland, Germany, Ireland, Italy

Trainee Statusor Job Tenure

France, Germany, Portugal (trainees), Austria,Belgium, Greece, Ireland, Italy, Norway, Sweden(job tenure)

Industry Austria, Denmark, Germany, Ireland, Italy,Norway, Portugal, Sweden

Occupation Finland, Germany, Greece, Ireland, Italy,Luxembourg, Norway, Sweden

Family Status Austria, Greece, Luxembourg

* These systems vary from statutory minimum wages set by government (France,Spain, the Netherlands, Portugal and Luxembourg) to those set by collectiveagreements in various ways (Germany, Italy, Austria, Sweden, Norway, Finlandand to some extent Switzerland) and those minimum wages set in selected low-paying industries (Ireland).

Source: Dolado et al (1996, Table 1, pp.322-323)


42

3.27 The main economic argument for having variation in a NMW isthat some workers have lower productivity than others. The mainargument against is that a single NMW is transparent and simple toadminister. Manning (1997) has examined the question of whether thereis a big enough difference in the productivity of different groups to merithaving a more complex system. He concludes "that there is a very strongcase for variation by age and for a lower rate for workers workingtowards an accredited vocational qualification but that other types ofvariation by region, industry or occupation are not justified" (Manning,1997, p.85). However Manning also says that teenagers represent a verysmall fraction of total employment and he points out that, in the UnitedStates (US) where there is a single minimum rate which is high inrelation to teenage earnings (85 per cent in 1992), there does not appearto have been any negative effect on their employment.

3.28 In Northern Ireland teenage workers account for a higherproportion of employment than in Britain (7 per cent compared to 5.5 percent) so the impact of a NMW on younger workers is particularlyimportant. Clearly the government will not wish the introduction of aNMW to reduce employment opportunities for younger workers. Anumber of suggestions have been put forward to exclude youngerworkers from a NMW and the most important issue seems to be the cut-off age (Sisson and Edwards, 1997). If young workers are to be paid lessthan other employees doing the same job, it should only be done on thebasis that they are receiving training or working towards some form ofqualification or their productivity is lower.

3.29 Although Manning rejects variation by region, he does say thatthere is a potential case for a lower minimum in Northern Ireland. Thisrests on the fact that relatively low wages in Northern Ireland are anindication of relatively low productivity and that "one can draw a naturalline around Northern Ireland" (Manning 1997, p.79). However, as shownin Figure 3B, manufacturing labour productivity in other regions such asthe East Midlands, West Midlands and Yorkshire and Humber is closer to


43

that which pertains in Northern Ireland than the UK average. Justbecause Northern Ireland is geographically distinct from the rest of GBdoes not seem a good argument for a lower minimum rate.

3.30 There are, of course, other arguments both for and againstregional variations in the minimum rate. Proponents, for example, wouldargue that if a single rate is chosen it will have to reflect conditions in thelowest paying region, thus diminishing its impact on the rest of theeconomy. Others argue that to set a national rate would conflict with theconsiderable decentralisation in pay determination that has recentlyoccurred. On the other hand it can be argued that a regional rate wouldundermine existing national scales. Furthermore it is argued that a singleNMW can protect better employers from undercutting by so called'cowboy' operators. Perhaps the main economic argument againstregional rates is that they could distort the allocation of productiveresources across regions and lock some regions into a permanent lowpay/low productivity future.

3.31 No doubt such considerations influenced the Government when itdecided that the terms of reference for the LPC would be confined torecommending a single UK-wide minimum wage. This was reaffirmed inthe national minimum wage bill introduced in late November 1997.However, the question of whether employees aged under 26 years of agewill receive the NMW or receive a different rate still remains to bedetermined. As Table 3.8 shows, if such workers were exempt with aNMW of £3.50, ph only 8.5 per cent of those over 25 years would beaffected in Northern Ireland. It is an issue that will be discussed furtherin Section 5 below.

Conclusion

3.32 The analysis in this section has shown that Northern Ireland willbe disproportionately affected by a NMW compared to the UK as awhole. Irrespective of whether the NMW is set at £3.00 ph, £3.50 ph or


44

£4.00 ph, proportionately close to 50 per cent more employees will bedirectly affected in Northern Ireland. Furthermore, the coverage ofemployees varies considerably across these three rates for both NorthernIreland and the UK. This suggests that great care needs to be taken bythe LPC in setting a single UK-wide NMW.

3.33 Workers most likely to be affected by a NMW will be:

• females;• younger employees; and• those in manual occupations.

Such persons will tend to be employed in:

• smaller firms;• Investigation and Security Activities;• Restaurants;• Retailing;• Canteens and Catering; or• the Manufacture of Made-up Textiles Articles.

In terms of occupations, people in Sales or in Personal and ProtectiveServices will be affected most. Ballymena, Belfast, Coleraine,Cookstown and Newry have more employees in the most vulnerablebroad industry groups than other TTWAs, though wage rates in Coleraineand Belfast are above the average for Northern Ireland while those inBallymena and Strabane are the lowest in Northern Ireland.

3.34 Although low pay varies across a number of importantdimensions, Government has decided on a single rate for a NMW, withthe possibility of lower rates for younger workers. Administrativesimplicity has been preferred to a more complex system that attempts totake into account the dimensions along which low pay varies. Such anapproach, while justifiable, will need to consider carefully the impact ofthe NMW on regions such as Northern Ireland where low pay isparticularly prevalent.

45

4 THE IMPACT OF A NMW ON HOUSEHOLDINEQUALITY AND POVERTY

Introduction

4.1 The previous section concentrated on the characteristics ofemployees who will be directly affected by a NMW in Northern Ireland.However, a NMW will also affect household incomes in varying degrees,depending on the characteristics of the household. In a household all ofwhom are unemployed there will be no direct effect of a NMW, while fora household where (say) a teenager works part-time in a bar, the motheris a cleaner and the father has a clerical position in the civil service, thedirect effect of a NMW will be to raise household income. The job-poorunemployed household will fall in the lower household income groups,while the job-rich household will be classified to the middle and upperhousehold income groups. Thus, while a NMW will assist low paidworkers, it will not necessarily assist poor households.

4.2 In this section the effect of a NMW on household inequality,poverty and in-work benefits in Northern Ireland is examined. Thefigures are derived largely from the Tax and Benefits (Taxben) Model,which the Council commissioned the Institute for Fiscal Studies (IFS) toapply to Northern Ireland12. The model, based on the household, permitsthe first round impact of a NMW13 to be gauged by household incomedecile and household type. As household income rises due to the NMW,the Taxben Model takes into account the impact on household income ofdeductions due to extra Income Tax and National InsuranceContributions as well as reductions in such means-tested benefits asFamily Credit. Thus, the degree to which a NMW alleviates household

12 For details see NIEC (1996, Annex A, p.72). One of the underlying data sources is

the Family Expenditure Survey.

13 Since it is the first round, no attempt is made to take into account the impact of aNMW on unemployment or wage differentials. In other words, if the NMW is set at(say) £3.50 ph, all employees earning less than that will have their hourly rate raisedto that level and remain employed.

The Impact of a NMW on Household Inequality and Poverty

46

poverty can be estimated.

Who Gains? Who Loses?

