AN INVESTIGATION INTO THE EXTENT OF NON-COMPLIANCE WITH THE NATIONAL MINIMUM WAGE 1

Transcription

1 AN INVESTIGATION INTO THE EXTENT OF NON-COMPLIANCE WITH THE NATIONAL 1 Stphanus l Roux a, Paolo Lucchino b and David Wilkinson b a) Dpartmnt for Work and Pnsions 2 b) National Institut of Economic and Social Rsarch Fbruary 2013 Final Rport to th Low Pay Commission 1 Disclaimr: This work contains statistical data which is Crown Copyright; it has bn mad availabl by th Offic for National Statistics (ONS) through th Low Pay Commission (LPC) and th Dpartmnt for Businss, Innovation and Skills (BIS) and through th Scur Data Srvic and has bn usd by prmission. Th ONS, BIS nor th LPC bar any rsponsibility for th analysis or intrprtation of th data rportd hr. This work uss rsarch datasts that may not xactly rproduc National Statistics aggrgats. 2 Disclaimr: This rsarch was don whil th author was on scondmnt to th National Institut of Economics and Social Rsarch. Any viws xprssd ar solly thos of th authors and so cannot b takn to rprsnt thos of th Dpartmnt for Work and Pnsions or to stat Dpartmnt for Work and Pnsions policy. Corrspondnc: National Institut of Economic and Social Rsarch, 2 Dan Trnch Strt, Smith Squar, London SW1P 3HE; Tl.: ; fax: : stphanus.l-roux@dwp.gsi.gov.uk; d.wilkinson@nisr.ac.uk

2 Abstract Non-complianc with th National Minimum Wag (NMW) Act dirctly undrmins th objctivs of th policy and is hnc of kn policy intrst. Evidnc, to dat, on th xtnt of non-complianc in th UK has bn gnrally ancdotal and/or qualitativ. In this rport, w confront dirctly mthodological issus in rlation to th masurmnt of non-complianc to produc analysis on th natur, volution and distribution of non-complianc with th NMW in th UK. W also construct local ara masurs of non-complianc in ordr to stimat conomtric modls of noncomplianc that show th rlationship btwn non-complianc and th bit of th NMW as wll as som indicators of th conomic cycl. Th rsults show that noncomplianc incrasd ovr tim according to LFS stimats, but was broadly stabl ovr tim according to ASHE stimats. Non-complianc was gnrally highr for youngr workrs than adult workrs. Adjusting non-complianc stimats for th possibl rporting of arnings at roundd rats can hav a larg impact on noncomplianc stimats, as can adjustmnts rlating to apprntics for workrs ligibl for th Youth Dvlopmnt Rat and th Yar Old Rat. Modls of noncomplianc indicat that non-complianc fll during th rcnt conomic downturn according to ASHE stimats, but incrasd according to LFS stimats. 2

3 Excutiv Summary Introduction and Ovrviw Non-complianc with th National Minimum Wag (NMW) Act dirctly undrmins th objctivs of th policy. Much of th vidnc about non-complianc to dat has bn gnrally ancdotal and/or qualitativ (for xampl Ram, 2004). In this rport, w confront dirctly th mthodological and data issus that, to dat, hav hindrd quantitativ analysis. W ar mainly concrnd with issus of masurmnt. Th biggst challngs in assssing th xtnt of non-complianc with th NMW rlat to whthr pay can b accuratly masurd in national survys and whthr ky xmptions in NMW policy ar adquatly capturd in ths national datasts. Th Low Pay Commission (LPC) nots that 'achiving and maintaining a high lvl of complianc rquirs widsprad awarnss and undrstanding of th wag arrangmnts, and also nforcmnt'. Furthrmor, on of th guiding principls of th NMW rgim has bn on of simplicity, hlping mak it asy to undrstand, implmnt and nforc. To this nd, vidnc to th LPC indicatd that whilst th rgulations ar sn as simpl nough, thr wr rqusts for bttr guidanc. Data sourcs and masurmnt issus In lin with most othr analysis of workr pay rlatd to th NMW, w us th Labour Forc Survy (LFS) April 2000 March 2012 and th Annual Survy of Hours and Earnings (ASHE) to construct our stimats of non-complianc. Issus rlating to masuring lvls of pay in ths national survys hav bn considrd widly and ar rlativly wll-undrstood (Ormrod & Ritchi, 2007; and Hicks, Conn, & Johnson, 2009). ASHE is th National Statistic sourc for stimats of th numbr of jobs paying blow th NMW. Howvr, ASHE dos not collct data on all th charactristics of th low paid (.g. ASHE dos not includ any data about qualifications of workrs); hnc stimats from th LFS ar important whn looking at som groups of workrs affctd by th NMW. i

