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Modernising the workplace?

Labour's employee relations agenda.

 

Mark Gilman and James Arrowsmith

Industrial Relations Research Unit

University of Warwick

(Draft, please do not quote without permission)

 

The election of a Labour government in May 1997, following almost two decades of uninterrupted Conservative rule, promised to be a turning point in UK industrial relations. The trade unions, it seemed, would gain not only immediate relief from further legislative assaults, but would be recognised as having a legitimate voice in the policy making process. Labour’s ‘home grown’ agenda included statutory provisions for trade union recognition, a national minimum wage, and ‘family friendly’ entitlements concerning working time and leave. The new administration’s sympathetic position on Europe also held out the prospect of new collective and individual rights for workers transposed from Brussels. All in all, Labour’s proposals seemed to bely its ‘pro-business’ stance and its wary concern to distance itself from the unions and the ‘bad old days’ of the 1970s (Edwards et al, 1997). Instead, the new government’s industrial relations agenda soon came to be defined by the rhetoric of ‘partnership’ and ‘modernisation’.

Three years on, most of Labour’s policies are in place and the first practical effects are being felt. Over the past few years, research has been carried out at the Industrial Relations Research Unit, supported by the ESRC, to investigate two major aspects of Labour’s programme: the National Minimum Wage (NMW) and the Working Time Regulations (WTR). Both of these interventions were unique in the British context, introducing for the first time a comprehensive floor on pay and an overall statutory framework for working time. Both would therefore be expected to have had significant impacts, not just directly in terms of rates of pay or long working hours, but in the wider sense of how the employment relationship is managed.

It is not our objective here to try to define or assess what Labour really means by ‘partnership’ or ‘modernisation’, which we see as a particularly Anglo-Saxon take on the emergent European social model. Rather, our aim is much more specific. What has been the impact of the NMW and WTR? Have managers been provoked into reviewing broader aspects of their pay systems or how they schedule and manage working time, and if so, what role have employees or their representatives had in this? Or has the response of employers been reluctant, minimalist or hostile? How far do workers exercise their new entitlements? Have these given the trade unions more say in the workplace? In short, has the NMW and WTR advanced Labour’s search for ‘partnership’ in the workplace and, if not, why?

Industrial relations under ‘New’ Labour

Successive Conservative governments’ economic policy was based on a fundamental belief in the effectiveness of the market mechanism. This extended with particular force to the labour market, where there was an emphasis on deregulation and ‘flexibility’ in creating employment and economic growth. Unlike the Conservatives, the Labour leadership of the late 1990s supported the notion of basic minimum employment standards and accepted European initiatives such as the social chapter, although in many respects their underlying analysis of labour markets did not essentially differ. Nevertheless, the package of proposals added up to a distinctive and potentially radical set of reforms by the time of the 1997 election.

  • In employment and training, upskilling was seen as essential to promoting economic competitiveness and improving Britain’s poor productivity record, as well as an engine for greater social inclusion and equality of opportunity. Specific policy commitments on training included the creation of a University for Industry (UFI); the establishment of individual learning "accounts" for up to one million adults; greater take-up of the Investors In People initiative; the replacement of the Youth Training programme with a new scheme called Target 2000; and all young people under the age of 18 in a job will have a right to study at college for a qualification. There was also an acknowledged role for trade unions in developing training policy.
  • The introduction of Britain’s first ever National Minimum Wage.
  • ‘Fairness at Work’ - given the close links between the Labour party and the trade unions and the legacy of the restrictive legislation passed by previous Conservative governments, a major issue was employment law governing trade unions’ ability to organise and take industrial action. Key elements of the 1980s legislation were to stay. However, a statutory procedure to allow trade unions to achieve recognition for the purposes of collective bargaining where they can demonstrate majority support was to be introduced.
  • Addressing public sector pay.
  • Ending age discrimination.
  • Working with the TUC and CBI to improve occupational health and reduce absenteeism.
  • Giving employees the right to be accompanied at disciplinary meetings.
  • Stream-lining the operation of industrial tribunals and reducing the two year qualifying period for employment protection.
  • Protecting employees against the abuse of ‘zero’ hours contracts and home-working.
  • Restoring the right to union recognition at GCHQ.

Other major proposals emanating from the EU but to be implemented by the incoming Labour government related to the Working Time Directive, equal rights for part time workers, and ‘opting in’ to the Social Chapter which included adoption of the European Works Council Directive and Parental Leave Directive.

