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A range of studies, from mainstream economics to industrial relations and heterodox economics, argue that because improved pay makes it less profitable for an employer to employ low skill workers, it makes sense for employers to invest in programmes of training to ensure pay aligns with performance (Acemoglu and Pischke, 1999; Sachdev and Wilkinson, 1998; Streeck, 1992). An important test of this argument was provided by the introduction of the National Minimum Wage in 1999, which lifted pay for many low paid women workers. In this section we draw lessons from studies which assessed its impact on training provision.

The overall results of several studies are in fact inconclusive with some firms opting to offset the increased labour costs imposed by the minimum wage by cutting training expenditures and others taking the more long term approach of matching higher pay with skill development (LPC, 2003). The problem is that the relationship between pay and training provision is complex, involving incentives and obstacles to change, both internal and external to the firm (Box 7.1).

There are several obstacles. A major problem is institutional. The UK has a long history of under-resourcing of, and patchy political commitment to, its system of vocational training, reflected in the low status of National Vocational Qualifications and problems of coordination of accreditation between employers in a given sector. Many employers in the UK are understandably disillusioned and have had bad experience with formal programmes of training. Such firms may prefer to adopt an informal system of on-the-job learning, which, while potentially raising the prospects of workers in the firm, may impede job moves to other firms because of a lack of accreditation. A further problem is that some employers may be reluctant to provide accredited training because of a fear of skilled workers being poached by competing firms able to pay a higher wage because they have lower expenditures on skill investment. A vicious cycle is reinforced such that the more firms poach, the more firms will ‘buy’ skills rather than ‘make’ them, underpinning what Finegold and Soskice (1990) famously called Britain’s low-skill equilibrium.

Box 7.1 Managers’ experiences of the obstacles to, and opportunities for, improving training provision and pay

Case study research demonstrates that most employers are willing to improve training to align

improved pay with high quality work. But a range of obstacles interfere, including:

• Poor experience with NVQs

The two [college students on work experience] at the moment are the worst we’ve ever had. They are being pushed through. I don’t know whether the standards are lower or what but they should be taken off it because they are not good enough (owner of small Retail firm).1

• Fear of poaching

If you invest a lot of time, money and effort in a security officer, you might just end up doing it for somebody else (owner of small security firm).1

If we advertised for fully trained people … we would simply be entering the merry-go-round on which a lot of the brand-name hotels are already on. If Hilton advertise four people they are simply going to take them from a competitor hotel and so four people may leave the Marriott… The Marriott will then need to employ four people and they advertise and people will leave Holiday Inn and so the circle goes on (manager of hotel chain).2

For the majority of new intakes, [training] makes them more employable … [and] there’s a substantial number who learn and then move on elsewhere (manager of hotel chain).2

• Limited development of new forms of work organisation

There is no formal training for the shop staff. We see the retail staff role essentially as being a reactive role, responding to the customer care process. Many of the shop staff are more than happy just doing the job, because it’s flexible, it’s part-time work. (manager of food production and retail company).2

But many studies also reveal a small share of firms that appear to have negotiated these obstacles and achieved a relatively successful transition to a form of work organisation characterised by increased investment in skill development, higher pay and improved work performance. The following quotes illustrate the challenges of new opportunities:

We’re thinking … if the training gets better, the staff get better, we’re going to get better. … There’s profit there… You’ve got two choices. We’re here trying the second choice of training standards and getting standards up and hoping that will expand us (owner of small security firm).1

From our point of view, if you’re having to pay people a higher level then in some ways it makes sense to pay a bit more on training so you get value for money from them … rather than being able to employ four people at very low rates to do the job you can employ three people but they’ll be much more effective in what they’re doing (manager of specialist food retailer).2

Training is an absolute necessity. The quality of training is better now [in the hotel industry] than 20 years ago. The minimum wage has helped us focus on things: if you train, you become more efficient (manager of medium-sized hotel).3

Sources: all quotes are cited in reports commissioned by the Low Pay Commission:

In addition, employers may fail to exploit the benefits of new training provision, because of a failure to develop innovative forms of work organisation which exploit the upgraded skills (see, also, section 7.4 below). One study of the impact of the minimum wage reports a footwear manufacturer that was a recognised NVQ training centre, but nevertheless held rates of pay down because of a stubborn commitment to outdated forms of work organisation, involving a highly detailed division of labour, lack of job rotation and very limited career prospects or opportunities for pay progression; indeed, this particular firm had even campaigned to challenge the industry standards for NVQs, arguing acquisition of skills across a range of tasks was unnecessary (Grimshaw and Carroll, 2006: 40). Slack labour markets, and informal labour markets, also put a brake on positive efforts to use training to bring pay in line with work quality. Ram et al.’s (2004) study of the informal economy in the clothing industry is insightful; here, employers faced few pressures to improve worker benefits because they exercised control over a diverse international pool of labour. One manager of a clothing firm claimed:

I have ten calls a day asking for work, West Indians, Bosnians, asylum seekers. There’s a shelter round the corner - as many Iraqis and Kurds as you want.

(cited in Ram et al., 2004: 26).

The variables of training, pay and work quality thus do not operate in a vacuum and employers (and workers) face significant obstacles in improving training provision so as to realign pay with work quality. Nevertheless, the studies of the impact of the National Minimum Wage do point to some success stories. The evidence suggests three conditions open up opportunities for a positive employer strategy that might be developed to address the broader problem of undervaluation of women’s work.

First, investment in training can be part of a broader reorientation by the employer towards expanding sales in a quality niche product market. In Rainbird et al.’s (2002) study, training played an important function in supporting the niche market positioning of retail firms, matching higher rates of pay with the need to keep employees up-to-date with new product knowledge and styles of customer service. Also, in Grimshaw and Carroll’s (2002, 2006) study, two of the three security firms that invested in formal training programmes believed this underpinned a successful transition to winning contracts in the higher quality market for building services management. One of these security firms had already achieved considerable success; it retrained security guards as higher paid ‘building services officers’ with industry SITO certification (Security Industry Training Organisation) and developed new skills in a range of activities, including maintenance and repair of plumbing and heating, as well as supervision of cleaning staff (2006: 38).

Second, in a competitive market for good applicants, some managers may find that improved training provision gives an added advantage in recruiting and retaining desirable staff by strengthening their reputation as a good employer in the labour market. For example, a study by Miller et al. (2002) of the impact of the minimum wage on training in three low paying sectors, hospitality, retail and hairdressing, found that firms which increased training were more likely to believe it gave them an advantage when recruiting than firms that reduced training provision or left it unchanged (op. cit.: Table 4.2). Survey evidence from the hotel sector supports this finding. Brown and Crossman’s (2002) research suggests that when managers in the hotel industry increased training in response to the introduction of the minimum wage, this was part of a broader strategic decision to adopt a ‘quality enhancing’, as opposed to a ‘cost minimising’, approach to employment policy and practice. Rather than simply approaching the management of labour as a cost or as an asset, these findings suggest that a broad approach to enhancing the quality of labour employed has positive feedback effects for the management of labour costs.

A third important condition is largely outside the control of a single employer and concerns the type of statutory requirements for training in particular sectors. Most studies recognise the importance of sector-specific regulatory conditions, as well as sector bodies such as trade associations and business support agencies, in exerting a strong influence on training decisions. The issue is how to ensure that pressures on employers to improve quality of work through policies of accredited training are matched by equivalent pressures, incentives and resources to raise pay in line with raised skill standards. Firms operating in sectors of social care and hospitality, for example, must meet requirements to train staff in health and safety or food hygiene. However, the evidence points to a growing mismatch in worker quality and pay. In many areas of social care, for example, while training provision and skill-mix is strongly regulated (especially following the Care Standards Act 2000 which established targets for NVQ assessment), ‘chronic underfunding’ (in the words of the current Chair of the National Care Homes Association) means that work is paid at very low rates (Grimshaw and Carroll, 2002). In their study, Rainbird et al. (2002) summarise the opinion of a representative from the NCHA as ‘the problem lies in the fact that although the government is prepared to put extra money into training for this sector, this is not much help if staff cannot be rewarded for achieving qualifications because the care sector as a whole is inadequately funded’ (op. cit.: Chapter 2). The result is what we might refer to as a ‘high quality, low road’ approach to care provision in the UK, and this description does seem to reflect the problem of undervalued care work. Current institutions support the development of a high skilled workforce who can deliver high quality services, but there are to date no provisions to improve the low rates of pay earned by those care workers delivering high quality

care. Campaigns are underway to address this situation, but press reports in 2006 suggest ongoing problems due to the unwillingness of many local authorities (for a range of reasons) to negotiate new fee levels with central government.18