4 Our analysis of LFS data uss th approach dvlopd by (Skinnr, Stuttard, Bissl- Durrant, & Jnkins, 2002) in which missing valus on th nw hourly rat variabl ar rplacd by imputd valus. A furthr complication with pay masurmnt at lvls clos to th NMW is highlightd by (Ormrod & Ritchi, 2007) who idntify that whn th NMW is clos to a round numbr many mploys rport pay at th narst round numbr rathr than th NMW. This round numbr may b abov or blow th NMW. For issus rlating to non-complianc, this only bcoms important for rporting of pay at a round numbr blow th NMW. Hr, rror in rporting may lad to highr stimats of non-complianc. To dal with this problm w prsnt adjustd noncomplianc stimats basd on a NMW rat roundd down to th narst 10 pnc. Som workrs can b paid blow th NMW for lgitimat rasons: Bonuss and commissions count for pay for NMW purposs such that th basic hourly pay (i.. xcluding xtras) may hav bn lawfully blow th NMW. Until Octobr 2009 tips could also count for pay for NMW purposs, but from Octobr 2009 onwards tips can no longr b includd. NMW workrs rciving accommodation from thir mployr can b lgitimatly paid blow th NMW via th accommodation offst. Individuals on apprnticships wr xmpt from th NMW until Octobr 2010 (if thy wr undr 19; or 19 and ovr and in th first yar of apprnticship) but hav bn ntitld to th Apprntic Rat of th NMW sinc thn. Th xtnt to which workrs qualifying for ths xmptions can b idntifid in ASHE and LFS is limitd. Our analysis suggsts that taking bonuss; commissions and tips; and th accommodation offst into account whn assssing non-complianc is largly trivial in trms of thir impact on stimats of non-complianc rats. Howvr, considration of apprntics, particularly for workrs ligibl for th Yar Old Rat or th Youth Dvlopmnt Rat maks som diffrnc to stimats ii

5 of non-complianc. Adjusting non-complianc stimats for rounding also maks a diffrnc to stimats of non-complianc. Baslin stimats of non-complianc rats Using LFS data that has bn adjustd using th Skinnr t al. multipl imputation approach, w calculat baslin stimats of non-complianc basd on th main job of ach workr. Th ASHE data rquir no such adjustmnts to hourly pay. Baslin stimats from ach sourc can thn b compard. W plot ths stimats of noncomplianc ovr tim from both data sourcs at an aggrgat lvl and by som ky workr charactristics: gndr, firm siz 2, sctor and rgion. According to th LFS th baslin non-complianc rat was rlativly stabl at around 0.5% btwn 2000 and 2004 aftr which it incrasd yar-on-yar, with th xcption of 2010, raching 2.1% in th first quartr of Baslin non-complianc is typically highr for youngr workrs than adult workrs. Th diffrncs ar clar according to ASHE data, but th volatility of th stimats according to th LFS data (du to modst sampl sizs, particularly for workrs ligibl for th Yar Old Rat) mak th pattrns lss clar cut. Th ASHE stimats of adult baslin non-complianc ar rlativly stabl for most of th priod, typically just blow 1%, whilst th LFS baslin stimats show a diffrnt pictur with th non-complianc rat incrasing from 0.4% in 2000 to 2.0% in Baslin non-complianc rats for Yar Old Rat and Youth Dvlopmnt Rat workrs ar also stabl for much of th priod, according to ASHE stimats, but both incras btwn 2009 and Th LFS baslin stimats of non-complianc for Yar Old Rat and Youth Dvlopmnt Rat workrs also show an upward trnd, albit with som volatility in th stimats. Baslin non-complianc rats also varid by othr workr charactristics; thy wr highr for womn than for mn; lowst in London (ASHE stimats, but not LFS 2 Th LFS rcords th siz of th workplac rathr than th firm. Workplac is an imprfct masur of firm siz, bcaus in many instancs th firm will b substantially largr than th workplac. ASHE includs an idntifir that indicats th numbr of mploys in th rporting unit whr th rspondnt works. In th vast majority of cass, th rporting unit is quivalnt to th ntrpris. Howvr, in som cass, typically largr firms, th firm may b mad up of svral rporting units. iii