 

 

 

These commitments formed an impressive list for a first term of office and almost all of these measures have now been dealt with either through legislation or codes of practice. The question remains, however, what is their likely impact in practice? Here we specifically examine two of the most important employment regulations in the form of the NMW, from Labour’s ‘home grown’ agenda, and the WTR, which originated from the EU. The former particularly affects small firms, and the latter more usually larger companies.

The National Minimum Wage

The NMW was introduced at a rate of 3.60 in April 1999. One early macro-level evaluation of its impact (Low Pay Commission, 1999) suggested that the long term costs to business were small. Average increases to employment costs were around 6% and the impact on the wage bill of the economy as a whole was only 0.3%. There was little evidence of a negative employment effect or a lowering of hours worked. It was also estimated that between 1.5 to 1.7 million people would be entitled to the NMW with pay increases most felt by women and part time workers (the gap between male and female pay immediately closed by a full percentage point due to the NMW).

However, it is at the level of the firm where the effects of the NMW are most acutely felt. In order to assess the various impacts, visits were made to 81 small firms spread across three sectors: clothing, hotel and catering, and printing1. Semi-structured questionnaire interviews were held with managers and a random employee. The fieldwork involved two rounds, one immediately preceding the NMW in February/ March 1999, and one a year later.

Round one results

Awareness of the NMW was high amongst employers and workers alike. Only six companies did not know the NMW rate, all of which were in the hotel and catering sector. Eighty per cent of employees interviewed said that they knew about the NMW. The impact was also likely to be felt widely, especially outside of printing (all but one of the 24 companies reportedly not affected by the NMW were in printing). Just under half of all the companies said that they had employees paid under the NMW rate. Likewise, of the employees interviewed, just over half thought that they would be directly affected by the NMW. Employers certainly expected the NMW to increase their costs, though usually by not a lot (table 1). A large minority also anticipated making changes in working practices to improve productivity.

Table 1. Impact and responses to the NMW

  Per cent
Expected to raise labour costs

A little 55
A lot 13

Changes in payment system

35

Changes in non-pay benefits

5

Will aim to raise employee skills

37

New technology introduced or planned

41

Expect to sub-contract work

26

Possible to pass on costs in higher prices?

26

Source: Round one owner-manager interviews, where NMW expected to affect the firm, N = 57

However in the course of the interviews it emerged that most of these aspirations were founded on a narrower determination to increase the effort of employees, including through closer supervision and monitoring. More sophisticated responses seemed to be limited not just by available capital, but by the under-developed nature of existing networks of small business support and advice. Three-quarters of the relevant companies said that they had received no information at all about preparation for the NMW. Employers’ associations or informal managerial networks were cited by only a handful of respondents. Instead, company accountants and the press were the main sources of information, as well as publicity from the DTI.

Employers were therefore more likely to focus on the immediate ‘headline’ effect of the NMW, rather than disseminate and discuss ideas about methods of adjustment. This was the case even in clothing, where extensive use of piecework pay systems made implementation of the NMW particularly complicated. Consultation with employees was also likely to be limited - only 27% of employees said that their companies had provided information or had discussions with them about the NMW.

A further handicap related to the informality of pay systems in the small firms. There was a wide dispersion of pay both between firms and within them from individual to individual. Two thirds of companies said that there was a variation in the pay of employees carrying out the same work. Only one company in each of the hotel/catering and clothing sectors professed to have a formal pay scheme, and a third said that their employees would not expect an annual pay review. Three-quarters of employees said that it is the employer who unilaterally decides how much they are paid. Furthermore, sixty per cent of employees said that pay is not discussed among employees in the company, with even higher majorities outside of print. This was not only because it was frowned upon by the employer, but because employees did not wish to divulge their earnings to other employees.

Pay rates, and the processes of pay determination, were therefore largely individualistic and add hoc. Pay was not set according to tight criteria, and the range of indeterminacy was wide. There was thus little reason to believe that the NMW would have significant knock on effects on differentials, but at the same time little reason to suppose that the introduction of the NMW would promote more systematic or collective means of engagement with employees over pay.

Round two results

The round two fieldwork is in the final stages and it is too early to provide any firm conclusions on the effects of the NMW one year on. Nevertheless the impression gained is that patterns of adjustment reflect four broad approaches, with the caveat that responses to the NMW are unlikely to be clearly isolated and identified, and, crucially, that individual firms are likely to engage in a mix of practices especially over time. We can thus identify tendencies rather than types.

