British Journal of Industrial Relations
38:4 December 2000 0007±1080 pp. 585±609
`Worth So Appallingly Little':
A Workplace-Level Analysis of Low Pay
Robert McNabb and Keith Whitfield
Abstract
Using Britain's 1998 Workplace Employee Relations Survey, this paper investigates the characteristics of establishments paying low wages immediately
prior to the introduction of the UK's National Minimum Wage in April 1999.
It demonstrates that a range of personal, oragnizational and environmental
factors are related to the incidence of low pay. These relationships are more
complex than previously suggested. In particular, that between establishment
size and low pay is moderated by whether the establishment is part of a larger
organization; the incidence of low pay is high in single establishments and low
in small establishments that are part of large organizations.
1. Introduction
The characteristics of persons in low pay are well known (for the UK see
the Low Pay Commission's first report: Low Pay Commission 1998), but
research that has shaped our understanding of what distinguishes the low
paid has almost entirely taken the employee as the unit of analysis. There
has been much less work on what distinguishes employing organizations
that pay low wages; moreover, there has been little research in the UK on
the distribution of low pay at and around the level at which the National
Minimum Wage (NMW) was set in 1999 when it was first introduced.
Britain's 1998 Workplace Employee Relations Survey (WERS98) allows this
to be addressed.
It is important to understand the characteristics of establishments
employing low paid workers, for two main reasons. First, it assists the
identification of those most affected by the introduction of the NMW,
thereby aiding the monitoring process and the targeting of assistance to
those most `at risk' from its implementation. Second, it allows a greater
understanding of the factors promoting the payment of low wages and
Robert McNabb and Keith Whitfield are both at the Cardiff Business School, Cardiff
University.
# Blackwell Publishers Ltd/London School of Economics 2000. Published by Blackwell Publishers Ltd,
108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
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consequently helps the formulation of policy that can mitigate its incidence.
Key issues in this respect are the degree to which low pay reflects employee
attributes or employer-specific factors and, if the latter, whether the main
impetus comes from the labour market (external or internal) or the product
market. The relative importance of these factors and the attendant policy
corollaries are, of course, at the heart of the debates between human capital
and segmentation theorists.
The structure of the paper is as follows. In the next section the main
theoretical explanations for low pay are discussed, distinguishing those that
focus on employee-related attributes and those that emphasize institutional
factors associated with the employment strategies of employing organizations, the structure of labour and/or product markets and the nature of
collective employee relations. Section 3 provides an overview of the empirical findings of a number of previous studies in this area. A description of
the WERS98 data used in the study and the statistical methodology
employed is given in Section 4. Sections 5 and 6 present the results of the
analysis. Finally, Section 7 gives conclusions and policy recommendations.
2. Perspectives on low pay
Traditionally, the emphasis on the correlates of low pay has been upon
worker attributes. Such an approach implicitly assumes that Hicks (1963)
was correct in asserting that low paid labour `is often badly paid, not
because it gets less than its worth, but because it is worth so appallingly
little'. The essence of this approach is that the factors generating low pay are
associated predominantly with the characteristics of the workers themselves
and particularly with their low productivity levels. Its analytical basis lies in
human capital theory, with its emphasis on education, training and work
experience as the main determinants of both the incidence and duration of
low-wage employment (see e.g. McKnight 1998; Stewart and Swaffield
1999). Factors relating to the nature of their employing organizations and/
or to the markets in which they operate are deemed to be of much less
importance and hence attract scant attention in this literature. Such an
approach therefore implies that the propensity of establishments to pay low
wages is determined primarily by the background characteristics of its
workers rather than by factors associated with the establishment per se.
Policies aimed at mitigating low pay should therefore focus on augmenting
the productivity of low paid workers.
There is, however, a contrasting view that at least some of the crucial
factors associated with the distribution of low pay are institutional in nature
and are related to the strategies of employing organizations, the structure of
labour and/or product markets and the nature of collective employment
relations. Analyses of these phenomena have been undertaken most comprehensively by researchers in the segmented labour market tradition. Their
work implies that low pay is the result of a number of distinct demand and
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supply-side influences, some of which reflect labour market factors and
others, product market factors (Rubery and Wilkinson 1994; McNabb and
Whitfield 1998).
Of particular significance are the major changes that have taken place in
recent years in the manner in which firms organize employment (Appelbaum
and Batt 1994; Rubery and Wilkinson 1994; Whitfield and Poole 1998).
These changes have involved, inter alia, increased flexibility (both numerical
and functional) in the deployment of workers, efforts to increase the involvement of employees in decision-making and attempts to link compensation to measures of performance. A major consequence has been the
emergence of two main competitive strategies. The first focuses on gaining
and sustaining competitive advantage via the direct minimization of costs,
involving some mixture of low pay and numerical flexibility. The second
focuses on a more indirect route to competitive advantage via functional
flexibility and/or quality enhancement. These strategies clearly influence the
nature of internal labour markets and thereby the processes through which
workers' pay is determined.
The choice of strategy is seen to be associated with the nature of the
product markets in which establishments operate. Employer strategies based
on direct cost minimization tend to be found in those that operate in
product markets in which price (as opposed to quality) is the main determinant of market success, demand is stable or highly predictable, change
is slow and/or straightforward, and customization is not important to
consumers (Kochan et al. 1986). Supply-side factors are also acknowledged
to be important. Where employers can readily obtain a supply of low-wage,
committed workers, they typically tailor their internal labour markets to
allow for this (Rubery 1994). Such a situation might reflect chronic excess
supply in the local labour market or the existence of employer monopsony
(Dickens et al. 1994). The latter is most likely to occur through the geographical isolation of the local labour market.1
There is also substantial evidence that firms in positions of product
market monopoly share the resultant rents with their unionized employees
by paying a wage that is higher than equivalent workers obtain elsewhere
(Stewart 1990). Such a policy is likely to reduce the probability that such
firms will pay low wages. Furthermore, numerous studies have demonstrated a positive relationship between work-unit size and average earnings
(Rebick 1993; Oosterbeek and van Praag 1995; Brunello and Colussi 1998).
Whether this reflects the joint association of size with other characteristics
related to earnings, compensating wage differentials or differential monitoring costs is, however, debatable.
The nature of the collective employment relations at a workplace is also
likely to have an impact on its propensity to pay low wages. Those workplaces at which unions are present, especially where these are recognized for
the purpose of collective bargaining, are less likely to employ low paid
workers (Stewart 1983). It is, however, possible that employers may create
primary and secondary segments within the same organization, the former
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offering union recognition and the latter not, an example of this being the
separation of core and ancillary activities (such as catering) in large
organizations. In recent years there has also been a major increase in the
degree to which organizations subcontract ancillary activities and thereby
externalize low pay (see e.g. Cully et al. 1999: 34±8). A related factor
influencing an establishment's propensity to pay low wages is the degree to
which its workers are covered by collective agreements (Metcalf et al. 2000).