4.3 Rising inequality has been a major source of pressure for aNMW. Figure 4A shows the percentage gain in weekly post-tax incomeof Northern Ireland households categorised by income decile. Forexample, with a NMW of £3.50 ph, the poorest 10 per cent of householdswould experience a rise in income of less than 2 per cent. The main

FIGURE 4A

Percentage Gain in Weekly (Post Tax) Household Income,Selected National Minimum Wage Levels, Northern Ireland

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Source: Special Tabulations, IFS Taxben Model for Northern Ireland


47

beneficiaries of a NMW are middle income groups, followed by lowerincome groups. The biggest beneficiaries in terms of a percentage gain innet weekly income are those in Decile 6 who would experiencepercentage gains of 1.5 per cent, 2.7 per cent or 4.4 per cent at a NMW of£3.00 ph, £3.50 ph or £4.00 ph, respectively.

4.4 The percentage of households gaining in each income decile dueto a NMW is presented in Figure 4B. For example, with a NMW of£3.50 ph, only 5 per cent of the poorest 10 per cent of households wouldexperience a gain in household income. Again, greater percentages of

FIGURE 4B

Percentage of Households Gaining at Selected National Minimum WageLevels, Northern Ireland

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48

middle to high income households will benefit from a NMW whether therate is set at £3.00 ph, £3.50 ph or £4.00 ph. This is not unexpected - asnoted above - a higher proportion of the poorest decile is likely to beunemployed or economically inactive and therefore will not directlybenefit from a NMW. In fact, almost 64 per cent of households in thepoorest decile in Northern Ireland are either unemployed (ie no earner) orpensionable and these are the groups which benefit least from a NMW(Figure 4C).

4.5 The households which benefit from a NMW are those whosemembers are employed (Figure 4C). Two earner or job-rich householdsbenefit the most from a NMW. This result is consistent with researchcarried out in GB which has shown that "the two largest demographicgroups benefiting from a NMW - younger workers and females in acouple - are in households with more than one earner, so a NMW leavesthe bulk of family poverty untouched" (Fernie and Metcalf, 1996, p.21).It is also broadly consistent with analogous tabulations for the UK as awhole, estimated by the Institute for Fiscal Studies (Davies, et al,1996)14.

Escaping the Poverty Trap?

4.6 For many families on low income, increases in earnings broughtabout by a NMW will be offset by additional payments of Income Taxand National Insurance Contributions combined with withdrawal ofmeans-tested benefits such as Family Credit and Housing Benefit. Theresulting 'poverty trap' means that for some low income families "as littleas 3 pence may remain from each additional £1 of earnings" (Sutherland,1997, p.41). The Council has argued that the incidence of the povertytrap is likely to be more important in Northern Ireland than the UK as a

14 There are some differences, however, which probably reflect the different household

composition and greater reliance on benefits in Northern Ireland. These differencesare discussed in NIEC (1996, pp.19-38).


49

whole due to factors such as higher rates of long-term unemployment and


50


51

relatively low wages (NIEC, 1995). Thus the introduction of a NMW islikely to lessen the poverty trap in Northern Ireland to a greater extentthan elsewhere in the UK.

4.7 In her analysis of the NMW and the poverty trap, Sutherland(1997, p.41) argues that in certain circumstances a NMW

can bring families out of poverty traps if they have lowoutgoings, few dependants, no special needs and are ableto work full-time hours (or more than one person isearning). In situations other than this the NMW willmake the poverty trap less severe but - particularly forone-earner families with children - the benefit systemwill still be needed to subsidise low earnings.

Thus the NMW is unlikely to reduce inequality or have a significantimpact on poverty.

4.8 Nevertheless, to the extent that the NMW leads to a reduction inexpenditure on benefits, these savings could be recycled to reduce therate at which benefit is withdrawn and thus lessen the impact of thepoverty trap. In other words, instead of benefit withdrawal being (say)95p for every extra £1 earned, the rate could be 40p - the equivalent ofthe top marginal tax rate on income. However, the IFS suggest that anysuch savings are likely to be modest. A £3.00 ph NMW will see a fall inFamily Credit expenditure of less than 3 per cent, or of around 8 per centif the NMW is set at £4.00 ph (Davies et al, 1996, Figure 11.10, p.144).

4.9 Figures obtained from the IFS Taxben model for NorthernIreland also indicate a small saving on benefit expenditure. Figure 4Dshows the first round effects of the introduction of a NMW at differentlevels in means-tested benefits, assuming no employment effect.Expenditure on


52

FIGURE 4D

Percentage Fall in Government Expenditure Means-Tested Benefits atSelected National Minimum Wages, Northern Ireland

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

Level of NMW

0

2

4

6

8

10

12

£ 3.00 £ 3.50 £ 4.00

Housing Benefit

Rates Rebate

��

Family Credit


Family Credit will decline by approximately 11 per cent at a NMW of£4.00 ph15, while expenditure on Housing Benefit and Rates Rebate willdecline by only 2 per cent and 1 per cent, respectively. The reason forthe relatively small decline in expenditure is twofold and is consistentwith work carried out on the UK. First, many families will remainentitled to these benefits at wages higher than the level of the NMW; and

15 Morrissey (1997, pp.18-19) estimates the fall in Family Credit in Northern Ireland

from a NMW of £4.00 ph at close to 50 per cent. It is not clear why the estimates areso different.


53

second, as outlined above, many low paid individuals are not entitled toin-work means-tested benefits because they do not reside in poor benefitunits (Davies et al, 1996, p.144).

Conclusion

4.10 The above discussion suggests that a NMW set in the range £3.00ph to £4.00 ph will make, at best, a modest contribution to reducinghousehold poverty and inequality. Nevertheless, this may be somewhatpessimistic. A NMW creates a floor that may moderate further increasesin inequality and assists in preventing in-work benefits becoming asubsidy to employers of low paid persons16. To deal with the problem ofhousehold poverty and inequality effectively will require reforming thetax and benefits systems together with ensuring work for those currentlyunemployed. For example, the rate at which means-tested benefits arewithdrawn as a person increases their earnings could be reduced toprovide greater incentives to work. The Government through the Welfareto Work programme is embarking on a series of reforms designed toachieve this end17.

16 These themes are developed in Freeman (1996) and Commission on Social Justice

(1994, p.201).

17 For further discussion see HM Treasury (1997).

54

5 THE IMPACT OF A NMW ON LABOUR ANDPRODUCT MARKETS

Introduction

5.1 The static analysis in Section 3 gives us an indication of thenumber and characteristics of the people and industries likely to beaffected by a NMW. However, in order to gain a better understanding ofthe impact of a NMW on employment, the functioning of the local labourmarket and the degree of competitiveness within industry have to beconsidered. In other words, attention needs to be paid to the likelyresponses of workers, trade unions, employers and government to theintroduction of a NMW. It is to these issues attention now turns as wellas discussion of the empirical research on likely employment effects ofthe introduction of a NMW.

Some Theoretical Considerations

5.2 The theoretical competitive model of the labour market givesquite specific predictions of the impact of a NMW. Essentially, if aNMW is introduced above the competitive wage, then product prices rise,with a consequent reduction in demand which feeds through to a declinein the requirement for labour. Furthermore, since the price of labour hasrisen relative to capital, there will be an incentive for the firm tosubstitute capital for labour. The extent of the decline will depend on thesensitivity of demand to price changes (ie the elasticity of demand), theimportance of wages in the overall cost structure and the degree ofsubstitutability between workers and machines.

5.3 Typically the demand for traded goods from the manufacturingsector will be most affected by price variations. Prices for a smallregional economy are largely determined on the world or the GB marketand, unless the firm has successfully differentiated its output throughmarketing or innovation, it will have little influence over the price it cancommand in the marketplace. In contrast, the non-traded goods sectorwill be much less open to the winds of international competition and thuswill be in a better position to pass on any cost increases occasioned

The Impact of a NMW on Labour and Product Markets

55

because of a NMW through higher prices. Furthermore, manufacturersare probably more able to substitute capital for labour than many servicesector industries.