6 stimats); highr in Distribution, Hotls and Rstaurants; and in Othr Srvics; and highst in firms/workplacs with fwr than 25 mploys. Th bit of th NMW (th ratio of th NMW to mdian arnings) incrass ovr tim for ach ag group. Th bit was lowr for adult workrs followd by yar old workrs and thn thos ligibl for th Youth Dvlopmnt Rat. In gnral, noncomplianc rats for adult workrs wr highr whn th bit of th adult NMW was also highr. Adjustd stimats of non-complianc rats For adult workrs th largst adjustmnt to non-complianc rats was rlatd to rporting of arnings at focal points in th arnings distribution. Thus if th NMW rat was assumd to b roundd down to th narst 10 pnc, thn noncomplianc rats would b, on avrag, 0.6 prcntag points lowr according to LFS stimats and 0.2 prcntag points lowr according to ASHE stimats. For Yar Old Rat and Youth Dvlopmnt Rat workrs th tratmnt of apprntics also mad a big diffrnc to non-complianc stimats. In th cas of yar-olds, rducing non-complianc rats by as much as 2.5 prcntag points in 2011, but in othr yars, rductions of around 0.5 prcntag points wr typical. For Youth Dvlopmnt Rat workrs th adjustmnts wr mor stabl ovr tim, rducing non-complianc stimats on avrag by around on prcntag point. Ths adjustmnts can only b idntifid with LFS data and, givn th rlativly small numbr of workrs ligibl for th Yar Old Rat and th Youth Dvlopmnt Rat, ar oftn not vry prcisly dtrmind. For adult workrs, th non-complianc rats stimatd from ASHE and LFS ar in gnral not hugly diffrnt in th priod up to 2005 whn NMW rats wr st in multipls of 10 pnc. Following this, th ASHE stimats rmain broadly constant ovr tim with a rat of 0.6% in 2011, whilst th LFS stimats incras, vn aftr th rounding adjustmnt up to 1.2% in Taking all th adjustmnts into account, th avrag non-complianc rat from according to ASHE was 0.8% for adults; 2.6% for workrs on th Youth iv

7 Dvlopmnt Rat; and 4.3% for Yar Old Rat workrs ( ). Th quivalnt figurs from th LFS wr 1.0% (adults), 1.4% (Youth Dvlopmnt Rat) and 1.3% (16-17 Yar Old Rat). Th stimats for adults ar similar, but th adjustmnts mad to th LFS stimats for Yar Old Rat and Youth Dvlopmnt Rat workrs mak thm much lowr than th ASHE stimats. Modls of non-complianc Our modls of non-complianc rflct th diffrncs btwn th two data sourcs in non-complianc stimats. Analysis basd on ASHE suggsts non-complianc rats wr ngativly associatd with indicators of th downturn (.g. ngativly associatd with local ara unmploymnt and positivly associatd with GDP growth). According to analysis basd on th LFS, th vidnc shows a rlationship in th opposit dirction although th impacts ar wakr (non-complianc rats wr not associatd with local ara unmploymnt and ngativly associatd with GDP growth). For both data sourcs, non-complianc was gnrally positivly associatd with th bit of th NMW. v

8 Contnts Excutiv Summary... i Contnts... vi Tabls... vii Figurs... vii Abbrviations... viii 1 Introduction and ovrviw Data sourcs and masurmnt issus Masuring pay NMW xmptions Rsarch mthods Adjusting pay stimats in th LFS Baslin and altrnativ stimats of non-complianc Modls of non-complianc Estimats of non-complianc rats Baslin stimats of non-complianc Ovrviw of non-complianc NMW ag groups Gndr Rgions Industry Firm siz Rounding and othr biass in masuring non-complianc Th impact of rounding and othr biass on LFS stimats Comparisons with stimats from ASHE Modls of non-complianc LFS modls ASHE modls Conclusions Bibliography Appndix vi