Even in the absence of union recognition, workers may benefit from union
activity if their pay is linked to some form of collective agreement.
The potential importance of institutional factors in influencing the
structure of the labour market suggests that there is a prima facie case that
the factors determining the distribution of low pay at the workplace go well
beyond the background characteristics of the workers themselves. In short,
some individuals could be paid less than £3.50 per hour not because they are
`worth so appallingly little', but because they are simply in the wrong place
at the wrong time. Workers with similar background characteristics may be
paid different wage-rates because they work for firms with different competitive strategies or different product market circumstances. For a strict
human capital theorist such factors would be, at most, just short-run
aberrations which will be eradicated by workers moving away from lowpaying jobs and firms reducing the pay of workers receiving more than their
`true worth'. However, these processes may be suppressed by other forces,
such as the payment of efficiency wages, and therefore the influence of
institutional factors may be of lasting importance. If so, this suggests a
rather different policy for mitigating low pay Ð one that emphasizes
intervention on the demand side of the labour market.
3. Empirical studies of low pay
The factors correlated with low pay in Britain have typically been analysed
using individual/household data sets such as the Labour Force Survey, the
General Household Survey and the Family Expenditure Survey. Such
studies have highlighted age, gender, occupation, race, employment status,
disability and parental status as strong correlates of low pay, and sector,
union recognition and employment size as the main characteristics of
establishments employing low paid workers (Webb et al. 1996; Low Pay
Commission 1998). They have also shown that since the late 1960s the
incidence of low pay has risen among men but fallen among women, though
it is still three times greater for women (Webb et al. 1996).
Such analyses, however, generally fail to disentangle the relative
importance of different factors associated with low pay. This is particularly
problematic as many of the correlates are themselves interrelated. For
example, small firms are more likely to be found in the private sector, to
employ a higher proportion of women and to be union-free. One study
that has attempted to distinguish between the personal, job and industry
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characteristics of low pay in Britain found that each type was important
(Sloane and Theodossiou 1994). The study used data from the 1986 Social
and Economic Life Initiative (SCELI) based on 4024 individuals in six local
labour markets and estimated the characteristics of those located in the
bottom three deciles of the hourly earnings distribution.
A more ambitious analysis using French longitudinal data (Abowd et al.
1999) found that both personal and firm characteristics were important in
explaining the distribution of pay, though the former were more so. Person
effects explained approximately 90 per cent of inter-industry differentials
and approximately three-quarters of the firm-size wage effect, while firm
characteristics explained relatively little of either. Very little correlation was
evident between measures developed from the person and firm effects,
suggesting that models focusing on explanations for the individual heterogeneity (human capital) and the firm heterogeneity (segmentation) are
addressing aspects of the labour market that do not have large interactions.
However, an analysis using data from the 1995 Australian Workplace
Industrial Relations Survey (Wooden 1998) found that controlling for fixed
workplace effects increased the proportion of variance in individual log
earnings explained by approximately 50 per cent. These were found to vary
systematically with workplace characteristics including establishment size,
the nature of the product market, the occupational composition of the
work-force, the incidence of shiftwork and overtime and the location of the
workplace. A similar conclusion was reached in a study using data for
Norway (Salvanes et al. 1999), which found that plant characteristics had
significant impacts on earnings, but did not add a great deal of explanation
over and above that of the individual's characteristics.
4. Data and estimation
The WERS98 data set contains information that is of direct relevance to pay
at the level initially set at £3.60 per hour from April 1999 for the adult
National Minimum Wage.2 This relates to the number of employees at each
establishment who are paid less than £3.50 per hour. Uprated to allow for
inflation in the period between the collection of the data and the implementation of the NMW, this is almost directly comparable with the figure of
£3.60. As such, it allows an analysis to be made of those establishments that
were most affected by the NMW's introduction (that is, were most `at risk'
from its implementation).
The WERS98 data also have limitations that reduce their efficacy for a
project of this sort. Most importantly, they relate only to establishments
that have 10 or more employees. Data collected in the Labour Force Survey
suggest that 38 per cent of employees earning less than £3.50 an hour in
the spring of 1998 were in establishments with fewer than 10 employees.
Similarly, New Earnings Survey data show that 30 per cent of low paid
workers worked in such establishments. The establishment analysis presented
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here therefore covers only two-thirds of those in low pay. The main effect of
such a restriction is that it could markedly affect the correlates of low pay
identified in the WERS98 data. For example, some industries, such as
hotels/restaurants and construction, have higher proportions of small
establishments employing fewer than 10 people. If the correlates of low pay
vary by size of establishment, the omission of these smaller work units from
the analysis might affect the relationships that can be identified.
A further problem with the WERS98 low pay measure is that they relate
only to the adult national minimum wage and thereby implicitly ignore the
separate and lower national minimum wage for persons aged 21 years and
less. Some of those establishments employing workers at less than £3.50
per hour could have been paying such wages only to young workers.
Furthermore, it is possible for firms to pay the lower (training) rate to older
workers during their first six months of employment. However, this is not
expected to present too much of a problem as recent information on the
implementation of the NMW suggests that many employers are paying it
to all workers, irrespective of age or training status (Low Pay Commission
2000).
A key issue is how to define a low-paying establishment. At one extreme
this can be any establishment with one or more individuals earning less than
£3.50 per hour; alternatively, it can be restricted to those with substantial
concentrations of workers earning below this level. If the latter definition is
adopted, a further question concerns the choice of an appropriate threshold.
Analysis is therefore undertaken using two types of dependent variable. The
first is based on the proportion of an establishment's work-force earning less
than £3.50 per hour. This variable is continuous but has a high proportion
(over two-thirds) of zero observations. Consequently, the Tobit model is
used for multivariate analysis. The second is based on proxies of different
concentrations of low pay. Three variables are analysed. These take the
value 1 if more than one-hundredth, one-tenth and one-quarter, respectively, of an establishment's work-force earned less than £3.50 per hour.
These thresholds are somewhat arbitrary; however, they can be expected to
capture any differences there might be in the correlates of different concentrations of low pay. The 25 per cent threshold mirrors that used by Cully
et al. (1999) in their early explorations of the correlates of low pay. All three
variables are dichotomous and therefore the appropriate multivariate
technique is the probit model.
The majority (67 per cent) of establishments in the nationally representative WERS98 sample did not pay wages of less than £3.50 per hour to any
of their employees. At the other end of the spectrum, just over 12 per cent
paid such wages to more than a quarter of their workers; 32 per cent of
establishments paid less than £3.50 per hour to more than one-hundreth of
their employees, and 21 per cent paid such wages to more than one-tenth.