5.4 While the competitive model offers useful insights into thefactors that need to be considered in evaluating the impact of a NMW, itis unduly restrictive. The labour market may not be competitive, with theresult the employer may be paying wages that are below the value ofoutput of the worker. Equally, the product market may lack competitivedynamism, with the result that firms grow inefficient and uncompetitive.As the economist John Hicks famously remarked many years ago, there isnothing monopolists like more than a quiet life. Thus, once theassumption of competitive markets is dropped, it is possible that a NMWmay have little, if any, effect on employment.

Monopsony Power

5.5 If a company has market power in the labour market it may beable to set wages below the employee's productivity level. An employerin such a position is known as a monopsonist. Fernie and Metcalf (1996,p.15) outline the conditions under which this can occur.

Monopsony can arise for two reasons. First, employershave some discretion in setting pay - if they reduce theirwages by a small amount this will not induce all theirworkers to quit. Second, some low wage workers have arestricted choice of employer because they are drawnfrom a limited labour market, perhaps because of the lackof child care arrangements18.

18 This is likely to apply particularly to women. The generally lower earnings of

women both in Northern Ireland and GB may in part be due to this factor (Borooahand Forsythe, 1997).


56

Furthermore, it has been argued that under such conditions firms mayemploy fewer persons than under competitive conditions. A NMW byraising the wage rate encourages more persons to enter employment.

5.6 In Northern Ireland, labour markets can also be segmented byreligious/political boundaries, with what is known as a 'chill factor'discouraging people from one tradition seeking work outside their ownarea, particularly in areas dominated by the other tradition. The fact that"Catholics are still more than twice as likely to experience unemploymentthan Protestants" (Gillespie, 1996, p.4) indicates that segmentation andmonopsony power may be an issue in the Northern Ireland context whichcould push wages below productivity levels. One would expect this to bemore common in smaller companies which tend to operate in localisedlabour markets.

5.7 Consistent with this view, Borooah et al (1995, p.55) commentthat, due to the sectarian divide, Northern Ireland "should not be seen asan area over which workers and job-seekers, regardless of religion, movefreely but rather as a constellation of geographically segmented labourmarkets between which mobility is extremely limited". Such mobility islikely to be particularly constrained for low paid workers who are mostlikely to be affected by a NMW. Shuttleworth et al (1996), for example,report that the catchment area in Northern Ireland for low skill jobs ismuch more restricted than for more skilled jobs.

5.8 There is, however, a number of offsetting factors that are likelyto have ameliorated the effect of the chill factor and monopsonisticpower. First, for 20 years fair employment legislation has been in placein Northern Ireland, designed to create a neutral working environmentand religious 'balance' in the workplace. However, as the Chairman ofthe Fair Employment Commission acknowledges, despite undoubtedimprovements in creating fairer employment, the "development of asingle labour market is not yet complete..." (FEC, 1997, p.4). Second, therecent reduction in unemployment in Northern Ireland has led to short-


57

term unemployment rates19 that match those of the rest of the UK20. Thisis a dramatic change from the more usual situation in whichunemployment rates in Northern Ireland were higher than those of theUK as a whole, irrespective of duration. There are even reports of locallabour shortages, perhaps indicating some counter balancing of anymonopsony power (T&EA, 1996). Third, to the extent that public policyhas encouraged the location of office buildings in city centres, this willhave promoted a more competitive labour market. Thus, while the 'chill'factor is undoubtedly an important and distinctive characteristic of theNorthern Ireland labour market, these mitigating factors suggest thatother characteristics of the labour market identified by economic theoryas relevant to the NMW debate are also likely to apply to NorthernIreland21.

Wage Differentials

5.9 Irrespective of whether the labour market is competitive or not,an important issue in estimating the impact of a NMW will be the knock-on effect on differentials. In other words, if before a NMW of (say)£4.00 ph is introduced, some workers in an establishment are paid £3.50ph and others £4.00 ph, will those earning £4.00 ph try to re-establish a50p differential after the introduction of a NMW? Indeed, will theemployer have an incentive to retain such differentials to provide a careerladder for workers? The answer to both questions is probably "yes".

5.10 Evidence obtained from an examination of industries covered bythe old Wages Councils suggests that there were some knock-on effectsfrom a minimum wage but that these were concentrated, not surprisingly,

19 Short-term unemployment rates refer to those unemployed for less than a year as a

percentage of the labour force.

20 Unfortunately, long-term unemployment rates remain much higher than the UK.

21 See also discussion in Bew et al (1997, pp.120-142).


58

in the bottom half of the wage distribution (Machin and Manning, 1994).Thus, the more workers clustered just above the NMW, then the greaterthe likelihood of knock-on effects designed to restore differentials.

5.11 Figure 5A shows the distribution of hourly earnings in NorthernIreland. There is a large spike at a rate over the range £3.75 to £4.25 ph.Such a clustering suggests a large potential for knock-on effects to restoredifferentials, depending on precisely where the NMW is set. Evidence

FIGURE 5A

Distribution of Gross Hourly Earnings, Northern Ireland, 1996

£/hou

0123456789

10

0.25

1.25

2.25

3.25

4.25

5.25

6.25

7.25

8.25

9.25

10.2

511

.25

12.2

513

.25

14.2

515

.25

16.2

517

.25

18.2

519

.25

20.2

521

.25

22.2

523

.25

24.2

525

.25

26.2

527

.25




59

from a recent survey of larger retail shop owners conducted by the BritishRetail Consortium22 is consistent with this view (Economist, 1997). At aNMW of £3.50 ph, the impact was insignificant - retailers' wages billwould rise by 0.1 per cent. However, at £4.10 ph, the cost of raisinglower-paid workers to the NMW would add 1.8 per cent to the wage bill,but the cost of restoring differentials would add another 2 per cent.

Industry Competitiveness

5.12 Faced with increased wage rates as a result of a NMW, a firm hasa number of options that include:

(a) cut profits;(b) attempt to pass on higher costs to consumers in the form of

higher prices;(c) cut their cost base [through, for example, shedding labour],

and/or(d) absorb wage costs by introducing productivity enhancing

measures to maintain unit labour costs (Corney, 1997, p.87)

Three other alternatives could be added - the company can introduce newproducts and switch markets, the company can close or the company cando nothing23.

5.13 Any industry, even a competitive one, will contain firms ofvarying efficiencies. Thus, in the short-run, firms at the margin - the leastefficient - are likely to suffer the most in terms of loss of market shareand reduced profits. Indeed, some firms may not survive the combination

22 "The respondents, which tended to be bigger retailers, are responsible for 37% of

Britain's retail sales and employ 29% of shop workers" (Economist, 1997).

23 The latter option may arise if employers find that worker efficiency increases at thehigher wage rate as employees increase their effort and costly labour turnover isreduced.


60

of increased wage costs and lower profits and will exit the industry withconsequent employment implications. Such an outcome might occureven if the overall industry costs rose to reflect the NMW.

5.14 Over the medium to longer term firms will, however, be able toadopt strategies that are designed to increase their productivity and/ormove up the value added chain by introducing new products. This hasbeen referred to as the 'shock effect' (McConnell and Brue, 1989).Raising productivity should permit higher wages to be paid and mayperhaps even lead to an increase in the demand for labour. Firms that areassociated with innovation and invention are more likely to be at theforefront of their industry and paying higher wages. Thus, a firmfollowing such a strategy is more likely not only to hire higher skilledworkers but also upgrade the skills of the existing workforce.

