Good investment or bad business?

20th September 1996 at 01:00
Mark Corney looks at the possible impact of a national minimum wage on training in the workplace.

One week on from the conference of the Trades Union Congress, the debate on the national minimum wage is starting to clear.

Assuming victory at the general election, Labour will establish a low-pay commission to make recommendations about the level of the minimum wage, those employers falling outside its scope and the type of policies required to improve its effectiveness or mitigate any adverse consequences.

Recent research by the TUC and the Employment Policy Institute indicates that the incidence of low pay is highest in industries such as agriculture, catering and hotels, retail, textiles and clothing, hairdressing and industrial cleaning. It is also higher among part-time workers and in small businesses with fewer than 25 employees, which employ more than35 per cent of the workforce.

Meanwhile, the Labour Force Survey demonstrates that the incidence of employee training is lower in many of the above sectors compared with the average for the economy as a whole.

The low-paid tend to receive less training than the higher paid, although the gap between the proportion of part-time employees (13 per cent) and full-time employees (16 per cent) receiving job-related training is smaller than commonly supposed.

Young employees (16 to 24-year-olds) also tend to get more training than older employees (24 to 64-year-olds), and the incidence of training is higher for the skilled compared with the unskilled.

Employer surveys show that the proportion of employers providing on and off-the-job training and using formal training plans is significantly lower among small businesses.

In short, the incidence of low pay and low training coincide. Whatever the level, the impact of the minimum wage would be greatest on employees in low-paylow-training sectors of the economy and employees and managers in small businesses.

For the low-pay commission, however, the key issue is whether the national minimum wage would help or hinder employee access to workplace training or employer investment in training.

There are two schools of thought. The first believes the minimum wage would cause employers to cut their cost base. Unable to raise prices because of increasing competition, employers would either reduce direct labour costs through redundancies or reduce social wage costs by cutting employee benefits, such as holiday or pension entitlements.

Moreover, for employers who see training as a part of production costs rather than as a strategic investment, training might be the budget to be raided. For employers with a relatively large training budget, the national minimum wage could force them to focus their training effort on skilled and professional staff, thereby worsening current inequalities in workplace training.

For employers with relatively small or non-existent budgets, the financial impact would be limited, but the effect on the future funding of training could be considerable.

The second school of thought believes that the national minimum wage would encourage employers to boost the productivity of labour by increasing investment in training. Furthermore, employers would have an incentive to introduce product and quality improvement strategies, and move into high-skill, high-value-added products and services where premium prices could be charged.

Concern about the impact of higher labour costs on employer investment in training is bound to lead a Labour Cabinet to signal to the low-pay commission that 16 to 18-year-olds should either be exempt from the national minimum wage or receive a proportion of an adult minimum wage.

Another signal might be that 18 to24-year-olds on collegetraining and enterprise council-funded apprenticeships should be paid a trainee wage, while the low-pay commission could explore the same idea for adult employees engaged in lengthy induction training or retraining.

Since 85 per cent of employer training costs take the form of wages, the principle of reducing the cost of labour during training is an option. Yet it should be remembered that the greatest impact on the national minimum wage would be on employees and employers in specific low-paylow-training industries, and small businesses in general where training budgets are likely to be small.

In the past, Labour supported a training levy to boost employer funding of direct training costs. However, this option is closed to the low-pay commission. Instead, it will need to work closely with industry training organisations (ITOs) to develop sector-based training strategies for specific industries, as well as the ITO movement as a whole to assist small businesses across the economy to increase investment in training.

In the meantime, Labour should explore with employers whether the national minimum wage will encourage or restrict workplace training for all.

Mark Corney is director of MC Consultancy which advises on education and training

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