Contents
Introduction 7
Executive Summary 10
Recommendations 17
Chapter 1. The Economic Context to the October 2012 Rates 23
Introduction 23
2012 National Minimum Wage Upratings 23
The UK Economy in 2012 25
Gross Domestic Product Growth 26
Prices, Settlements and Earnings 28
Real Wages 31
Employment and Unemployment 33
Productivity 36
Revised Forecasts for 2012 and 2013 38
Conclusion 39
Chapter 2. The Impact of the National Minimum Wage 41
Introduction 41
National Minimum Wage Jobs 41
National Minimum Wage Workers 45
Impact on Earnings and Pay 47
National Minimum Wage Relative to Prices and Earnings 47
Earnings Distributions 56
Pay Gaps 61
Pay Settlements and Pay Structures 63
Research on Earnings and Pay 65
Views on Earnings and Pay 67
Summary on Earnings and Pay 69
Impact on the Labour Market 70
Employment and Employee Jobs 70
Hours 76
Vacancies and Redundancies 78
Unemployment and Inactivity 79
Research on Employment, Hours and Unemployment 80
Views on Employment and Hours 82
Impact on Competitiveness 83
Costs 84
Prices 85
Profits 86
Births and Deaths of Firms 88
Productivity 90
Research on Competitiveness (Prices, Profits, Business Start-ups and Failures, and Productivity) 91
Views on Competitiveness 93
Conclusion 95
Chapter 3. Young People and Apprentices 97
Introduction 97
Young People 97
Youth Rates 98
Earnings 98
Labour Market Position 107
Apprentices 117
Apprenticeship Starts 117
Apprentice Pay 121
Impact of the Introduction of the Apprentice Rate 125
Conclusion 126
Chapter 4. Compliance and Operation of the National Minimum Wage 128
Introduction 128
Salaried-hours Workers 128
The Salaried-hours Worker Group 129
Evidence from Our Consultation 129
Making It Simpler and Easier 131
The Accommodation Offset 133
What is the Accommodation Offset? 133
This Review 133
Provision of Accommodation 134
Defining the Benefit 137
Free Choice 138
Compliance Issues 139
International Comparisons 139
Provisions under the Agricultural Wages Boards 140
Stakeholder Views on the Offset 140
Our Conclusions on the Accommodation Offset 141
Non-compliance 142
Extent of Non-compliance 143
Research on Non-compliance 143
Apprentices 145
Care Workers 146
Unpaid Work: Internships, Work Experience and Volunteering 152
Fair Piece Rates: Homeworkers and Hotel Cleaners 155
The Enforcement Regime 156
Awareness 158
National Minimum Wage Guidance 159
Conclusion 160
Chapter 5. The Rates 162
Introduction 162
Economic Prospects 163
Prospects for Growth 163
Prospects for Inflation, Pay Settlements and Earnings 169
Prospects for Employment 174
Summary of Forecasts for 2013 and 2014 175
Stakeholder Views 176
Adult Rate 176
Youth Rates 178
Apprentice Rate 179
Implications of Other Government Legislation 179
Pension Reforms 179
Changes to Personal Tax and Benefits System 182
Universal Credit 182
Abolition of the Agricultural Wages Board for England and Wales 183
Changes to Other Regulations 185
International Comparisons 185
Recommended Rates 186
The Adult Rate 186
The Accommodation Offset 187
The Youth Development Rate and 16-17 Year Old Rate 187
The Apprentice Rate 188
Implications of the Recommended Rates 188
Coverage 188
Position Relative to Average Earnings 189
Impact on Household Income 190
Wage Bills 190
Exchequer Impact 190
Conclusion 191
Appendix 1. Consultation 192
Appendix 2. Low Pay Commission Research 196
Appendix 3. Minimum Wage Systems in Other Countries 209
Appendix 4. History of the Accommodation Offset 219
Key Principles and Early Decisions 219
Review of the Accommodation Offset 219
The Second Low Pay Commission Report (2000) 220
The Third Low Pay Commission Report (2001) 221
The Fourth Low Pay Commission Report (2003) 222
The 2006 Report - Review of the Offset 222
The Story Since 2006 223
Previous Research on Accommodation 223
Appendix 5. Main Data Sources 225
Introduction 225
Annual Survey of Hours and Earnings 225
Average Weekly Earnings 226
Labour Force Survey 226