9 Tabls Tabl 1: Assumptions for idntifying NMW xclusions Tabl 2: Estimats of non-complianc rats, LFS modls Tabl 3: Estimats of non-complianc rats, ASHE modls Figurs Figur 1: LFS baslin non-complianc rat and numbr of jobs, all workrs in main jobs Figur 2: Official NMW rats in ach quartr of analysis Figur 3: LFS Baslin non-complianc rats by NMW Ag bands Figur 4: LFS Bit of th NMW by th thr NMW ag bands Figur 5: ASHE Baslin non-complianc rats by NMW Ag bands Figur 6: ASHE Bit of th NMW by th thr NMW Ag bands Figur 7: LFS Adult baslin non-complianc rats by gndr Figur 8: LFS Adult bit of th NMW by gndr Figur 9: ASHE Adult baslin non-complianc rats by gndr Figur 10 ASHE Adult bit of th NMW by gndr Figur 11: LFS Adult baslin non-complianc rats by country and rgion of th Unitd Kingdom Figur 12: LFS Adult bit of th NMW by country and rgion of th Unitd Kingdom Figur 13: ASHE Adult baslin non-complianc rats by country and rgion of Grat Britain Figur 14: ASHE Adult bit of th NMW by country and rgion of Grat Britain Figur 15: LFS Adult baslin non-complianc rats by industry sctors in th Unitd Kingdom Figur 16: LFS Adult bit of th NMW by industry sctors in th Unitd Kingdom. 29 vii

10 Figur 17: ASHE Adult baslin non-complianc rats by industry sctors in Grat Britain Figur 18: ASHE Adult bit of th NMW by industry sctors in Grat Britain Figur 19: LFS Adult baslin non-complianc rats by firm siz in th Unitd Kingdom Figur 20: LFS Adult bit of th NMW by firm siz in th Unitd Kingdom Figur 21: ASHE Adult baslin non-complianc rats by firm siz in Grat Britain 31 Figur 22: ASHE Adult bit of th NMW by firm siz in Grat Britain Figur 23: Actual and Roundd NMW rats Figur Yar Old Rat: Adjustmnts to th non-complianc rat, Figur 25 Youth Dvlopmnt Rat: Adjustmnts to th non-complianc rat, Figur 26 Adult Rat: Adjustmnts to th non-complianc rats, Figur 27: ASHE Non-complianc rats for Yar Old Rat workrs Figur 28: ASHE Non-complianc rats for Youth Dvlopmnt Rat workrs Figur 29: ASHE Non-complianc rats for Adult rat workrs Abbrviations ASHE LFS NIESR NMW ONS Annual Survy of Hours and Earnings Labour Forc Survy National Institut of Economic and Social Rsarch National Minimum Wag Offic for National Statistics viii

11 1 Introduction and ovrviw Non-complianc with th National Minimum Wag (NMW) Act dirctly undrmins th objctivs of th policy and is hnc of kn policy intrst. Howvr, vidnc to dat has bn gnrally ancdotal and/or qualitativ (for xampl Ram, 2004). In this rport, w confront dirctly th mthodological and data issus that, to dat, hav hindrd quantitativ analysis. Th importanc of complianc with th NMW is highlightd in th Low Pay Commission (LPC) 2012 rport (LPC, 2012). Th rport also nots that 'achiving and maintaining a high lvl of complianc rquirs widsprad awarnss and undrstanding of th wag arrangmnts, and also nforcmnt'. Hr, th cut in advrtising xpnditur from 2010 onwards may influnc NMW awarnss and hnc non-complianc rats. On of th guiding principls of th NMW rgim has bn on of simplicity, hlping mak it asy to undrstand, implmnt and nforc. To this nd, vidnc to th LPC indicatd that whilst th rgulations ar sn as simpl nough, thr wr som rqusts for bttr guidanc. Th complxity and lack of undrstanding of th lgislation may lad to gratr non-complianc, but also rlvant is th natur of th impact of th NMW. It is wll undrstood (LPC, 2012) that th NMW has mor of an impact on particular sctors of th conomy and on particular groups of workrs. This is rlatd to th typ of work ths workrs do, th kind of paymnts thy rciv or othr aspcts of thir work arrangmnts. Howvr, in this rport w ar mainly concrnd with issus of masurmnt. Th biggst challngs in assssing th xtnt of non-complianc with th NMW rlat to whthr pay can b accuratly masurd in national survys and whthr ky xmptions in NMW policy ar adquatly capturd in ths national datasts. Much of th focus of th rport is on idntifying ths masurmnt issus and thn making a rang of assumptions that allow us to driv altrnativ masurs of non- 9