5.15 This suggests that the greater the reliance that firms place onnon-price strategies, the easier it will be for a firm to adjust to a NMW inthat the demand for the product is likely to be less sensitive to price and itis more likely to employ skilled, well-paid and educated workers. On theother hand, firms that produce standard undifferentiated products that sellmainly on the basis of price are likely to have a much greater difficultyadjusting to a NMW.

5.16 One of the objectives of industrial policy in Northern Ireland is toshift firms much more towards non-price strategies for success (DED,1990, 1995)24. This was to be achieved through better marketing,improved training as well as increased R&D and innovation. Ifsuccessful, this would have resulted in increased productivity and wagesrates relative to the rest of the UK and thus minimised any employmenteffects of a NMW on the local economy. However, as discussed inSection 3 above, relative productivity and wage rates do not appear to

24 It should be noted that industrial policy is primarily concerned with manufacturing

and tradeable services.


61

have increased25. Furthermore, this is consistent with recent work byRoper (1997) on the degree to which the principles of the NewCompetition26 had been introduced in Northern Ireland.

5.17 The discussion so far has been concerned mainly with the traded-goods sector of the Northern Ireland economy, where the pressure toremain competitive because of the NMW is likely to be greatest. Such apicture would appear to fit the non-traded or local Northern Irelandmarket to a much lesser extent. A significant element accounting for thisis the large circular flow of expenditure from the public to the privatesector which generates demand for the sheltered non-traded sector. Theflow takes the form of grants and other public subsidies, social securitypayments as well as the salaries of public servants. Such a situation, itcould be argued, leads to a less than competitive market and maycontribute to a degree of X-inefficiency (Clulow and Teague, 1993,pp.101-107). As a result, a NMW may have little effect on employmentin the non-traded sector in the short run - firms raise prices - or in themedium to longer run as greater efficiency is introduced, thus stimulatingdemand.

Sectoral Considerations

5.18 After discussing the broad impact of the NMW, attention turns tothree specific sectors - Wholesale and Retail Distribution, Manufacturingas well as Hotels and Restaurants. Taken together they account for halfof all those earning less than £4.00 ph, with Wholesale and RetailDistribution accounting for a quarter. As with low pay as a whole, it isthe non-traded sector that accounts for the bulk of the low paid and hence

25 See also Gorecki(1997).

26 These are: introduce new product/process innovation; conduct R&D; becomeinvolved in extensive inter-firm collaboration; and adopt flexible and adaptableorganisational forms. For further discussion see Best (1990, 1995).


62

most likely to be affected by a NMW. A focus on the industry levelpermits a more detailed discussion.

Wholesale and Retail Distribution

5.19 Wholesale and Retail Distribution is the largest low pay sector inNorthern Ireland (Tables 3.2 to 3.4 above). In 1996, for example, thesector accounted for a quarter of those paid under £4.00 ph and £3.50 ph(Table 3.3 above). The businesses which pay low wages and which relyon low wages to remain competitive are likely to be the smallerindependent retailers. The effect of a NMW may be to accelerate thetrend away from small independent retailers, particularly those whichcontinue to rely on low wages to remain competitive, towards large GB-based multiples, which have recently entered the Northern Irelandmarket. In such a scenario the overall employment effect would berelatively small. The differential impact of a NMW by firm size inWholesale and Retail distribution is consistent with similar results acrossa number of sectors including Catering (Bayliss, 1996)27.

5.20 The Chief Executive of the Wholesale and Retail TrainingCouncil, Alan Clarke (1997) has urged employers to take a proactiveapproach to the NMW. In an article in the Newsletter he says that "[J]oblosses, reductions in hours and slashing the training budget are not longterm solutions to the problems" (p.20). In an argument which hastheoretical support in efficiency wage theory28, Alan Clarke outlined thehigh turnover costs within the sector and argued that "[B]y increasingwages and implementing a staff development programme, retailers willattract and retain the high quality staff that will make the difference tocompany performance and competitiveness" (p.21).

27 Indeed, there are indications that larger firms are raising wage rates in anticipation

of a NMW of around £3.50 (Clement, 1998).

28 See also fn 23 above.


63

Manufacturing

5.21 Using £4.00 ph, the manufacturing sector is the second leadingemployer of low paid workers in Northern Ireland, accounting for 13 percent. When £3.50 ph is used, manufacturing drops to fourth, althoughstill accounting for 13 per cent of low paid workers (Table 3.3 above). Inconsidering the impact of a NMW on the manufacturing sector, industriesare characterised by the degree to which they export and are profitable.Consistent with the above discussion, the more exposed a firm is tointernational competition the more likely it is to be adversely effected bya NMW if its competitiveness is based on a low cost/low price strategy.In contrast, highly profitable firms will be better able to absorb theincrease in costs occasioned by the advent of a NMW. The informationon exports and profitability is combined with an indication of the extentof low pay in each industry. The results are presented in Table 5.1.

5.22 The degree of profitability within the industry is included since itmay indicate the sensitivity of the industry to adverse trends in costcompetitiveness (Bradley et al, 1997). However, as explained in Bradleyet al (1997), finding a reliable indicator of profits is troublesome. Themeasure they used was defined as the value of net output minus thewages and salaries bill divided by the value of net output. Given that thisis an imperfect profit proxy29 (though it has a strong advantage in beingcomparable30) included in brackets, where possible, are figures for profitsper employee (in £'000s) for 1995-96 as reported by the IndustrialDevelopment Board (IDB).

29 It could be argued, for example, that it is more analogous to a gross margin than a

rate of profit on capital.

30 Although, of course, care still needs to be taken because, the output composition of agiven industry may be different between Northern Ireland and the RoI while, to theextent transfer pricing occurs in the RoI, profits will be biased upwards.


64


65

TABLE 5.1

Low Pay, Profitability and the Destination of Sales of Northern IrelandManufacturing, Mid-1990s

Profit Ratio* Percentage of Employees Earning:-______________________________

(Profit peremployee <£3.00 <£3.50 <£4.00 �£4.00

£000s) ph ph ph ph

GROUP 1Highly Domestic Oriented (NI+GB>75% Sales) NI Dominant

Food, Drink & Tobacco H (5.5) ** 10.3 19.3 80.7Wood & wood products M ** 16.7 ** 83.3Paper & Printing M (6.6) ** ** ** 83.6Other non-metallic mineral products H ** ** ** 90.9Basic metals & metal products M ** ** ** 83.9Other Manufacturing n.e.s. M (9.2) ** ** ** 64.0

GROUP 2Domestic Oriented (50%>NI+GB<75% Sales) GB Dominant

Textiles, Clothing & Leather M (1.6) 7.5 16.1 32.3 67.7Rubber & Plastics H ** ** ** 91.4Transport Equipment L (5.1) ** ** ** 97.2

GROUP 3Export Oriented (foreign>50% Sales)

Chemicals & Man-made fibres H (9.0) ** ** ** 80.0Other Machinery & Equipment M ** ** ** 89.3Electrical & Optical Equipment M (8.1) ** ** ** 78.6

*Value of net output minus wages and salaries divided by the value of net output. Highprofit sectors (H) are those for which the profit ratio is greater than 60%; moderate profitsectors (M) are those for which the ratio lies between 40 and 60%; low profit sectors (L)are those with ratios less than 40%.**Sample size too small to be reported

Source: Bradley et al (1997), IDB (1997) and data supplied by DED based on NES


66

5.23 The Group 1 industries are probably least sensitive to a NMW.In general they are making moderate to high profits. With the exceptionof Other Manufacturing not elsewhere specified (n.e.s.), more than 80 percent of Group 1 employees are earning more than £4.00 ph and probablywell over 90 per cent earning more than £3.50 ph. Furthermore, as theyare operating in the domestic market, this increases the likelihood of a'shock' effect, since there may be scope for efficiency improvements.