Section 2 above indicated that employee-related characteristics are
potentially important correlates of low pay. To capture these effects, a
number of variables describing the composition of the work-force are
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included in the analysis. Specifically, measures of the age composition of the
work-force, the proportion of disabled workers, the gender and ethnic mix
of the work-force and the use of part-time employment are included. Consideration of the different theoretical perspectives highlighted the possibility
that low pay might also be associated with characteristics of the establishment, such as the number of people employed, the nature of the labour and/or
product market and the nature of collective employment relations. Accordingly, the following variables are drawn from WERS98 to capture these
effects: size of establishment and size of organization of which the establishment is part; union presence, union recognition and the extent of collective bargaining coverage; whether the establishment is foreign-owned; the
number of competitors and the degree of competition in the product market;
whether the establishment supplies a local/regional/national/international
market; whether the establishment faces overseas competition; the establishment's share of the UK market; whether the firm's market and/or sales
are growing; and the nature of the way in which work is organized at the
workplace. The industry in which the establishment is located is also included to capture other unmeasured industry-specific effects. The definitions
of the variables used are shown in the Appendix.
The total sample size is 2191 establishments. However, because some
respondents failed to answer some questions, each of the analyses has
missing observations. These vary between analyses and are greatest in the
multivariate analyses (approximately 450), owing to missing values for one
or more of the independent variables. All the analyses are weighted to allow
for the overrepresentation of larger establishments in the WERS98 sample.
5. Tobit analysis of the proportion of low paid employees
The Size Relationship
Research on the correlates of low pay has suggested that smaller work units
have, on average, a higher incidence of low pay (Low Pay Commission 1998;
Metcalf 1999). Two variables representing work unit size are available in
WERS98. The first is the number of employees at the establishment level
(defined as a single employer at a single set of premises); the second is the
number of employees at the ultimate controlling company for that
establishment. The rationale for examining both is that they may have
different impacts on the propensity to pay low wages; for example, small
establishments that are part of a large organization might behave differently
from those that are either independent or part of a small organization.
The incidence of low pay at establishments of different sizes is summarized in Figure 1. The proportion of establishments with at least 1 per
cent of workers in low pay is a shallow inverted U-shape. It is greatest in the
middle of the size range (peaking in the 50±99 employees group) and least
at the ends. In contrast, the proportion of establishments with more than
one-quarter of their workers in low pay declines from over 12 per cent for
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FIGURE 1
The Distribution of Low Pay by Size of Establishment
(a) Percentage of establishments where at least 1% of employees earn less than £3.50 per hour
40%
36%
32%
28%
24%
20%
10±24
25±49
50±99
100±199
200+
No. of employees at establishment
(b) Percentage of establishments where at least 10% of employees earn less than £3.50 per hour
25%
21%
17%
13%
9%
5%
10±24
25±49
50±99
100±199
200+
No. of employees at establishment
(c) Percentage of establishments where at least 25% of employees earn less than £3.50 per hour
15%
12%
9%
6%
3%
0%
10±24
25±49
50±99
100±199
200+
No. of employees at establishment
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`Worth So Appallingly Little'
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those with 10±24 employees to less than 4 per cent for those with over 200
employees.
It is notable that large establishments that employ some employees on less
than £3.50 per hour typically employ only a small proportion of their
employees on such low wages. Thus, seven of the nine establishments in the
over 200 employees category employing workers on low pay are in the 0±5
per cent region; this can be contrasted to only 15 of the 348 establishments
in the 10±24 employees category. In short, where large establishments have
some workers on low pay, they typically have only a small proportion.
However, where small establishments have low paid workers, they generally
have a significant proportion.
The corresponding information for organizations of different sizes is
summarized in Figure 2. This suggests that the relationship for the proportion with at least one low paid worker is approximately U-shaped (but
not inverted, in contrast to the establishment size analysis), with a slight
downward trend. The 500±999 employees group has the lowest proportion
of organizations, with at least 1 per cent of employees in low pay, and the
50±199 employees group has the highest. A similar pattern exists for
establishments with more than a quarter of their workers in low pay.
A strong negative relationship between work unit size and low pay exists
only for one of the comparisons made Ð that for establishments with more
than a quarter of employees in low pay against establishment size. These
relationships are typically nonlinear in form, though the nature of this
nonlinearity differs for the two measures of work unit size in that the
incidence of low pay is greatest for medium-sized establishments but least
for medium-sized organizations.
The multivariate analysis of the incidence of low pay also suggested that
the relationship between work unit size and incidence of low pay is complex.
In the main specification (see column (1) of Table 1), establishment size
is entered as the logarithm of the number of employees to allow for the
nonlinearities suggested above. In general, the incidence of low pay is higher
in larger establishments and lower the larger the organization of which the
establishment is a part. The strongest relationship, however, relates to
whether the establishment is a single entity or part of a larger organization.3
The relationship between size and low pay was further investigated by
dividing establishments into six categories: (1) single, small establishments
(50 employees or less); (2) single, big establishments (more than 50 employees); (3) small establishments that are part of a small organization (less
than 5000 employees); (4) large establishments that are part of a small
organization; (5) small establishments that are part of a large organization
(5000 or more employees); (6) large establishments that are part of a large
organization.4 The distribution of these types of establishment is shown in
Table 2.