Employee Jobs 227
Inflation 228
Gross Domestic Product 228
Appendix 6. Review of the Low-paying Sectors 229
Reviewing the Low-paying Occupations 229
Low-paying Industries 231
References 233
Table 1.1. National Minimum Wage Hourly Rates, UK, 1999-2013 24
Table 1.2. Economic Forecasts Available in January 2012, UK, 2012-2013 25
Table 1.3. Change in Employment and Jobs, UK, 2008-2012 34
Table 1.4. Revised Economic Forecasts, UK, 2012-2013 39
Table 2.1. Bite of the Adult National Minimum Wage at Various Points on the Earnings Distribution for Those Aged 22 and Over, UK, 1999-2012 51
Table 2.2. Jobs Held by Those Aged 22 and Over, Paid At and Below the Existing National Minimum Wage and the Forthcoming National Minimum Wage, UK, 1999-2012 58
Table 2.3. Proportion of Jobs Held by Those Aged 22 and Over, Paid At or Below the Adult National Minimum Wage, by Sector and Firm Size, UK, 2011-2012 59
Table 2.4. Hourly Gender Pay Gap of Full-time Workers Aged 22 and Over, UK, 1997-2012 62
Table 2.5. Hourly Pay Gaps for Particular Groups of Workers Aged 22 and Over, UK, 2007/08-2011/12 63
Table 2.6. Annual Median Pay Settlement, by Sector, UK, 2000-2012 64
Table 2.7. Change in Employment, Jobs and Hours, UK, 1999-2012 71
Table 2.8. Change in Employee Jobs, by Low-paying Industry, GB, 1998-2012 74
Table 2.9. Employment Rates, by Groups of Workers, UK, 1999-2012 76
Table 2.10. Unemployment and Inactivity Rates, by Groups of Workers, UK, 1999-2012 80
Table 2.11. CPI, RPI and SPPI Price Inflation for Selected Goods and Services, UK, 1999-2012 86
Table 3.1. Number of Apprenticeship Starts, by Country, 2003/04-2011/12 117
Table 3.2. Mean and Median Gross Hourly Pay for Apprentices, by Age, England and Wales, 2012 121
Table 5.1. Components of Gross Domestic Product Growth in Recession and Recovery, UK, 1980-2012 166
Table 5.2. Actual Outturn and Independent Forecasts, UK, 2012-2014 176
Table 5.3. Estimated Exchequer Yield and Savings from the Recommended October 2013 Uprating of the Adult Rate of the National Minimum Wage, UK, 2013/14 191
Figure 1.1. Effect of Recent Revisions to Gross Domestic Product, UK, 2008-2012 26
Figure 1.2. Gross Domestic Product in Recession and Recovery, UK, 1979-2012 27
Figure 1.3. Price Inflation, UK, 2006-2012 28
Figure 1.4. Median Pay Settlements and Price Inflation, UK, 2006-2012 29
Figure 1.5. Growth in Average Weekly Earnings, GB, and Price Inflation, UK, 2006-2012 30
Figure 1.6. Growth in Nominal and Real Wages, UK, 1964-2012 31
Figure 1.7. Growth in Nominal and Real Average Hourly Wages, UK, 1999-2012 32
Figure 1.8. Hours and Employment in Recession and Recovery, UK, 1979-2012 33
Figure 1.9. Growth in Productivity per Job and per Hour, UK, 1978-2012 37
Figure 2.1. Characteristics of Minimum Wage Jobs, UK, 2012 43
Figure 2.2. Number and Proportion of Minimum Wage Jobs, by Low-paying Occupation, UK, 2012 44
Figure 2.3. Minimum Wage Jobs, by Country, Region, and Highest Local Authority Within Each Area, 2012 45
Figure 2.4. Minimum Wage Workers, UK, 2012 46
Figure 2.5. Increases in the Real and Relative Value of the Adult National Minimum Wage, UK, 1999-2012 48
Figure 2.6. Real and Relative Value of the Adult National Minimum Wage, UK, 1999-2012 49
Figure 2.7. Bite of the Adult National Minimum Wage Using Different Earnings Measures, GB and UK, 2000-2012 50
Figure 2.8. Annualised Growth in the Adult National Minimum Wage and Median Earnings for Those Aged 22 and Over, by Sector, UK, 1999-2012 52
Figure 2.9. Bite of the Adult National Minimum Wage for Workers Aged 22 and Over, by Low-paying Industry, UK, 1999-2012 53
Figure 2.10. Annualised Growth in the Adult National Minimum Wage and Median Earnings for Those Aged 22 and Over, by Firm Size, UK, 1999-2012 54
Figure 2.11. Bite of the Adult National Minimum Wage at the Median for Those Aged 22 and Over, by Firm Size, UK, 1999-2012 55
Figure 2.12. Bite of the Adult National Minimum Wage at the Median for Those Aged 22 and Over, by Groups of Workers, UK, 2007/08-2011/12 56