5.24 On the other hand, moving to a finer level of industrydisaggregation, many firms in such markets are paying low wages. Aclose look at Table 3.4 will show that two industries within this grouppay close to 40 per cent of their employees less than £4.00 ph - Printingand Service Activities Related to Printing (a sub-sector of the Paper andPrinting Industry in Table 5.1) and Manufacture of Furniture (a sub-sector of the Wood and Wood Products industry in Table 5.1). It is likelytherefore that, in those industries, the effect of a NMW may be toincrease competitive pressures. This will result in both a 'shock' effect insome firms which may theoretically indirectly increase the demand forlabour31 and a 'shake-out' of uncompetitive firms or those firms whichcontinue to base competitiveness largely on low wages. In such an eventthere is likely to be a shift or a displacement of workers from small tolarge firms.

5.25 For Group 2 industries, ie domestic oriented but with a high levelof external sales to GB, the impact of a NMW will depend on the extentto which their success in the GB market is based on lower wage costs andon the level at which a NMW is set. The Textiles, Clothing and Leathersector with more than 7 per cent, 16 per cent and 32 per cent of itsworkforce earning less than £3.00 ph, £3.50 ph and £4.00 ph respectively,appears most sensitive to an increase in wage costs. Its profit ratio isalmost identical to the UK industry figure (Bradley et al, 1997) and

31 Since, through improvements in productivity, product design and innovation,

demand for the firm's output increases thus leading to the hiring of employees.


67

profits per employee at £1,600 are low. So the extent to which wages arelower in Northern Ireland will be very significant and figures from theNew Earnings Survey show that wages are indeed lower in NorthernIreland

5.26 The Transport Equipment sector, although having only a smallpercentage of employees (less than 3 per cent) earning less than £4.00 ph,may be susceptible to even a small increase in costs because of its lowprofit ratio, which is significantly lower than the UK figure (29 per centin Northern Ireland compared to 54.7 per cent in the UK, Bradley et al,(1997)). In the Rubber and Plastics sector, Northern Ireland companiesare highly profitable, well above the UK average, and have less than 10per cent of employees working for less than £4.00 ph and probably only avery small percentage working for less than £3.50 ph.

5.27 Group 3 industries, ie export oriented companies, could be mostaffected by a NMW, particularly if it is set at a high rate, because there isless likelihood of a shock effect since the product markets will tend to beefficient. The Electrical and Optical Equipment industry appears mostvulnerable, with over 20 per cent of employees earning less than £4.00ph. Although the profit ratio of this industry is high to moderate,research by Bradley et al shows that it is significantly lower than thesame industry in the Republic of Ireland (RoI). The combination of thesetwo factors indicates that the local industry is competitive on the basis oflow wages and more sensitive to any unilateral increase in costs. Incomparison to Other Manufacturing industries in Northern Ireland, theChemicals and Man-Made Fibres industry also has high levels ofemployees earning less than £4.00 ph. The Council does not seecompetition on the basis of low wages as a sustainable economic strategy.

Tourism

5.28 The tourism sector is one of the leading low paying sectors inNorthern Ireland. At £4.00 ph, Hotels and Restaurants is the third most


68

important low paid sector, accounting for 13 per cent of all low paidworkers; at £3.50 ph, the share rises to 20 per cent (Table 3.3, but seealso Table 3.4). As the Council has recently argued, this industry shouldsee substantial growth with the prospect of peace and political stability(NIEC, 1997b). In this context nothing less than world class standardswill be required to compete successfully in an increasingly globalindustry. This will require extensive upgrading of the skills of thosecurrently employed in the industry. It is for these and other reasons thatthe industry association in Northern Ireland recommended a NMW of£3.50 ph (HANI, 1997, p.1).

Discussion

5.29 The three sectors discussed here are the leading low pay sectorsin the Northern Ireland economy, accounting for approximately one-halfof all workers paid less than £4.00 ph. A theme of the discussion in allcases, whether by industry representatives or Government, is the need toupgrade skills and training so as to meet the benchmark of internationalcompetition. Indeed, it could be argued that a NMW provides anincentive for employers to provide training so as to raise a person'soutput. Thus, a NMW has the possibility that it will cause significantchanges in firm behaviour and employee expectation so that productivityincreases, with the result that higher wages can be paid.

Empirical Research

5.30 Identifying the sectors and workers most likely to be effected bya NMW, together with the channels and mechanisms through which theNMW operates in the labour and product markets, are clearly vital togaining a proper understanding of the impact of the NMW. Nevertheless,despite the foregoing discussion, there exists considerable debate over the


69

likely employment effects of the introduction of a NMW32. In the finalpart of this section the views of economists as to the likely impacts ofvarious NMW are presented.

5.31 If labour and product markets are competitive then the question isnot the direction of change in employment - a decline - but rather itsmagnitude. However, since both labour and product markets arefrequently imperfectly competitive, the task of estimating the impact of aNMW becomes infinitely more difficult. As Fernie and Metcalf (1996,p.15) comment, under such circumstances, the "impact of a NMW cannotbe settled by theory - it becomes an empirical question."

5.32 Several approaches to setting a NMW, taking into account theiremployment implications, have been used. The first relies on theexperience of Wage Councils, the closest comparable initiative to aNMW in the UK. These were abolished in 1993, at which time they setminimum rates for persons aged 21 and over. The evidence for Britainsuggests that the Wage Councils in the 1980s had a positive effect onwage levels but either a neutral or positive effect on employment33.These findings led Fernie and Metcalf (1996, p.2) to conclude:

• The thrust of the results suggest that a NMW set atthe previous average basic wage council rate at thetime of their abolition in 1993, uprated to 1996,would not have adverse employment effects. Indeed,such a rate, around £3.20, may even boostemployment by giving an incentive to take jobspreviously on offer below £3.20.

32 See Machin (1997) and Confederation of British Industry (CBI, 1995), for overviews

of research findings.

33 For discussion see Machin (1997) and Fernie and Metcalf (1996).


70

• A rate set around half male median hourly earnings,approximately £3.70, might cause job losses insectors like catering and retailing.

A rate of £4.40 ph, the authors argue, "would run the risk of adverseemployment affects" (p.3).

5.33 Northern Ireland, like the rest of the UK, had Wage Councils,until they were abolished in 1993. However, no comparable work to thatundertaken for Britain on their impact has been done, althoughJefferson(1994) provides a valuable discussion of the operation of WageCouncils in Northern Ireland. On the assumption that the researchfindings for Britain apply to Northern Ireland, Table 5.2 uprates theminimum wages set by the Wage Councils in Northern Ireland to 199634.The weighted minimum wage is £3.47 ph in 199635. At this rate,following Fernie and Metcalf (1996), the employment effects forNorthern Ireland would be neutral or even slightly positive36.

5.34 A second approach in considering a NMW has been used byLayard (1997). He examines the proportion of workers at or close tominimum wages in those countries which already have a NMW (Table5.3). On that basis Layard comes to the conclusion that a NMW covering

34 The uprating factor is the increase in manual gross weekly earnings. This seems

reasonable in view of the fact that, for GB, there was no pronounced up ordownward trend between 1980 and 1993 in the relationship between Wage Councilminimum rates and the 'average' cost of labour for an employer (Dolado et al, 1996,Figure 2, p.326).