Omitting the first category as the reference group, five dummy variables
taking the value 1 if the establishment fitted the definition above and 0
otherwise were entered into the multivariate analysis instead of the basic size
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British Journal of Industrial Relations
FIGURE 2
The Distribution of Low Pay by Size of Organization
(a) Percentage of organizations where at least 1% of employees earn less than £3.50 per hour
60%
50%
40%
30%
20%
10%
10±49
50±199
200±499 500±999
1000±
4999
4999±
10,000
10,000+
No. of people employed by organization in the UK
(b) Percentage of organizations where at least 10% of employees earn less than £3.50 per hour
40%
30%
20%
10%
0%
10±49
50±199
200±499
500±999
1000±
4999
4999±
10,000
10,000+
No. of people employed by organization in the UK
(c) Percentage of organizations where at least 25% of employees earn less than £3.50 per hour
25%
20%
15%
10%
5%
0%
10±49
50±199
200±499
500±999
1000±
4999
4999±
10,000
10,000+
No. of people employed by organization in the UK
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TABLE 1
Tobit Analysis of Proportion of Employees Earning less than £3.50 per houra
Basic specification
(1)
Constant
Log of employment size
70.485
0.056
(77.378)***
(4.268)***
70.006
70.058
0.134
(70.191)
(71.510)
(5.234)***
Interactive specification
(2)
70.183
(74.078)***
0.008
70.116
(0.171)
(73.859)***
70.004
(70.100)
70.129
(74.219)***
70.085
(71.865)*
Organization employs:
200±10,000 employees
More than 10,000 employees
Single establishment
Single large establishment
Small establishment, small
organization
Large establishment, small
organization
Small establishment, large
organization
Large establishment, large
organization
Public sector
How long establishment has been
in operation
Foreign-owned
70.312
0.000
(75.517)***
(0.577)
70.328
0.000
(75.951)***
(1.033)
70.083
(72.004)**
70.084
(72.034)**
Percentage of work-force:
Aged under 20
Aged over 51
Disabled
Ethnic minority
Female
Part-time
Unskilled
0.738
70.154
0.157
70.723
0.170
0.149
0.245
(9.072)***
(71.568)
(0.290)
(74.916)***
(3.134)***
(2.806)***
(5.489)***
0.735
70.159
0.224
70.714
0.148
0.142
0.256
(9.009)***
(71.633)
(0.416)
(74.882)***
(2.718)**
(2.737)***
(5.703)***
Union presence
Recognized unions
Collective bargaining
0.062
70.132
70.082
(1.719)*
(72.909)***
(72.651)***
0.064
70.123
70.084
(1.760)*
(72.747)***
(72.697)***
0.037
0.076
0.173
0.067
70.336
70.100
0.019
70.244
0.091
70.063
(0.672)
(1.982)**
(3.457)***
(1.191)
(73.334)***
(72.207)**
(0.186)
(73.321)***
(1.910)*
(71.105)
0.026
0.056
0.153
0.057
70.332
70.095
0.001
70.235
0.098
70.063
(0.466)
(1.455)
(3.071)***
(1.019)
(73.383)***
(72.082)**
(0.006)
(73.201)***
(2.042)**
(71.095)
Industry sector (reference group is
manufacturing and utilities)
Construction
Wholesale & retail trade
Hotels & restaurants
Transport and communications
Finance
Other business services
Public administration
Education
Health
Other community services
N
Log likelihood function
Pseudo R 2
1723
7591
0.388
a
Numbers in parentheses are t-ratios.
* significant at 10%; ** significant at 5%; *** significant at 1%.
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7603
0.375
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British Journal of Industrial Relations
TABLE 2
Type of Establishmenta
Description
No.
%
Single small establishment
Single large establishment
Small establishment, small organization
Large establishment, small organization
Small establishment, large organization
Large establishment, large organization
Total
472
104
510
180
548
174
1988
24
5
26
9
27
9
100
a
The cell frequencies are weighted to allow for the disproportionate sampling
by establishment size in WERS98.
variables. The results are summarized in column (2) of Table 1. They
indicate that single establishments have the highest propensity for low pay,
though large establishments that are part of small organizations are not
significantly different from them in this respect. In short, they act as if they
are single establishments in terms of their propensity to pay low wages.
Furthermore, the results suggest that small establishments in large
organizations have the lowest propensity to pay low wages and small
establishments in small organizations have the second lowest. Thus, the
negative relationship between work-unit size and the incidence of low pay
relates to organization size rather than establishment size, and similarly to
whether the establishment is part of a larger organization; indeed, small
establishments per se are less likely to pay low wages.
Other Establishment Characteristics
In line with previous research, the analysis provides strong evidence that
the propensity to pay low wages is significantly greater in the private sector.
The analysis also suggests that those establishments that are owned by
foreign organizations are less likely to pay low wages. The view that low pay
is related to the composition of the work-force also finds support. In
particular, the employment of young people (aged less than 20 years) and
of female and part-time employees are all positively associated with the
proportion of an establishment's work-force that is low paid. However, the
employment of disabled workers and older workers (over the age of 50) is
not significantly associated with low pay. The former could simply reflect
the very broad definition used for disability Ð `Of those currently employed
here, how many have a disability?' Ð or the fact that the question was put
to the manager most responsible for personnel issues rather than to the
workers themselves. The latter could reflect that the older age-group is
extremely heterogeneous, including a lot of well paid workers and others
who are less well placed in the labour market. Establishments that employ
high proportions of workers from ethnic minorities are less likely to have
workers on low wages.
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Factors relating to the collective employment relations of the establishment are also strongly linked to the incidence of low pay. Those variables
indicating whether the establishment has a union recognized for collective
bargaining and whether more than 60 per cent of the work-force is covered
by collective bargaining arrangements are negative and significant at the
1 per cent level, and the variable for union presence has a positive coefficient. This suggests that the concentration of low paid workers is reduced
not by union presence per se, but by the possibility this offers for access to
the benefits of collective bargaining.
Product Market
Analyses including variables proxying the characteristics of the product
markets in which the establishments operate are summarized in Table 3. The
sample on which these are based is establishments operating in the trading
sector.5 Column (1) shows the results of the analysis without the product
market variables; these are equivalent to the results shown in column (1) of
Table 1. The second column shows results that also include the product
market variables.
The analysis indicates that the propensity to pay low wages is significantly
influenced by the product market in which the establishment operates. The
incidence of low pay is higher in those establishments that state that they
face high or very high competition in their product markets, and lower
where an establishment's market share is greater than 25 per cent and where
sales have grown in the recent past. However, the incidence of low pay does
not seem to be higher where the establishment faces competition from
overseas or operates in international markets.
The overall fit of the equation improves slightly when the product market
variables are included. The pseudo-R 2 increases from 0.376 to 0.399. This is
less than might be expected, given that two of the product market variables
are significant at the 1 per cent level and two are significant at the 5 per cent
level and could reflect some collinearity between them and other variables.
In short, part of the effect of the product market variables could be captured
by other variables in the specification that excludes them.