Figure 2.13. Hourly Earnings Distribution for Employees Aged 21 and Over, by Five Pence Band, UK, 2012 57
Figure 2.14. Annualised Growth in Hourly Earnings for Employees Aged 22 and Over, by Percentile, UK, 1992-2012 61
Figure 2.15. Annual Change in Employee Jobs, by Sector, GB, 2007-2012 72
Figure 2.16. Change in Employment, by Firm Size, UK, 2006-2012 75
Figure 2.17. Annual Change in Hours Worked, by Sector, UK, 2008-2012 77
Figure 2.18. Annual Change in Vacancies, by Firm Size, UK, 2002-2012 79
Figure 2.19. Annual Change in Unit Wage and Labour Costs, UK, 1998-2012 84
Figure 2.20. Selected Profit Measures, UK, 1998-2012 87
Figure 2.21. Net Change in Stock of Firms, by Selected Low-paying Industry, UK, 2004-2011 89
Figure 2.22. Productivity per Hour, by Selected Low-paying Industry, UK, 1998-2012 91
Figure 3.1. Median Hourly Earnings for 18-20 Year Olds and the Youth Development Rate, UK, 1999-2012 99
Figure 3.2. Median Hourly Earnings for 16-17 Year Olds and the 16-17 Year Old Rate, UK, 1999-2012 100
Figure 3.3. Growth in the Minimum Wage and Median Earnings, by Age, UK, 1999-2012 101
Figure 3.4. Bite of the Minimum Wage at the Median, by Age, UK, 1999-2012 102
Figure 3.5. Nominal and Real Level of Median Earnings for 18-20 Year Olds, by Price Index, UK, 1999-2012 103
Figure 3.6. Nominal and Real Level of Median Earnings for 16-17 Year Olds, by Price Index, UK, 1999-2012 104
Figure 3.7. Coverage of Applicable Minimum Wage Rates, by Age, UK, 1998-2012 105
Figure 3.8. 18-20 Year Old Earnings Distribution, by Minimum Wage Rate and Focal Point, UK, 2007-2012 106
Figure 3.9. 16-17 Year Old Earnings Distribution, by Minimum Wage Rate and Focal Point, UK, 2007-2012 107
Figure 3.10. Economic Activity of 18-20 Year Olds, UK, 1993-2012 109
Figure 3.11. Economic Activity of 16-17 Year Olds, UK, 1993-2012 110
Figure 3.12. Employment and Unemployment Rates for Young People Not in Full-time Education, by Age, UK, 2006-2012 111
Figure 3.13. Employment and Unemployment Rates of 18-22 Year Olds Not in Full-time Education, by Age, UK, 1999-2012 112
Figure 3.14. NEET Rates by Age, UK, 1998-2012 114
Figure 3.15. Total Apprenticeship Starts, by Age, England, 2002/03-2011/12 118
Figure 3.16. Apprenticeship Starts, by Framework, Scotland, 2009/10-2011/12 119
Figure 3.17. Apprenticeship Starts, by Framework, England, 2009/10-2011/12 120
Figure 3.18. Hourly Rate of Apprentice Pay, by Age, England and Wales, 2012 123
Figure 3.19. Median Apprentice Pay and Apprentices Paid Below the Applicable Minimum Wage, by Sector, England and Wales, 2012 124
Figure 4.1. Proportion of Workers in Tied Accommodation, by Sector and Low-paying Industry, UK, 1998-2012 135
Figure 4.2. Dwelling Stock, by Tenure, UK, 1996-2011 and Vacant Dwellings, England, 2004-2012 137
Figure 5.1. Gross Domestic Product Forecasts for 2012-2014, UK, 2011-2013 164
Figure 5.2. Consumer and Business Expectations, UK, 2004-2012 168
Figure 5.3. Annual Change in RPI and CPI, and Forecasts, UK, 2010-2014 170
Figure 5.4. Average Earnings Growth and Forecasts, GB, 2009-2014 173
Table A2.1. Low Pay Commission Research Projects for the 2013 Report 204
Table A3.1. Comparison of Adult Minimum Wages, by Country, 2012 210
Table A3.2. Adjustment of Minimum Wages, by Country, 2012 213
Table A3.3. Youth Minimum Wage Rates as a Percentage of Adult Minimum Wage Rates, by Country, 2012 215
Table A3.4. Age Variations Under Minimum Wage Systems, by Country, 2012 216
Table A3.5. Minimum Wage and Apprenticeships, by Country, 2012 217
Table A3.6. Accommodation Offset, International Comparisons, 2012 218
Table A6.1. New Definitions of Low-paying Industries and Occupations, by SIC and SOC Codes 232
Figure A3.1. Annualised Growth in Adult Minimum Wages, by Country, 1999-2012 211
Figure A3.2. Adult Minimum Wages Relative to Full-time Median Earnings, by Country, 1999 and 2011 212