35 The weights are the employment levels in Table 5.2.

36 It should be noted that the coverage of Wage Councils in Britain was much moreextensive than Northern Ireland and this may account for any differences betweenthe results derived in this paragraph and those of Fernie and Metcalf (1996)discussed above. On the coverage of Wage Councils in Britain and NorthernIreland, see Jefferson (1994, Table 1, p.29; Table 2, p.30).


71

10 per cent of workers "would probably be too high" (pp.78-9), which


72

TABLE 5.2

Minimum Statutory Hourly Wage Rates Set by Wage Councils, PersonsAged 21 Years and Older, Northern Ireland, 1992-93 Uprated to 1996

Minimum StatutoryNumber of Hourly Rates, 1992-93*Employees Uprated to 1996**

Wage Council 1991 £

Bakery 863 4.60Boot and Shoe Repairing 43 3.59Catering 15,240 3.32Clothing Manufacturing 9,334 3.04Laundry 306 3.27Linen and Cotton Handkerchiefs, Household Goods and Linen Piece Goods 1,127 3.19Paper Box 725 3.52Road Haulage 6,506 4.39Sugar, Confectionery &Food Processing 166 3.59

TOTAL 34,310 -

* Some of the Wages Councils had applicable implementation dates in 1992, others in

1993.

** Uprated using increase in gross weekly earnings for those in manual occupations in

Northern Ireland to 1996. The uprating factor was 12.02 per cent for 1993-96,

13.65 per cent for 1992-96.

Source: Jefferson (1994, Table 2, p.30) and DED (1996c, Table 10, pp.23-28)


73


74

TABLE 5.3

The Coverage of Minimum Wages in Selected OECD Countries

Percentage of workers at Lower minimum wage existsCountry minimum or close to it for workers aged under

Austria 4 -Belgium 4 23Denmark 6 18France 11 18

(or trainees)Luxembourg 11 21Netherlands 3 22Portugal 8 18Spain 7 18Sweden 0 24USA 5 21

Source: Layard (1997, Table 10, p.70)

seems to lead to a NMW of somewhat above £3.25 ph (p.69)37. Thisapproach is consistent with the observation of Nickell (1997, p.70) that"where the minimum wage applies, it is low enough not to have animportant effect on the unemployment rates of adult men".

5.35 If we apply Layard's test, the NMW that would suit NorthernIreland would be around £3.00 ph using the LFS (Table 3.1) or £3.50 ph

37 This would cover 6 per cent of workers aged over 21 years and 24 per cent of those

aged 18-21 years. (Layard, 1977, Table 9, p.70).


75

using the NES (Table 3.2). The Hospitality Association of NorthernIreland link their recommended NMW of £3.50 ph to the fact that thecatering wages council set a rate of £3.08 ph in 1992. More specifically,they argue that "[A]gainst the background of the recession and thechanged business environment £3.50 would appear to be a reasonableextrapolation into 1998" (HANI, 1997, p.3).

5.36 A third approach is to model the impact of NMW carefullythrough a macroeconomic model of the Northern Ireland economy. Thiswould take into account all the factors mentioned, with appropriateestimates of the sensitivity of employment levels to rates of pay bysector. The effects on demand if the increased wage levels resulted ingreater spending with positive knock-on effects on employment and theimpact of the recycling of reduced public expenditure on in-work benefitssuch as Family Credit and Housing Benefit would also need to bequantified. Unfortunately, a macro-economic model that is able todetermine the impact of a NMW is not available for Northern Ireland38.

5.37 Nevertheless, some partial analysis has been undertaken. Apaper by Borooah and Lee (1991) found that, for manufacturing, the(long run) elasticity of employment in Northern Ireland with respect to itsreal product wage was considerably higher than in the UK (-0.94compared with -0.42). In other words, a 1 per cent increase in wages inNorthern Ireland would lead to a fall in employment of 0.9 per cent inNorthern Ireland compared to 0.4 per cent for the UK as a whole. Thiswould indicate that those manufacturing industries in Northern Irelandwhich are vulnerable to a NMW will experience greater reductions inemployment than for the UK as a whole. Given the local economy biastowards low technology industries such as textiles and clothing, this is

38 Furthermore, even for the UK as a whole, where such models exist finding a

consensus is difficult. Fernie and Metcalf (1996, pp.19-20) argue that, usingreasonable assumptions, a NMW of half the male median wage (£3.70 ph) wouldresult in a job loss of 100,000-200,000, two years later.


76

not a surprising finding. Since Borooah and Lee's work, wages havedeclined in Northern Ireland relative to the UK, so these elasticities maybe too high to-day.

5.38 One of the characteristics of some of the former wage councils isthat they set lower wages for younger workers. For example, theNorthern Ireland Agricultural Wages Board, which is still extant, set arate applicable from August 1997 that sees 18 year olds with a minimumwage 85 per cent that of persons 19 years and older. The justification forlower rates by age is threefold. First, younger workers are in the processof learning and their lower wage rates reflect lower productivity. Second,evidence suggests that "minimum wages do have a significant thoughsmall effect on youth unemployment rates, particularly in countries likeFrance and Spain where payroll taxes are high and there is little in theway of an age adjustment to the minimum wage" (Nickell, 1997, p.70).Third, as Dickens et al (1997, p.3) argue, variation by age permits "anadult minimum to be set to have a reasonable impact on the working poorwithout jeopardising the jobs of young people". Thus, there seems to bea consensus among economists that there are good arguments for lowerrates for younger workers. (See also Alogoskoufis et al, 1995, p.110;OECD, 1994, p.53).

5.39 Estimating the impact of a NMW is neither easy norstraightforward. On the basis of the above analysis, it would appear thata rate of £3.00 ph to £3.50 ph would be unlikely to have major effects onemployment or differentials. A rate of £3.50 ph to £4.00 ph would bemore likely to have adverse effects on employment and wage bills asdifferentials would almost certainly be affected. Unless some allowancewere made for a differential NMW for younger workers, especially ifthey are in training (either on or off the job), they would be particularlyadversely affected.

77

6 SUMMARY AND CONCLUSIONS

Introduction

6.1 The purpose of the analysis in this paper has been to quantify theextent and characteristics of low paid workers in Northern Ireland. Threebenchmarks have been set in considering low pay - £3.00 ph, £3.50 phand £4.00 ph - corresponding to a low, medium and high NMW. Whilemuch of this analysis concentrates on workers as individuals, the impactof a NMW set at these three levels on households is also evaluated.Finally, the paper discusses the reaction of firms and employers to thesetting of a NMW in terms of wage differentials, the degree ofcompetition in a given industry and with specific reference to the threeleading sectors employing low paid workers.

6.2 In interpreting the analysis, several caveats or qualifications needto be borne in mind. First, the data relate almost exclusively to 1996. Inview of the fact that the characteristics of the low paid are structuralcharacteristics of the economy, it is very unlikely that the results wouldbe significantly different if another recent year were selected instead.Second, the major data source used, the New Earnings Survey,underestimates the incidence of low pay. Thus the estimates areminimums rather than maximums. Third, in estimating the impact ofvarious NMWs, the absence of a suitable model of the labour market hasmeant that any inferences are, of necessity, somewhat imprecise andjudgmental.

Findings

6.3 The major findings of the paper are as follows:

Compared to Great Britain

• The incidence of low pay is much larger in Northern Ireland thanin GB. In relative terms the importance of low pay is 50 per centhigher in Northern Ireland. In part this reflects differences in

Summary and Conclusions

78

sectoral composition of output and generally smaller firms and inpart an unexplained residual that is likely to reflect the generallyless competitive nature of the Northern Ireland market.