Work Organization
Both prior reasoning and previous evidence suggest that the way in which
work is organized is likely to have a significant impact on the propensity of
an establishment to pay low wages. In general, the more the emphasis is
on direct cost minimization, the more likely it is that low wages will be
paid. Cully et al. (1999: 45) contrast those that follow this route to competitive advantage and those that operate a strategy of numerical flexibility
to achieve the same. They indicate that the latter are less likely to operate a
policy of functional flexibility. Additionally, one would expect establishments
# Blackwell Publishers Ltd/London School of Economics 2000.
598
TABLE 3
Tobit Analysis of Proportion of Employees Earning less than £3.50 per hour (Trading Sector)a
Incl. product market
variables
(1)
(2)
Excl. product market
variables but incl.
workplace organization
variables
(3)
Incl. product market
variables and incl.
workplace organization
variables
(4)
# Blackwell Publishers Ltd/London School of Economics 2000.
70.413
0.043
(75.364)***
(2.716)***
70.432
0.047
(74.845)***
(2.978)***
70.438
0.054
(75.133)***
(3.175)***
70.514
0.058
(75.269)***
(3.518)***
Organization employs:
200±10,000 employees
70.008
More than 10,000 employees
70.113
Single establishment
0.119
Public sector
70.317
How long establishment has been in operation
0.000
Foreign-owned
70.087
(70.220)
(72.396)**
(4.132)***
(74.001)***
(1.258)
(71.858)*
70.018
70.107
0.116
70.291
0.001
70.080
(70.523)
(72.275)**
(4.081)***
(73.654)***
(1.575)
(71.674)*
0.005
70.113
0.089
70.332
70.001
70.038
(0.141)
(72.307)**
(2.903)***
(74.040)***
(71.206)
(70.801)
70.008
70.120
0.093
70.306
70.001
70.044
(70.223)
(72.478)**
(3.095)***
(73.755)***
(71.336)
(70.931)
Percentage of work-force:
Aged under 20
Aged over 51
Disabled
Ethnic minority
Female
Part-time
Unskilled
0.559
70.269
0.626
70.568
0.146
0.275
0.185
(5.955)***
0.553
(72.160)**
70.215
(0.860)
0.764
(72.949)*** 70.612
(2.280)**
0.120
(4.097)***
0.265
(3.178)***
0.149
(5.814)***
(71.696)*
(1.023)
(73.195)***
(1.871)*
(3.953)***
(2.517)**
0.728
70.112
1.055
70.651
0.153
0.264
0.216
(6.454)***
(70.865)
(1.428)
(73.273)***
(2.284)**
(3.819)***
(3.621)***
0.702
70.033
1.061
70.688
0.114
0.260
0.176
(6.199)***
(70.252)
(1.420)
(73.542)***
(1.724)*
(3.812)***
(2.960)***
0.079
70.149
0.057
70.059
70.120
0.020
70.008
0.114
70.036
0.073
70.144
(2.019)**
(72.071)**
(73.916)***
(0.466)
(70.254)
(2.717)***
(70.913)
(1.825)*
(72.742)***
(2.354)**
(72.779)***
0.082
70.076
70.129
0.025
70.024
0.164
0.013
0.100
70.150
(2.836)***
(72.614)***
(74.094)***
(0.589)
(70.745)
(3.655)***
(0.324)
(2.439)**
(72.835)***
Market grew
Sales revenue grew
Market share 425%
International market
Many competitors
High level of competition
Overseas competitors
Union presence
Recognized unions
(1.985)**
(72.816)***
0.096
70.150
British Journal of Industrial Relations
Constant
Log of employment size
Excl. product market
variables
Industry sector (reference group is manufacturing
and utilities)
Construction
Wholesale & retail trade
Hotels & restaurants
Transport and communications
Finance
Other business services
Public administration
Education
Health
Other community services
N
Log likelihood function
Pseudo R 2
a
70.093
(72.445)**
70.102
(72.693)***
70.095
0.129
70.017
70.016
70.058
0.094
70.052
70.036
70.112
70.099
(72.386)**
(3.168)***
(70.622)
(70.508)
(72.078)**
(2.408)**
(71.836)*
(71.220)
(71.765)*
(71.587)
70.099
0.122
70.017
70.007
70.057
0.104
70.051
70.034
70.087
70.101
(72.544)**
(3.033)***
(70.622)
(70.237)
(72.074)**
(2.690)***
(71.819)*
(71.194)
(71.408)
(71.644)
0.078
0.094
0.155
0.106
70.335
70.071
70.073
70.377
0.108
70.044
(1.285)
(2.241)**
(2.654)***
(1.661)*
(72.860)***
(71.401)
(70.242)
(73.881)***
(1.883)*
(70.639)
0.034
0.060
0.139
0.084
70.356
70.135
70.028
70.413
0.067
70.021
(0.534)
(1.357)
(2.301)**
(1.320)
(73.125)***
(72.544)**
(70.093)
(74.217)***
(1.100)
(70.297)
0.068
0.136
0.146
0.140
70.215
70.002
70.004
70.297
0.124
0.008
(1.035)
(3.055)***
(2.379)**
(2.105)**
(71.836)*
(70.041)
(70.013)
(73.027)***
(2.052)**
(0.109)
0.048
0.111
0.152
0.116
70.211
70.054
0.079
70.314
0.111
0.064
(0.714)
(2.350)**
(2.423)**
(1.770)*
(71.879)*
(70.958)
(0.257)
(73.197)***
(1.733)*
(0.874)
1100
7386
0.376
Numbers in parentheses are t-ratios.
* significant at 10%; ** significant at 5%; *** significant at 1%.
1100
7372
0.399
1030
7342
0.403
1030
7322
0.437
`Worth So Appallingly Little'
# Blackwell Publishers Ltd/London School of Economics 2000.
Collective bargaining
Subcontracting
Temporary workers
Multi-tasking
Teamworking
Problem solving groups
Briefing groups
Financial participation
Individual PRP
Group PRP
599
600
British Journal of Industrial Relations
following a `high performance' strategy involving employee involvement,
teamworking and financial participation to be less likely to have workers on
low wages (Appelbaum and Batt 1994). Variables measuring these factors
were added to the base specification and analyses were undertaken using the
trading sector sub-sample. The results are summarized in columns (3) and
(4) of Table 3. The former excludes the product market variables and the
latter includes them.
These figures indicate that the propensity to pay low wages is much
greater in establishments that also engage in subcontracting. In short, it
seems that subcontracting is a complement to paying low wages rather than
a substitute for it. However, those with multi-tasking and temporary
workers are neither more nor less likely to pay low wages. The case for
numerical flexibility reducing the propensity to pay low wages is therefore
not proven. It could be that there are two types of establishment engaging in
such flexibility Ð those determinedly pursuing a direct cost minimization
strategy and those trying to avoid low wages by being more externally
flexible. Similarly, this analysis suggests that there is no strong link between
internal flexibility (as proxied by multi-tasking) and low pay.
The variables proxying employee participation also show mixed results.
Workplaces with problem-solving groups have a higher propensity to pay
low wages, whereas those operating teamworking and briefing groups are
less likely to do so. The analysis also suggests that establishments operating
financial participation schemes ranging from employee share ownership to
individual performance-related pay are less likely to employ workers on low
wages, though none of the coefficient estimates are significant at the 5 per
cent level. These analyses therefore offer some, but not strong, support for
the view that establishments with high-performance work practices are less
likely to pay low wages than those following a more traditional route to
competitive advantage. In particular, they suggest that problem-solving
groups are more likely to be linked to a direct cost minimization, rather than
a high-performance, strategy.