In terms of patterns of adjustment to the legislation, responses ranged from the minimalist, which sometimes involved employer-employee collusion, through to work intensification or work reorganisation. First, one response may be employer-employee collusion in ignoring the NMW. This tended to reflect worker perceptions of the employer as ‘fair’, which lent little incentive either for employees to pursue their new rights or for employers to amend existing practices. ‘Fairness’ here was not an absolute standard of reasonable pay, but reflected an employment relationship which was embedded in family and community relationships. This lent itself to a view of the employment relationship as ‘give and take’ in which lower rates of pay may be compensated by a more favourable work environment and employer flexibility over working time arrangements. A second tendency, which can overlap with the first, is for firms to meet their new obligations, but with no major consequences in terms of work organisation. This may be termed the minimalist response. Third, there is the tendency to work intensification, that is, balancing a rise in pay with an increase in effort. We found remarkably few employers making this a systematic response, though some were thinking of amending job duties. This probably reflected the reality (and particular visibility) of mutual dependency between employers and employed in small firms (Ram, 1994). Finally, there may be efforts at work re-organisation, using new technologies or other means. There was a small number of firms which seemed to be taking this path.

We suspect that the modal paths may be those of collusion and minimalism. In this sense, the ‘shock’ of the NMW has not been a very large one, reflecting the level at which it was introduced and the economic conditions of the period. We also found considerable variation within localities, with islands of poor conditions in a sea of relative affluence. One should thus not expect whole labour markets to respond in similar ways. At this stage in the analyses, the key variables appear to relate to market context; the skill requirements and level of organisation of labour; the existence of wider familial or ethnic networks; and managerial competence and strategy. This can produce very different responses, as illustrated by the two clothing case studies summarised below (Appendix 1).

 

The Working Time Regulations

Employers have introduced a number of important changes to working time arrangements in recent years to improve performance and competitiveness (Arrowsmith and Sisson, 2000), and the 1998 Working Time Regulations were widely seen as providing a further stimulus to major change. According to the most recent results of the Warwick Pay and Working Time Survey, for example, which was conducted from 1995 to 1999, some of the most significant initiatives to improve performance have been to do with working time. As in previous years, the 1999 survey examined developments in medium and larger sized workplaces four important sectors - print, engineering, retail and the National Health Service (NHS). Replies were received from senior managers in 212 organisations, reporting on a combined workforce of over 427,000 employees. Of these, 53 were from printing firms; 99 from engineering companies; 12 were national retail companies; and 48 were NHS trusts.

Over three quarters (77 %) of print workplaces, 62 % of retail companies and NHS trusts, and 45 % of engineering workplaces said that changes to working time arrangements had been introduced as an important or very important means to improve performance in recent years. In print and engineering, many of the changes focused on extending shift work arrangements, often accompanied by a cut in the basic working week. In retail and the NHS, more part-time work has been an important strategy in recruitment and retention, as well as helping to extend service times and respond to variable demand.

The Working Time Regulations 1998 (WTR) were therefore introduced at a time when employers were looking to increase the flexibility of their working time arrangements. The Regulations, which became law in the UK in October 1998, implemented the EU Working Time Directive. The lack of a prior framework of law on working hours in the UK, together with established patterns of long working hours, meant that the Directive had a particularly significant potential impact in the UK. The Regulations introduced for the first time a statutory limit on average weekly hours of work (48 hours); mandatory recording of hours worked; a legal entitlement to paid leave; and new laws on rest breaks, night work and shift patterns. However, the WTR were framed to allow employers to vary the terms of implementation by agreement with employees either on an individual or collective basis.

The Warwick survey results showed that the first reaction of many employers was indeed to take steps to limit the impact of the WTR. Firstly, around half of print and engineering workplaces, three out of five NHS trusts and all but one of the retailers had made or proposed an agreement covering ‘flexibilities’ in the Regulations, such as averaging the reference period for calculating weekly hours over a longer period. In all but one of the NHS trusts these agreements were made with the union rather than other elected workforce representatives. Union representatives were also involved in around half of the print workplaces and two thirds of engineering and retail cases. Secondly, approaching two thirds (63%) of engineering workplaces had introduced arrangements for individual ‘opt-outs’ from the 48 hour weekly limit, or were in the process of doing so. Around half of employers in the other three sectors were also doing the same.

