Low pay is a critical social issue and low wage sectors contribute to the productivity gap between the UK and comparable countries. Raising productivity in such sectors is one possible mechanism through which the prevalence of low pay might be reduced. Better understanding the relationship between productivity and pay, particularly for low earners, is therefore critical in addressing the low pay problem.
This research looks at the role of productivity in employers’ wage setting decisions in low-paid sectors. Drawing on an evidence review of the academic and grey literature, the addition of questions to an employer survey in Greater Birmingham, interviews with employers in three low wage sectors (hospitality, retail and manufacturing) in Greater Birmingham and the West Midlands, and testing of findings and development of policy implications at an expert workshop, it examines how employers think about, understand and measure productivity.
The findings show that firms interviewed only had a partial understanding of productivity. Often they had difficulties in measuring it. Availability of staff, retaining labour and local pay norms were key priorities in setting wages. Few firms could describe how productivity mattered for setting wages. For many firms the National Living Wage (NLW) has become the de facto pay review and NLW upratings have driven firms to seek ways to increase productivity.
Evidence is limited about how employers in different low wage sectors think about productivity and about the relationship between productivity and wage setting for different groups of workers.The research focuses on two key questions:
- How do employers think about, understand and measure productivity?
- What role does productivity play in employer wage setting decisions vis-à-vis other factors?
In so doing the research aims to help fill these evidence gaps by developing a better understanding of the role that productivity and productivity changes play in employers’ wage setting decision-making in low wage sectors, and exploring the associated implications for workers on low pay.
- Professor Anne Green, City-REDI, University of Birmingham
- Dr Paul Sissons, Senior Research Fellow, Centre for Business in Society, Coventry University
- Dr Amir Qamar, Research Associate, City-REDI, University of Birmingham
- Dr Kevin Broughton, Research Fellow, Centre for Business in Society, Coventry University
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The findings from this project and other projects on productivity funded by the Joseph Rowntree Foundation helped inform an event on ‘Using the industrial strategy to support higher performance and wages in the retail and hospitality sectors’ in London on 2 May 2018
Funder/client: Joseph Rowntree Foundation
Timescale: August 2017 to April 2018
Project lead: Anne Green
Tel: 0121 414 9666