The effect of including these work organization variables on the overall fit
is similar to that for the product market variables. In the latter case the
pseudo-R 2 increases from 0.376 to 0.399 and in the former case it increases
to 0.403. Including both sets of variables increases the pseudo-R 2 to 0.437.
The stability of the coefficient estimates for the base variables in the
different specifications suggests that there is not strong collinearity between
the base, product market and work organization variables.
Full- and Part-Time Employees
In Table 4 the results corresponding to column (1) of Table 1 for the incidence of low pay among full-time and part-time employees are presented. It
is perhaps most significant that, despite some overlap, there are a number of
significant differences in the correlates of low pay among respectively fulland part-time employees.
# Blackwell Publishers Ltd/London School of Economics 2000.
`Worth So Appallingly Little'
601
TABLE 4
Tobit Analysis of Proportion of Full-Time and Part-Time Employees Earning
less than £3.50 per houra
Full-time employees
(1)
Constant
Log of employment size
Part-time employees
(2)
70.606
0.064
(76.980)***
(3.723)***
71.877
0.160
(78.801)***
(4.235)***
Organization employs:
200±10,000 employees
More than 10,000 employees
Single establishment
Public sector
How long establishment has been
in operation
Foreign-owned
70.017
0.021
0.127
70.342
0.000
(70.438)
(0.413)
(3.906)***
(74.348)***
(0.695)
0.176
70.110
0.304
70.862
0.001
(2.000)**
(70.993)
(3.965)***
(75.241)***
(1.782)*
70.035
(70.707)
70.295
(72.303)**
Percentage of work-force:
Aged under 20
Aged over 51
Disabled
Ethnic minority
Female
Part-time
Unskilled
0.713
70.286
70.230
70.822
0.154
70.347
0.216
(6.648)***
(72.179)**
(70.319)
(73.828)***
(2.194)**
(74.591)***
(3.759)***
0.938
70.308
2.217
71.058
0.561
0.685
0.522
(4.191)***
(71.107)
(1.532)
(72.799)***
(3.560)***
(4.626)***
(4.100)***
Union presence
Recognized unions
Collective bargaining
0.173
70.154
70.146
(3.849)***
(72.615)***
(73.390)***
70.050
70.184
70.082
(70.466)
(71.418)
(70.976)
Industry sector (reference group is
manufacturing and utilities)
Construction
Wholesale & retail trade
Hotels & restaurants
Transport and communications
Finance
Other business services
Public administration
Education
Health
Other community services
0.119
0.186
0.094
0.106
70.296
0.020
70.092
70.151
0.220
0.073
(1.814)*
(3.747)***
(1.393)
(1.514)
(72.384)**
(0.347)
(70.577)
(71.506)
(3.447)***
(0.972)
70.451
0.363
0.612
0.054
70.649
70.505
0.385
70.405
0.248
70.111
(71.771)*
(3.180)***
(4.349)***
(0.285)
(72.206)**
(73.321)***
(1.458)
(71.997)**
(1.848)*
(70.679)
N
Log likelihood function
Pseudo R 2
1727
7593
0.235
1726
7788
0.288
a
Numbers in parentheses are t-ratios.
* significant at 10%; ** significant at 5%; *** significant at 1%.
One set of differences concerns the effect of establishment age and foreign
ownership on the incidence of low pay. These are not significant in the fulltime employee equation but both are significant at the 10 per cent level in
the part-time equation. In the latter, older and British-owned establishments
are more likely to pay low wages. Additionally, the signs and significance of
some coefficients on the industry variables change. Of particular note is the
high propensity of establishments in the hotel and restaurant sector that
employ low paid part-time employees.
# Blackwell Publishers Ltd/London School of Economics 2000.
602
British Journal of Industrial Relations
The analyses suggest that, the higher the proportion of part-time employees at an establishment, the lower the proportion of full-time employees
and the higher the proportion of part-time employees who are low paid.
This could reflect a strategy whereby establishments avoid low pay among
their core, full-time staff by employing low paid part-timers. It could explain
why the results relating to numerical flexibility above were so mixed. Cost
reductions in high-paying establishments could well be made via the selective employment of part-timers rather than numerical flexibility per se.
In contrast to the results for full-time workers, there is no evidence that
the presence of unions, union recognition or coverage by collective bargaining has an effect on the incidence of low pay among part-time staff, other
things equal. It would seem that unions and associated collective industrial
relations institutions have been most effective in reducing low pay for fulltime employees. It is also notable that workplaces with a union presence but
no recognized union, and where the majority of employees are not covered
by a collective bargain, are more likely to have full-time employees who are
low paid. In short, union presence in itself does not reduce low pay: that
requires the development of institutions resulting from union activity.
6. Probit analysis of establishments with 1, 10 or 25 per cent of workers
in low pay
Most establishments do not have any low paid employees and, among those
that do, many employ only a small percentage of their work-force on wages
of £3.50 or less. An important issue is whether the correlates of low pay in
those establishments that employ a significant percentage of low-wage
workers are different from those employing only a small proportion. The
rationale for this is that policy-making aimed at minimizing low pay or
at mitigating its negative consequences might be more effective if it were
focused on those establishments that have substantial concentrations of low
pay. Any differences between these and those with a low incidence of low
pay need to be taken into account in policy-making.
Estimates of the probit models of establishments with 1, 10 and 25 per
cent, respectively, of their employees in low pay are presented in Table 5. In
general, the results for the three groups are similar. Notable differences,
however, concern the effect of establishment size, the role of unions and the
effect of establishment age on the likelihood of significant levels of low
pay. The positive relationship between establishment size and low pay which
was seen in the proportions analysis above is found only in the analysis
of establishments with more than 1 per cent of their employees in low pay.
A negative relationship between establishment size and low pay is found in
both the 10 and 25 per cent analyses, though it is not significant at the 10 per
cent level in the latter.