 

Long hours working

Long working hours remain common in all of the sectors apart from retail. In engineering and printing, over a third of firms (39 and 35 % respectively) reported that at least some employees regularly work more than 48 hours a week, the ‘ceiling’ of the WTR. This reflects reduced headcount and an increasingly competitive environment where customers feel able to demand shorter production runs and delivery times. In the health sector, over one in five (22 %) reported such regular long hours working, where it reflects recruitment and retention difficulties as well as reductions in staffing levels. Only in retail, where part time patterns predominate, was long hours working not a feature.

Many of the changes to working time referred to above, such as more shift and part time working, were introduced to help cut down on long hours of work due to overtime. Employers have also taken steps to introduce greater variability in staff scheduling to share variations in workload more widely through the workforce as a whole. Around a third of print firms (31 %) and engineering workplaces (29 %) reported that they now had a system of variable hours over a standard week (often called ‘min-max’ arrangements) for the largest occupational group. This was more developed in the NHS, where it was reported by 44 % of trusts, and in retail where two thirds of companies had such a system in place. However, the next step, ‘annual hours’ systems, remained rare outside of the NHS and print. These were found in 22 % of the NHS trusts and 14 % of print workplaces, but in only 2 % of engineering workplaces and none of the retailers.

The most important reasons for recent changes in working time have been to increase flexibility and reduce costs, according to the survey results. Avoiding redundancy, and recruitment and retention could also be significant factors. Trade union pressure was less important, supporting the view that recent changes to working time arrangements have been predominantly managerial initiatives. Significantly, however, the WTR were a consideration in changes to working time in around half of the workplaces in the survey. The WTR were said to have been a ‘very important’ factor in 38 % of NHS trusts, 30 % of print firms, and 22 % of retailers. Only 8 % of respondents from engineering workplaces said the same, although 36 % reported the WTR to have been a ‘fairly important’ consideration in recent change. Employers, it seems, had begun to take the WTR into account at a fairly early stage, which probably reflects the publicity which the Directive itself originally attracted. However, one of the main ways in which employers often had to respond in the early stages was to improve their systems of record keeping of working hours.

Longer term effects

The likely impact of the main terms of the Regulations in 2000 and beyond were explored in separate questions. The results show that respondents in each of the sectors expected the 48 hours limit to have important implications in the near to medium term future (table 2). This was the case even in retail where it might reflect the long hours working of managers. The effects are likely to go be felt much more broadly, however. The Regulations concerning night and shift work appear to have particular impact in health and printing for example. Retail might be more effected by the new provisions on statutory entitlement to paid annual leave.

Table 2. Expected importance of the WTR, %.

Regulation Sector

Very

Fairly

Not

   

important

important

important

48 hours weekly Print

41

28

31

ceiling Engineering

25

36

39

  Retail

25

18

55

  NHS

16

51

33

Recording of hours Print

24

36

40

  Engineering

31

34

36

  Retail

27

55

18

  NHS

61

30

9

Night work Print

24

32

44

arrangements Engineering

15

27

65

  Retail

0

27

73

  NHS

26

65

9

Shift patterns Print

26

24

50

  Engineering

7

27

65

  Retail

0

27

73

  NHS

33

46

22

Rest breaks Print

30

26

44

  Engineering

3

24

73

  Retail

17

42

42

  NHS

46

35

20

Annual leave Print

10

16

74

  Engineering

4

15

81

  Retail

42

33

25

  NHS

28

35

37

It is clear that managers expect the substantive terms of the WTR to have important implications in the future. So far, however, the most immediate effect has been to encourage employers to seek ‘flexibilities’ and ‘opt-outs’ to minimise their impact, though of necessity by agreement with their employees. Paradoxically, this procedural effect might yet be one of the most significant outcomes of the introduction of the Regulations. By lending statutory support to the principle of consultation and negotiation over hours of work, the Regulations help to clearly and more widely establish working time arrangements as a primary concern of workplace industrial relations. It remains to be seen how important this will be in practice.

In the small firms study, we found even less evidence for significant impact to date of the WTR. As in pay, a few firms were ignoring the relevant provisions (such as four weeks paid leave) and many more were colluding with employers to avoid them. This was most evident in printing, where the custom in many firms has been to work without any break in order to finish early. In these cases, neither employees nor managers saw much advantage in an enforced unpaid break. And where employee agreement on ‘opt-outs’ was sought, this was usually a formality and without meaningful consultation or negotiation. In fact in printing, where they were most common, such agreements went against official union policy, leaving even less scope for a collective response.