Sectoral and Industrial Distribution

• Low pay is largely a private sector phenomenon.

• The broad industry groups that will be most affected by a NMWare: Hotels and Restaurants (61 per cent of employees earn awage of less than £3.50 ph); Other Community, Social andPersonal Service Activities (23 per cent); Real Estate, Rentingand Business Activity (20 per cent); and Wholesale and RetailDistribution (20 per cent).

• At a finer level of industry definition, the lowest payingindustries are: Investigation and Security Activities (73 per centof employees earn a wage of less than £3.50 ph); Restaurants (64per cent); Other Service Activities (63 per cent); Bars (55 percent); Canteens and Catering (52 per cent); and, Retail Sale ofFood, Beverages and Tobacco in Specialised Stores (48 per cent).

Spatial Dimension

• Ballymena, Belfast, Coleraine, Cookstown and Newry TTWAshave each approximately one-third of total employment invulnerable broad industry groups, although Belfast and Colerainewage rates are above the Northern Ireland average.

• Strabane and Ballymena have the lowest rates of pay at 86.3 and83.9 per cent of the Northern Ireland average, respectively.

Occupational Distribution


79

• The major occupations that will be affected are Sales (24 per centof employees earn less than £3.50 ph) and Personal andProtective Services (21 per cent).

• The incidence of low pay is two to three times higher for manualworkers than non-manual workers.

Part-time vs Full-time

• The problem of low pay is more prevalent amongst part-time thanfull-time workers. For example, 24 per cent of part-time workersearn less than £3.50 ph, compared to 7 per cent of full-timeworkers.

Gender

• The importance of low paid women in manual occupations isgreater than women in non-manual occupations and men inmanual occupations. For example, 27 per cent of women in full-time manual occupations earn less than £3.50 ph compared to 9per cent of men.

Age

• Low pay is much more prevalent among young people - 41 percent of 18-21 year olds earn less than £3.50 ph, compared to only8.5 per cent of those aged over 25 years.

Households

• Middle income 'job rich' households will benefit most from aNMW, since low income households tend to be 'job poor' andthus are not directly affected by a NMW.


80

Reducing the Poverty Trap

• A NMW will alleviate the poverty trap for a small number ofhouseholds with very specific characteristics. To make asignificant impact on poverty or inequality, reforms to the taxand benefits systems need to be made.

Firm Size

• The incidence of low pay is greater amongst small firms. Closeto 20 per cent of employees earn less than £3.50 ph in firmsemploying 10 to 24 persons, compared to only 6 per cent forfirms employing 50 to 99 persons39.

• Since Northern Ireland is a small firm economy there is likely tobe a relatively greater displacement of jobs from small to largefirms due to the introduction of a NMW than for the UK as awhole.

Firm Strategy

• The greater the degree to which firms are able to raise theirproductivity and/or improve their products through bettermarketing or innovation, the more likely that they will be able topay higher wage rates. Such strategies are likely to take time toimplement.

• It would appear that there is a bias in the strategies of NorthernIreland firms operating in competitive industries towards pricerather than non-price strategies and that industrial policy hasbeen unsuccessful in bringing about substantial increases in

39 These data refer to GB. Comparable data are not available for Northern Ireland.


81

productivity and wages of Northern Ireland manufacturingcompared to the UK.

What Rate?

• Consistent with the guidelines set by the Low Pay Commission,the Council has concentrated on providing an evaluation of theimpact of a NMW on the Northern Ireland economy rather thanrecommending a particular rate.

• A rate of £3.00 ph to £3.50 ph would be unlikely to have majoreffects on employment or differentials. Such a rate woulderadicate the worst cases of low pay and in-work poverty withoutcreating damaging job losses, which would increase out-of-workpoverty. The 74,000 workers whose wage is less than £3.50 phare concentrated in Wholesale and Retail Distribution (18,000 or24 per cent); Hotels and Restaurants (15,000 or 20 per cent);Health and Social Work (11,000 or 15 per cent); andManufacturing (10,000 or 14 per cent).

• A rate of £3.50 to £4.00 would almost double the number ofpersons directly effected by a NMW. It would be much morelikely to have adverse effects on employment and wage bills asdifferentials would almost certainly be affected. Unless someallowance were made for a differential NMW for youngerworkers, especially if they are training (either on or off the job),they would be particularly adversely affected. A rate within thisrange would, however, contribute to alleviating the problem ofwidening inequality and poverty by moving persons out of thepoverty trap where implicit tax rates are too high.

Management, Monitoring and Evaluation

6.4 The introduction of a NMW will move the economy into


82

uncharted waters. It is therefore important that government in NorthernIreland carefully monitors and evaluates the influence of the introductionof the NMW, particularly in view of the fact that the NMW will likely beuprated from time to time. Timely evaluation will require ensuring thatprovision is made for the collection of relevant information before theintroduction of a NMW, so that the analysis can be undertakensubsequently. In view of the wide and varied effects of a NMW, severalgovernment departments and agencies should be involved in theevaluation. These include the Department of Economic Development,the Social Security Agency, the Equal Opportunities Commission forNorthern Ireland, the Training and Employment Agency (T&EA) and theLocal Enterprise Development Unit.

83

ANNEX A: DISTRIBUTION OF GROSS HOURLYEARNINGS BY DETAILED INDUSTRY,NORTHERN IRELAND, 1996

Percentage of Employees Earning:-__________________________

Industry <£3.00 <£3.50 <£4.00 £4.00+

Industries in which 70 per cent or more earn less than £4.00 ph

Investigation & security activities 60 73.3 80.0 20.0Restaurants * 63.7 72.7 27.3Retail sale of food, beverages & tobacco in specialised stores * 48.0 72.0 28.0Canteens & catering * 52.3 71.3 28.6

Industries in which between 50 and 70 per cent earn less than £4.00 ph

Bars * 55.0 65.0 35.0Other service activities * 63.1 63.1 36.8Retail sale in non-specialised stores * 23.3 61.1 38.9Retail sale of pharmaceutical & medical goods, cosmetic & toilet articles * * 53.8 46.2Hotels * 36.6 53.3 46.7Manufacture of made-up textile articles, except apparel * * * 50Real estate activities on a fee or contract basis * * * 50


Manufacture of other wearing apparel & accessories * 24.6 45.1 54.8Other retail sale of new goods in specialised stores 15.6 27.1 45.1 54.9Activities of other membership organisations 24.1 32.7 44.8 55.2Social work activities 20.4 34.0 44.2 55.8Printing & service activities related to printing * * * 60.0Industrial cleaning * * * 61.5Manufacture of furniture * * * 61.9Maintenance & repair of motor vehicles * * * 66.7

Annex A: Distribution of Gross Hourly Earnings by Detailed Industry

84


Industry <£3.00 <£3.50 <£4.00 £4.00+


Sewage & refuse disposal, sanitation & similar activities * * * 70.6Manufacture of knitted & crocheted articles * * * 71.4Building installation * * * 76.5Production, processing & preserving of meat & meat products * * 23.4 76.7Primary education * 11.6 22.6 77.4Legal, accounting, book-keeping & auditing activities, consultancy * * 22.2 77.8Sale of motor vehicles * * * 78.6Library, archives, museums & other cultural activities * * * 78.6Manufacture of other food products * * * 79.4Manufacture of structural metal products * * * 80.0Manufacture of medical & surgical equipment & orthopaedic appliances * * * 80.0Activities of travel agencies & tour operators; tourist assistance activities not elsewhere specified * * * 80.0