The analyses also indicate that the relationships between the collective
industrial relations variables and low pay that were found in the proportions
# Blackwell Publishers Ltd/London School of Economics 2000.
TABLE 5
Probit Analysis of Establishments with more than 1, 10 and 25 per cent of Employees earning less than £3.50 an houra
More than 10% of employees
in low pay
More than 25% of employees
in low pay
Constant
Log of employment size
71.680
0.232
(77.660)***
(5.076)***
70.921
70.122
(73.895)***
(72.300)**
71.789
70.074
(75.561)***
(71.071)
Organization employs:
200±10,000 employees
More than 10,000 employees
Single establishment
Public sector
How long establishment has been in operation
Foreign-owned
0.059
70.078
0.416
70.889
0.000
70.344
(0.569)
(70.570)
(4.743)***
(74.810)***
(70.345)
(72.441)**
0.015
70.099
0.486
70.800
70.001
0.057
(0.126)
(70.670)
(5.001)***
(74.047)***
(70.751)
(0.364)
0.186
0.192
0.647
70.551
70.006
0.092
(1.230)
(1.051)
(5.284)***
(72.104)**
(73.175)***
(0.489)
Percentage of work-force:
Aged under 20
Aged over 51
Disabled
Ethnic minority
Female
Part-time
Unskilled
3.102
70.287
3.006
72.115
0.649
0.114
0.459
(9.839)***
(70.860)
(1.542)
(74.239)***
(3.383)***
(0.606)
(2.725)***
1.933
71.277
75.785
71.323
0.435
0.008
0.683
(6.539)***
(73.355)***
(72.249)**
(72.443)**
(2.158)**
(0.038)
(3.938)***
1.613
70.780
78.163
71.641
0.756
0.382
0.924
(4.840)***
(71.664)*
(72.273)**
(72.414)**
(3.082)***
(1.636)
(4.734)***
Union presence
Recognized unions
Collective bargaining
0.414
70.604
70.249
(3.142)***
(73.804)***
(72.297)**
0.652
70.357
70.021
(4.775)***
(72.168)**
(70.180)
0.089
70.206
70.264
(0.515)
(70.924)
(71.778)*
Industry sector (reference group is manufacturing and
utilities)
Construction
Wholesale & retail trade
Hotels & restaurants
Transport and communications
Finance
Other business services
Public administration
Education
Health
Other community services
0.267
0.307
0.124
0.160
71.088
70.456
70.175
70.874
70.042
70.418
(0.478)
(2.338)**
(0.674)
(0.857)
(73.464)***
(73.004)***
(70.547)
(73.621)***
(70.250)
(72.067)**
70.153
70.036
0.597
70.113
71.015
70.334
70.337
70.402
0.230
0.055
(70.701)
(70.231)
(3.064)***
(70.494)
(72.799)***
(71.873)*
(70.863)
(71.582)
(1.233)
(0.263)
70.875
70.029
0.661
0.497
71.146
70.393
70.413
70.362
0.280
70.065
(71.691)*
(70.139)
(2.825)***
(1.914)*
(71.758)*
(71.681)*
(70.588)
(71.079)
(1.206)
(70.239)
a
Numbers in parentheses are t-ratios.
* significant at 10%; ** significant at 5%; *** significant at 1%.
1719
7775
0.219
1719
7640
0.335
1719
7418
0.367
603
N
Log likelihood function
Pseudo R 2
`Worth So Appallingly Little'
# Blackwell Publishers Ltd/London School of Economics 2000.
More than 1% of employees
in low pay
604
British Journal of Industrial Relations
analyses are fully reflected only in the more than 1 per cent analysis. In the
more than 10 per cent analysis the relationship for the collective bargaining
variable is not significant at the 10 per cent level, and in the more than 25 per
cent analysis none of the variables are significant at the 5 per cent level. The
suggestion is that collective industrial relations institutions are important in
determining whether a workplace has a small amount of low pay or none at
all, but do not impact markedly on whether it has a lot or a little. The results
also indicate that younger establishments are more likely to have substantial
concentrations of low paid workers than older establishments. This variable
is not significant in the 1 and 10 per cent analyses, but is significant at the
1 per cent significance level in the 25 per cent analysis.
The overall fit of the 25 per cent equation is better than that for the 10 per
cent equation, which in turn is better than that for the greater than 1 per
cent equation, the pseudo-R 2 being 0.367, 0.335 and 0.219, respectively. This
suggests that establishments with high concentrations of low paid workers
are more homogeneous than those with lower concentrations.
7. Conclusions
In general, this study of Britain has supported the proposition that low pay
at the establishment level is linked to a wide range of factors, many of which
are specific to the establishment and its competitive strategy. The strength
and range of such relationships and their compatibility with underlying
theory suggests that they are more than just temporary aberrations: they
need to be incorporated into theoretical models attempting to explain low
pay. Moreover, these relationships are considerably more complex than
might be concluded from analyses based on individual- and householdbased data sets, especially those relating to work-unit size. The work-unit
size±low pay relationship has been shown to be nonlinear and different for
varying measures of both work-unit size and low pay incidence. The most
important factor in this respect is whether an establishment is a single entity
or part of a larger organization and, if the latter, whether it is small or large
in relation to the organization. Other things being equal, larger organizations and smaller establishments have less low pay. Factors such as the
nature of collective employment relations and the product markets in which
establishments operate are extremely important correlates of low pay. The
presence of a union per se seems less important than union recognition and
collective bargaining coverage in mitigating low pay. Product market
competition and the establishment's dominance in the product market were
shown to be key correlates of low pay incidence.
The correlates of low pay incidence were somewhat different for full- and
part-time employees, suggesting that these markets are, to some extent,
segmented from each other and operate in distinctively different ways. Of
particular note is that there are less strong relationships between collective
industrial relations institutions and part-time low pay. The suggestion is that
# Blackwell Publishers Ltd/London School of Economics 2000.
`Worth So Appallingly Little'
605
such institutions do little to affect the part-time labour market vis aÁ vis the
full-time market. It has also been shown that the correlates of establishments with substantial concentrations of low paid employees differ to some
extent from those with only a few. The suggestion is that collective industrial
relations institutions are more effective in eradicating small pockets of low
pay than substantial concentrations.
The main implication of this analysis is that great care must be taken to
disentangle the interrelationships between the factors generating the distribution of low pay at the workplace. This is especially important for government policy ancillary to the implementation of the National Minimum
Wage. If this regulatory initiative is to be effective, it needs to be both
properly monitored and supported by policies that minimize the risk to
firms of increases in their costs. One of the main aims of this research has
been to identify those establishments most likely to pay low wages and
thereby most at risk both of not complying with the legislation and of being
adversely affected by a wage-floor. These have been shown to be single,
private-sector establishments, in competitive product markets, which have
limited collective industrial relations institutions. Both monitoring and
ancillary support should be focused on these.