 

Conclusion

The NMW and the WTR were major pieces of legislation in the British context. Coming as they did at around the same time, they might have been expected to have significant implications for the processes and outcomes of workplace industrial relations. Yet our evidence suggests that the impact has so far been slight - much was promised, but little delivered. In a sense, this reflects the way in which the legislation was framed. The WTR provided a number of ‘flexibilities’ which weakened their effect; the NMW was set at a rate low enough to be absorbed by most firms. More fundamentally, however, it says a lot about the state of British industrial relations and in particular its de-collectivisation.

In the small firms, having explored the ‘black box’, it becomes clearer why the NMW and WTR did not have determinate effects. Here, more so than in larger organisations, there is significant scope for individual decision makers - the owner-managers - to have a direct and immediate impact on the shape and direction of their companies. At the same time, they are very much aware of their dependency on employees, especially in tight labour market conditions, but also because of intense competitive pressures (as one owner-manager put it, ‘we maintain a ‘quiet ship’: we have enough trouble with our customers than with our staff as well!’). This issue of indeterminacy is analytically important since it has long tended to be seen as a peculiarity of large firms.

Within the larger firms studied in the research, the NMW was not of practical relevance and the WTR had not yet generally had major effects. This reflects the enduring and profound nature of Britain’s ‘overtime culture’ in which long hours are used to boost employee earnings and more recently reflect reductions in staffing levels. Even in the most sophisticated, ‘HR-led’ companies, this provided management with all the flexibility it needed without having to engage the workforce around alternative concepts of flexible working time. Changes in working practices such as ‘just-in-time’ served only to exacerbate these tendencies.

In this context, it is not so surprising that the new regulations have not had major impacts at workplace level. Many firms have had to accommodate to them, for sure, but there has been little evidence of the new law stimulating wider changes to work organisation or how firms relate to their employees. The working time evidence suggests that many managers believe that the issue of working time - its management and regulation - will become of greater importance in the near future. In this sense, there is much yet to be done in the ‘modernisation’ of workplace employee relations, but any developments are likely to be seen firstly of all in the already organised, larger firms which are struggling with long hours working.

 

Endnote

This project is entitled ‘Pay, working time and performance in small firms: the impact of a changed regulatory environment’ and is funded under the ESRC’s Future of Work programme. The print sector was chosen to reflect aspects of working time behaviour in small firms more than the NMW.

 

References

Arrowsmith, J. and Sisson, K. 2000. Managing working time’, in S. Bach and K. Sisson (eds) Personnel Management: A Comprehensive Guide to Theory and Practice. Oxford: Blackwell. 287-314.

Edwards, P.K. et al, 1997. The industrial relations consequences of new labour. European Industrial Relations Observatory, Dublin.

Low Pay Commission, 1999. The National Minimum Wage: The storey so far

Ram, M. 1994. Managing to Survive. Oxford: Blackwell.

 

Appendix 1. NMW impact: Two clothing cases

‘Negative’

Increased costs

Moved from piece rates to hourly NMW rate: higher overall costs

Recruitment/ retention

Difficult to attract good workers at the standard NMW rate

Losing good performers to other jobs (including outside the industry)

Stuck with poorer performers on increased pay (employt. leg)

Pressure to go off the books

From competitors: avoiding NMW (and NI)

From potential employees: to top up benefits

Employee relations

Poorer performers ‘are taking the piss’

Shift to day rate - ending of breaks (ended up in tribunal case)

Wary of employees: ‘We had none of this headache before this minimum wage...Employees are now more aware of their rights and they are taking it to the letter of the book’

‘Positive’

Business planning and strategy

Move upmarket for better prices and margins

Review of working practices - including use of consultants, technology (though expensive)

(‘We could have had more time to prepare or be staged for the poor performers but the big bang was a problem. However the NMW also helped us - it made us get off our backsides and address things like the quality work’).

Monitoring of performance and training

Closer supervision and better training to bring up quality standards/ speed

Recruitment, retention, motivation

Easier because earnings predictable (and even good performers couldn’t make 3.60 all the time)

Reduced ‘unfair competition’

Employee relations

Management training on employment law and procedures on ‘how to handle staff’

 

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