12 complianc with th NMW. Our attmpts to assss th xtnt of non-complianc ar limitd by th availabl data and w acknowldg that som biass may rmain in all our stimats of non-complianc. This mans that th rsults prsntd ar not dfinitiv, but w bliv th analysis provids rlvant and usful vidnc on th natur, volution and distribution of non-complianc with th NMW in th UK. Many biass in stimats of th lvl of non-complianc with th NMW could b argud to b stabl ovr tim. Hnc considring changs ovr tim in noncomplianc should lad to unbiasd stimats. Howvr, w acknowldg a particular form of masurmnt rror in th rporting of pay at lvls clos to th NMW whrby thr appars to b a dgr of rounding in th rporting of hourly pay lvls (s Ormrod & Ritchi, 2007 for mor dtails) which may lad to som inconsistncis ovr tim. On of th assumptions w incorporat into our analysis allows for th rporting of pay at round numbrs in yars whr th lvl of th NMW is not a round numbr. Furthrmor, as th numbr of apprntics incrasd ovr tim it is possibl that th bias associatd with undr rcording of apprnticships in th data may b incrasing ovr tim. Howvr, our analysis dos not indicat an incras ovr tim in th adjustmnt of non-complianc rats that is rlatd to apprnticships. W prsnt a rang of stimats of non-complianc with th NMW basd on th mthodology usd in Ashnfltr & Smith (1979) and furthr dvlopd in Grnir (1982) and Chang & Ehrlich (1985) using a numbr of diffrnt assumptions about th masurmnt of pay outlind in Sctions 2.1 and 2.2. This is applid to data from th Annual Survy of Hours and Earnings (ASHE) and th Labour Forc Survy (LFS), which offr th most rliabl masurs of hourly pay in th UK. As wll as prsnting a varity of stimats of non-complianc rats, w also apply th mthodology to construct local ara masurs of non-complianc, which w us for conomtric stimations to attmpt to answr th following ky policy qustions: Hav succssiv incrass in th NMW affctd th xtnt of non-complianc in th conomy? 10

13 Has non-complianc bn xacrbatd by th rcssion? Dos th xtnt of non-complianc vary by firm siz? Is th lvl of non-complianc diffrnt across broadly dfind low paying sctors? Is non-complianc highr whr th 'non-complying markt wag' is closr to th NMW (Ashnfltr & Smith, 1979) or whr this is furthr from th NMW (Grnir, 1982), (Chang & Ehrlich, 1985)? Hr w us th bit of th NMW as a proxy for th non-complying markt wag. Th bit of th NMW is dfind as th NMW dividd by th mdian hourly wag in th cll. Th rmaindr of th rport is structurd as follows. Data sourcs and mthodological issus ar discussd in dtail in th following sction. Sction 3 lays out th rsarch mthods usd. Sction 4 prsnts stimats of non-complianc by ky workr charactristics and Sction 5 shows th rsults from our conomtric stimats. Sction 6 concluds. 11

14 2 Data sourcs and masurmnt issus Obtaining an accurat stimat of thos unlawfully paid blow th NMW dpnds on bing abl to idntify th corrct hourly pay for workrs, and on bing abl to xclud thos paid blow th NMW for lgitimat rasons. In lin with most othr analysis of workr pay rlatd to th NMW, w us th Labour Forc Survy (LFS) April 1999 March 2012 and th Annual Survy of Hours and Earnings (ASHE) to construct our stimats. Thy ar both official data sourcs and may not ffctivly covr th non-compliant population; for xampl covrag of th informal sctor of th conomy may b limitd in both survys. In th LFS individuals may not rport information about informal jobs which may not b compliant with th NMW lgislation; and bcaus ASHE data is providd by mployrs, thy may not rport jobs which ar not compliant with NMW lgislation. As such, stimats of th prcntag of workrs paid blow th NMW from official data sourcs ar likly to b lowr than th ral xtnt of noncomplianc with th NMW across th whol conomy. A furthr issu to not is that non-complianc rats ar xprssd as th prcntag of th whol working population. Howvr, many millions of workrs hav arnings wll in xcss of th NMW and ths workrs would nd to s a substantial fall in arnings in ordr to b non-compliant with th NMW. This mans that changs in non-complianc rats will b dampnd by th larg numbrs of workrs for whom non-complianc is nvr a ral concrn. Issus rlating to masuring lvls of pay in th LFS and ASHE hav bn considrd widly and ar rlativly wll-undrstood (Ormrod & Ritchi, 2007; and Hicks, Conn, & Johnson, 2009). Blow w considr th ky masurmnt issus and idntify how xmptions ar idntifid in th data. W aggrgat th four quartrs of LFS data with th sam NMW and ths ar rfrrd to as NMW yars,.g. NMW yar 2002 is 2001 Q4 to 2002 Q3. 12