Appendix: Definitions of Variables
Variable
Definition
Low pay variables
Proportion of employees
earning less than £3.50 per hour
Number of employees earning less than £3.50 divided by
number of employees in relevant category
Establishments that have any
employees in low pay
`1' if the establishment had one or more employees in low
pay, `0' otherwise
Establishments that have more
than 10% of all employees in
low pay
`1' if the establishment had more than 10% of all
employees in low pay, `0' otherwise
Establishments that have more
than 25% of all employees in
low pay
`1' if the establishment had more than 25% of all
employees in low pay, `0' otherwise
Establishment variables
Log of employment size
Logarithm of the total number of employees on the payroll
of the establishment
Organization employs:
Number of people employed by the establishment
10±199 employees
`1' if the establishment employed between 10 and 199
people, `0' otherwise (omitted category)
200±10,000
`1' if the establishment employed between 200 and 10,000
people, `0' otherwise
10,001+
`1' if the establishment employed more than 10,000 people,
`0' otherwise
Occupational composition
Percentage of people on the payroll described as being in
each of the respective occupational groups (omitted
category is `Managers and Administrators')
# Blackwell Publishers Ltd/London School of Economics 2000.
606
British Journal of Industrial Relations
Variable
Definition
Industry
Main activity of the establishment (omitted category is
`Manufacturing')
Work-force composition:
Aged under 20
Percentage of employees on the payroll under the age of 20
Aged over 50
Percentage of employees on the payroll over the age of 50
Disabled
Ethnic minority
Percentage of employees on the payroll with a disability
Percentage of employees on the payroll from an ethnic
minority
Percentage of employees on the payroll who were female
Female
Part-time
Percentage of employees on the payroll employed on a
part-time basis
Union presence
`1' if there was at least one union at the establishment,
`0' otherwise
Recognized unions
`1' if there was at least one recognized union at the
establishment, `0' otherwise
Collective bargaining
`1' if more than 60% of the workers were covered by
collective bargaining arrangements, `0' otherwise
Foreign-owned
`1' if the establishment was predominantly or completely
foreign-owned (51% or more), `0' otherwise
Public sector
`1' if the establishment was in the public sector,
`0' otherwise
How long establishment has
been in operation
Number of years the establishment had been in operation
Work organization variables
Subcontracting
`1' if any activities or services had been carried out for the
workplace by independent contractors, `0' otherwise
Temporary workers
`1' if the establishment was using temporary agency
workers or people working on a temporary basis or on
fixed-term contracts for less than one year, `0' otherwise
Multi-tasking
`1' if over 60% of employees in the largest occupational
group were formally trained to do jobs other than their
own, `0' otherwise
Teamworking
`1' if more than 60% of employees in the largest
occupational group worked in formally designated teams,
`0' otherwise
Problem-solving groups
`1' if the establishment had groups that solved specific
problems or discussed aspects of performance or quality
and more than 60% of non-managerial employees are
involved, `0' otherwise
Briefing groups
`1' if the establishment had a system of briefings for any
section or sections of the work-force and more than 25%
of the time at meetings was given over to questions from
employees, or for employees to offer their views,
`0' otherwise
Representative participation
`1' if the establishment had any committees of managers
and employees primarily concerned with consultation
rather than negotiation, `0' otherwise
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`Worth So Appallingly Little'
607
Financial participation
`1' if the establishment had an employee share ownership
scheme or a profit-related payment scheme, `0' otherwise
Individual PRP
`1' if the establishment had an individual performancerelated pay scheme, `0' otherwise
Group PRP
`1' if the establishment has a group performance-related
pay scheme, `0' otherwise
Product market variables
Many competitors
`1' if the establishment had many competitors in the
market for its main product or service, `0' otherwise
High degree of competition in
product market
`1' if the establishment assessed the degree of competition
in the market for its main product or service, `0' otherwise
International product market
`1' if the market for the establishment's main product
market was international, `0' otherwise
Share of UK product market
`1' if the establishment's share of the UK market for its
main product was greater than 26%, `0' otherwise
Market growing
`1' if the market for the main product or service of the
establishment was growing, `0' otherwise
Sales growing
`1' if the value of sales for the main product or service of
the establishment had been rising, `0' otherwise
Final version accepted 3 July 2000.
Acknowledgements
This research is based on data from the 1998 Workplace Employee Relations
Survey (WERS98). The survey was jointly sponsored by the Department of
Trade and Industry, the Advisory, Conciliation and Arbitration Service
(ACAS), the Economic and Social Research Council (ESRC) and the Policy
Studies Institute (PSI). As with other surveys in the series, the National
Centre for Social Research, formerly Social Community Planning and
Research (SCPR), was commissioned to conduct the survey fieldwork on
behalf of the sponsors. WERS98 is deposited and available from the Data
Archive at Essex University. Neither the sponsors nor the Data Archive has
any responsibility for the analysis or interpretation of the material contained
in this paper.
The original research on which this paper was based was carried out
under the Low Pay Commission's Research Programme and we are grateful
for their support. Thanks are due to to Mark Beatson, William Brown,
Mark Cully, Linda Dickens, Paul Marginson, David Metcalf, Neil
Millward, Andrew Rees, Jonathan Thomas, Stephen Wood and Stephen
Woodland for helpful and incisive comments on earlier drafts; and to
Richard Jones for excellent research assistance.
# Blackwell Publishers Ltd/London School of Economics 2000.
608
British Journal of Industrial Relations
Notes
1. The development of variables to proxy monopsony resulting from geographical
isolation was not possible in this study, which was completed before the release of
the WERS98 restricted data relating to geographical location.
2. WERS98 also contains information on the weekly pay of a sub-sample of its
employees and the hours that they usually worked each week. This can be used to
indicate which employees were definitely earning less than £3.50 per hour, that is
any individual for whom the division of the top point of their pay band by their
usual hours of work was less than £3.50. However, the banded nature of the pay
variable means that this is a very imprecise measure of those in low pay, excluding
many of those that earned less than the top point of their pay band but less than
£3.50 per hour. An analysis undertaken on these data for the Low Pay Commission indicated that the proportion of workers who could definitely be identified as earning less than £3.50 per hour on this basis (3.4 per cent) was far less
than might have been anticipated from other information on low pay (McNabb
and Whitfield 1999). Whether such an analysis indicates anything reliable about
the incidence of low pay is debatable.
3. To check whether the coefficient on the establishment size variable reflected that
the logarithmic transformation was a misspecification, a number of alternative
specifications of establishment size were tried (quadratic, reciprocal and step
function). The model was also re-estimated without the organization size variables. The alternative specifications tended to support the conclusion that the
relationship between the incidence of low pay and establishment size was positive.
The analyses that exclude the organization size variables are very similar to those
that include them. This indicates that there is little collinearity between the
establishment size and organization size variables, despite the fact that for single
establishments the two variables are identical. Thus, in parallel with Marginson
(1984), this analysis suggests that establishment and organization size have
distinct impacts on the incidence of low pay.
4. The results are not found to be sensitive to the use of alternative definitions of
`small', `medium' and `large'.
5. The trading sector includes 198 establishments (14.4 per cent of those in the
trading sector) in the public sector. The largest number of these (82) are in the
education sector, and 35 are in the health sector.
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