Sporting activities * * * 81.0Secondary education * 7.3 17.2 82.9Manufacture of pharmaceuticals, medicinal chemicals & botanical products * * * 83.3Insurance & pension funding, except compulsory social security * * * 83.3Architectural & engineering activities & related technical consultancy * * * 84.0Other land transport * * 15.4 84.6Manufacture of articles of paper & paperboard * * * 85.7Building of complete constructions or parts thereof; civil engineering * * 13.5 86.5Post & courier activities * * * 87.2Manufacture of plastic products * * * 88.5Manufacture of diary products * * * 90.0Manufacture of builders' carpentry & joinery * * * 90.0Software consultancy & supply * * * 90.0Human health activities * 4.3 10.0 90.0


85


86


Industry <£3.00 <£3.50 <£4.00 £4.00+

Industries in which less than 10 per cent earn less than £4.00 ph

Manufacture of other general purpose machinery * * * 91.7Manufacture of machine tools * * * 91.7Manufacture of parts & accessories for motor vehicles & their engines * * * 91.7Administration of the State & the economic & social policy of the community * * 8.1 91.9Higher education * * * 92.0Manufacture of electronic valves & tubes & other electronic components * * * 92.3Other supporting transport activities * * * 92.3Monetary intermediation * * * 94.0Manufacture of other textiles * * * 96.4Production & distribution of electricity * * * 97.7Provision of services to the community as a whole * * * 98.0Manufacture of Tobacco products * * * 100.0Publishing * * * 100.0Manufacture of articles of concrete, plaster & cement * * * 100.0Manufacture of other special purpose machinery * * * 100.0Building & repairing of ships & boats * * * 100.0Manufacture of aircraft & spacecraft * * * 100.0Collection, purification & distribution of water * * * 100.0Telecommunications * * * 100.0Activities auxiliary to insurance & pension funding * * * 100.0Compulsory social security activities * * * 100.0


Note: All persons whose pay was not affected by absence. Hourly earnings excludingovertime.


87

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PROJECT STAFF

Research Aidan Gough

Text Processor and Editor Valerie Gale

Roisin Rogers

Copy Editor Roy Boreland

ACKNOWLEDGEMENTS

In preparing this report the Council would like to thank the StatisticsBranch, Department of Economic Development for providing data, oftenunder tight deadlines, with respect to low pay in Northern Ireland. Wewould also like to thank D Armstrong, Northern Ireland EconomicResearch Centre, A Meads, Department of Economic Development andT Morahan, Training and Employment Agency for their comments andadvice. However, the views expressed are those of the Council.

Material from the Northern Ireland Family Expenditure Survey madeavailable by the Central Survey Unit through the Economic and SocialResearch Council (ESRC) Data Archive has been used by permission ofthe Controller of HM Stationery Office. Neither the Central Survey Unitnor the ESRC Data Archive bear any responsibility for the analysis orinterpretation of the data reported here. Material adapted from theNorthern Ireland Census 1991 is made available by permission of theController of HMSO and the Department of Finance and Personnel.

NIEC PUBLICATIONS IN THE LAST 5 YEARS

Reports

100 Economic Assessment: April 1993

101 R&D Activity in Northern Ireland (May 1993)

102 Business Confidence Surveys in Northern Ireland (June 1993)

103 Annual Sir Charles Carter Lecture "Globalisation, Technological Changeand Economic Growth" by Dr Richard G Lipsey, Professor of Economicsat Simon Fraser University and Alcan Fellow of the Canadian Institute forAdvanced Research (July 1993)

104 Northern Ireland and the Recent Recession: Cyclical Strength or StructuralWeakness? (August 1993)

105 Annual Report 1992-93 (October 1993)

106 Autumn Economic Review (October 1993)

107 Transport Infrastructure and Policy in Northern Ireland (November 1993)

108 Economic Assessment: April 1994

109 The Impact of CAP Reform on Northern Ireland (June 1994)

110 The Reform of Health and Social Care in Northern Ireland: AnIntroduction to the Economic Issues (July 1994)

111 The Implications of Peripherality for Northern Ireland (August 1994)


113 Autumn Economic Review (October 1994)

114 Annual Sir Charles Carter Lecture "Britain and Northern Ireland, The StateWe're In - Failure and Opportunity" by Will Hutton, Economics Editor ofThe Guardian (November 1994)

115 Annual Sir Charles Carter Lecture "Competitive Dynamics and IndustrialModernisation Programmes: Lessons from Japan and America" byMichael H Best, Centre for Industrial Competitiveness, University ofMassachusetts, Lowell (September 1995)


NIEC Publications in the Last 5 Years

117 Taxes, Benefits, Unemployment and Poverty Traps in Northern Ireland(November 1995)

118 The 1995 UK Budget: Background and Implications for Northern Ireland(February 1996)


120 Annual Sir Charles Carter Lecture "Reforming Education in the UnitedKingdom: The Vital Priorities" by Sir Claus Moser KCB CBE FBA, TheBritish Museum Development Trust (January 1997)

121 Rising to the Challenge: The Future of Tourism in Northern Ireland(February 1997)

122 The 1996 UK Budget: Implications for Northern Ireland (March 1997)

123 Industrial Policy Assessment and Performance Measurement - The Case ofthe IDB (April 1997)


125 The 1997 UK Budget: Implications for Northern Ireland (November1997)

126 Annual Sir Charles Carter Lecture "Setting Priorities for Health Care:Why Government Should Take the Lead" by Chris Ham, Professor ofHealth Policy and Management and Director, Health ServicesManagement Centre, University of Birmingham (January 1998)

Occasional Paper Series

1 Reforming the Educational System in Northern Ireland. A Comment on'Learning for Life' and Recent Developments in the Education System(January 1995)

2 Demographic Trends in Northern Ireland: Key Findings and PolicyImplications (March 1995)

3 "Through Peace to Prosperity". Proceedings of the Peace Seminar hosted


by the Economic Council (April 1995)

4 The Economic Implications of Peace and Political Stability for NorthernIreland (June 1995)

A Supplementary Paper to Council Occasional Paper 4:-

The Implications of Peace and Political Stability in Northern Ireland forSelected Sectors: Inward Investment, Tourism and Security (June 1995)

5 Health and Personal Social Services to the Millennium. A Response toRegional Strategy for Health and Social Wellbeing, 1997-2002 (December1995)

6 Building A Better Future: A Response to Building on Success. Proposalsfor Future Housing Policy (May 1996)

7 "Decentralised Government and Economic Performance in NorthernIreland". Proceedings of the Seminar sponsored by the Northern IrelandEconomic Council in association with the University of Ulster on 19 June1996 at the University of Ulster at Jordanstown (December 1996)

8 Towards Resolving Long-Term Unemployment in Northern Ireland. AResponse to the Long-Term Unemployment Consultation Document (June1997)

Research Monograph Series

1 Demographic Review Northern Ireland 1995 by Paul Compton (March1995)

2 The Arts and the Northern Ireland Economy by John Myerscough with AStatement by the Economic Council (January 1996)

3 Successful European Regions: Northern Ireland Learning From Others byMichael Dunford and Ray Hudson with A Statement by the EconomicCouncil (November 1996)

4 Educational Achievement in Northern Ireland: Patterns and Prospects byTony Gallagher, Ian Shuttleworth and Colette Gray with a Statement by


the Economic Council (December 1997)

the impact of a national minimum wage on the northern...

Documents