15 2.1 Masuring pay ASHE is th National Statistic sourc for stimats of th numbr of jobs paying blow th NMW. Howvr, ASHE dos not collct data on all th charactristics of th low paid (.g. ASHE dos not includ any data about qualifications of workrs); hnc stimats from th LFS ar important whn looking at som groups of workrs affctd by th NMW. Whn th NMW was introducd in 1999, nithr data sourc was idal in idntifying workrs paid blow th NMW. ASHE was largly sampld from PAYE rcords and hnc many low paying workrs, particularly part-tim workrs, wr not includd in th survy. Th LFS also had problms in corrctly idntifying hourly pay rats for som mploys. Sinc 1999, th covrag of ASHE has improvd and wights hav bn dvlopd to allow th numbr of low paid workrs to b stimatd mor accuratly. In th LFS, qustions wr introducd to idntify workrs that wr paid hourly and thn ths workrs wr askd to rport thir hourly rat. This too improvd stimats of th numbr of low paid workrs. Howvr, for workrs who wr not paid hourly, problms rmain with th drivation of hourly pay. An approach was dvlopd by (Skinnr, Stuttard, Bissl-Durrant, & Jnkins, 2002) in which missing valus on th nw hourly rat variabl ar rplacd by imputd valus. This lads to substantially rducd stimats of low pay proportions basd on th LFS bcaus at th bottom of th arnings distribution ths imputd valus ar on avrag highr than drivd figurs of hourly arnings. Th authors rport that ths nw stimats of hourly pay ar mor accurat and stimats of low pay from th LFS using thm ar mor in lin with ASHE stimats. Th analysis prsntd in this rport is basd on data whr this imputation mthod has bn applid to th LFS data. A furthr complication with pay masurmnt at lvls clos to th NMW is highlightd by (Ormrod & Ritchi, 2007) who idntify that whn th NMW is clos to a round numbr many mploys rport pay at th narst round numbr rathr 13

16 than th NMW. This round numbr may b abov or blow th NMW. For issus rlating to non-complianc, this only bcoms important for rporting of pay at a round numbr blow th NMW. Hr, rror in rporting may lad to highr stimats of non-complianc. 2.2 NMW xmptions Som workrs can b paid blow th NMW for lgitimat rasons: Until Octobr 2009 bonuss, commissions and tips could count as pay for NMW purposs such that th basic hourly pay (i.. xcluding xtras) may hav bn lawfully blow th NMW. From Octobr 2009 onwards bonuss and commission can still count as pay for NMW purposs, but tips no longr can. NMW workrs rciving accommodation from thir mployr can b lgitimatly paid blow th NMW via th accommodation offst. Apprntics dfind undr th Mastr and Srvant Act wr xmpt from th NMW until Octobr 2010; as wr thos on a spcifid govrnmnt apprnticship schm. Sinc thn apprntics undr th ag of 19 and thos agd 19 and ovr in th first 12 months of thir apprnticship ar ntitld to th Apprntic NMW. Th xtnt to which workrs qualifying for ths xmptions can b idntifid in ASHE and LFS is limitd. In rlation to bonuss, commissions and tips; in ASHE hourly pay including and xcluding incntiv pay can b idntifid 3. Howvr, th LFS idntifis thos in rcipt of such xtras, but not th amount thy rciv, thrby not allowing prcis idntification of whthr ths ar sufficint to bring rportd pay for thos blow th NMW to a lvl abov th NMW. Similarly, th LFS asks 3 In practic including incntiv pay maks almost no diffrnc to stimats of non-complianc. In lin with th data usd by th LPC and th ONS, th ASHE stimats prsntd throughout th rport includ incntiv pay. 14

17 whthr individual's gross pay includs picwork paymnts, but dos not rport how much of th pay is on this basis. Th accommodation offst is not rportd in ASHE. In th LFS it is possibl to idntify whthr accommodation gos with th job of anyon in th rspondnt's houshold, but not th valu of th accommodation. Apprnticship status is not rportd in ASHE, and only partially rportd in th LFS. Th LFS asks rspondnts if thy ar doing a rcognisd apprnticship. Howvr, thr may b othr apprnticship typs that ar ligibl for th NMW xmption, but ar not rcordd as rcognisd apprnticships in th LFS. Hnc th numbr of apprntics that would qualify for th xmption is likly to b undrstimatd. Th LFS also includs qustions about th rcipt of work rlatd training which will b rlatd to apprnticships. Howvr, this is probably too broad an indicator of apprnticships, but along with th rcognisd apprnticship indicator discussd abov allows us to xamin broadr dfinitions about which workrs may b xmpt from th NMW. 15

18 3 Rsarch mthods Th data limitations dscribd abov man that it will not b possibl to provid an accurat stimat of th lvl of non-complianc with th NMW. Howvr, w do not bliv ths limitations prclud making a bst attmpt to xtract rlvant information on non-complianc from th survy data. 3.1 Adjusting pay stimats in th LFS Bfor undrtaking any analysis of LFS data, w applid th fractional imputation mthodology of (Skinnr, Stuttard, Bissl-Durrant, & Jnkins, 2002) to th LFS data. This uss prsonal charactristics (including statd and/or drivd hourly pay rats) in a modl that prdicts an hourly rat for ach workr. This allows th ranking of workrs in trms of thir similarity to ach othr. Thn, workrs without a statd hourly rat rciv th statd hourly pay rats from th fiv workrs dirctly abov and fiv workrs dirctly blow thm in th ranking. Thus workrs without a statd hourly pay rat rciv a donatd statd hourly pay rat from 10 workrs who ar clos to thm in trms of prdictd drivd hourly wags. Th fraction of ths 10 hourly pay rats is thn usd to comput th numbr of jobs blow th NMW, such that if two of th tn rats wr blow th NMW rat thn this counts as 0.2 of a job blow th NMW. This is th mthodology usd by th Offic of National Statistics (ONS) to dtrmin th numbr of jobs paid blow th NMW (s Box 1 in (Hicks, Conn, & Johnson, 2009) for mor dtail). In an additional stp, w tak th avrag of ths 10 rats and calculat a nw hourly pay rat for ach individual. This allows us to obtain a singl wag distribution utilising th information containd in both th pay variabls 4. W us th nw wag 4 Not that for cass with a valid statd hourly rat th nw rat will b qual to th statd hourly rat. Thos cass with a valid drivd hourly pay rat, but not a valid statd hourly rat will b assignd a nw pay rat. 16

19 distribution to calculat th rlvant mdian wags 5 that ar rquird to dtrmin th bit of th NMW for ach ky workr charactristic. 3.2 Baslin and altrnativ stimats of non-complianc Using this modifid data w calculat baslin stimats of non-complianc basd on LFS data (Sction 4.1). Ths stimats ar basd on th main job of ach workr. Th ASHE data rquir no such adjustmnts to hourly pay and th baslin stimats from ach sourc can b compard. W plot ths stimats of non-complianc ovr tim in sction 4.2 using both data sourcs; both in aggrgat and by som ky workr charactristics: gndr, firm siz 6, sctor and rgion. W thn calculat altrnativ stimats of non-complianc basd on diffring tratmnt of th biasing factors highlightd in Sction 2.2. For both data sourcs w addrss th bias from pay bing rportd in trms of roundd hourly rats by rounding down th NMW rats to th narst 10p. This mans, for xampl, that for th adult NMW of 5.93 pr hour that applid from Octobr 2010 to Sptmbr 2011; our altrnativ masur of non-complianc would considr only thos workrs paid blow 5.90 pr hour. In this xampl, th stimat of non-complianc is rducd by 0.3 prcntag points according to ASHE stimats and by 0.4 prcntag points according to LFS stimats. For th LFS data w also considr data adjustmnts in rlation to th NMW xmptions discussd in Sction 2.2. As notd, th survy allows only partial idntification of som of ths biass. To assss th xtnt to which biass affct th stimats of non-complianc w construct diffrnt non-complianc masurs using 5 Altrnativ spcifications of th mdian wag using th original variabls hourpay and hrrat produc vry similar rsults. In 2008q2 th nw pay variabl producs a mdian wag for adults of 9.82 (Bit of NMW 0.56), th hourpay variabl on its own (Bit 0.55) and a combination of hrrat and hourpay (Bit 0.55). 6 Th LFS rcords th siz of th workplac rathr than th firm. Workplac is an imprfct masur of firm siz, bcaus in many instancs th firm will b substantially largr than th workplac. ASHE includs an idntifir that indicats th numbr of mploys in th rporting unit whr th rspondnt works. In th vast majority of cass, th rporting unit is quivalnt to th ntrpris. Howvr, in som cass, typically largr firms, th firm may b mad up of svral rporting units. 17

20 a rang of assumptions. For th accommodation offst th baslin stimat assums th accommodation offst has no impact on non-complianc. Our altrnativ assumption in this cas is that anybody who arnd blow th NMW and rportd in th LFS that accommodation gos with th job of anyon in thir houshold would not b considrd as having pay that was not compliant with th NMW. Similar assumptions ar mad in rlation to bonuss, tips and commission and apprntics. In th cas of apprntics w considr rsponss to LFS qustions about whthr th workr was doing a rcognisd apprnticship; or whthr thy rcivd work rlatd training or ducation in th wk, four wks or 13 wks prior to thir intrviw. Th aim of this approach is to assss which possibl biass hav a larg impact on th non-complianc stimats. 3.3 Modls of non-complianc Finally, using non-complianc rats across local aras w stimat rgrssion modls of non-complianc to assss which factors ar important dtrminants of noncomplianc in th UK. Th cll siz for ach of ths local aras is an important considration as this will affct th sampling variability of th masur of non-complianc and thrfor th xtnt to which w can rcovr a tru impact of changs in non-complianc. Th larg sampl siz mans this is rlativly straight forward using ASHE data, whilst for th LFS w will nd to combin quartrly data to giv us annual obsrvations. W construct masurs of non-complianc for 136 county/unitary authority units 7 covring a priod of 11 upratings (1 Octobr Octobr 2010) in ordr to analys ths masurs of non-complianc conomtrically. 7 (Dickns, Rily, & Wilkinson, 2009) drivd 135 aras for Grat Britain and w hav addd Northrn Irland to th LFS analysis as an additional ara to covr most of th Unitd Kingdom. 18

21 Th dpndnt variabl (NC) in quations 1 and 2 is th masur of non-complianc in ara i in yar t whr th non-complianc rat is th proportion of workrs paid blow th lgislatd NMW. Local ara fixd ffcts ar capturd by r for ach ara i. Tim dummis ar capturd by NMW yar dummis f in quation 1, whilst ths ar xcludd in quation 2, whr variations in tim ar capturd by annual UK ral GDP growth and local ara unmploymnt rats (ncapsulatd in th vctor of rgrssors X). Th main factors w xplor ar prsntd blow: Trnds ovr tim. W tst for th xtnt to which complianc has improvd or worsnd sinc th introduction of th NMW by introducing yar dummis f to account for changs ovr tim. This also allows us to assss whthr non-complianc changd following th cut in awarnss-raising xpnditur from 2010 onwards. Impact of th rcssion. W tst for whthr complianc lvls suffr during rcssionary priods, by including controls for annual UK ral GDP growth and mor locally dfind masurs of th conomic cycl (local ara unmploymnt rats) within th vctor of rgrssors X. Bit of th NMW. Thortical modls disagr on whthr th incntiv to not comply is highr whr th 'non-complying markt wag' is closr to th NMW, (Ashnfltr & Smith, 1979) and (Chang & Ehrlich, 1985), or whr this is furthr from th NMW (Grnir, 1982). W sk to addrss this qustion by including th bit of th NMW (dfind as th NMW/mdian hourly wag in th cll) within our indpndnt variabls. Firm siz. Th incntiv to comply may b lowr for smallr firms, prhaps bcaus of a lowr probability of nforcmnt chcks. By including th shar of mploymnt by firm siz in ach local ara, w allow this factor to affct th lvl of non-complianc in th local ara. Low paying sctors. In lin with th abov, w will also includ th shar of mploymnt in low paying sctors, and in ach low-paying sctor sparatly, in ach ara to xplor how th siz of givn sctors might affct th lvl of non-complianc in th givn ara. Othr factors. W xplor whthr non-complianc is rlatd to factors such as gndr, proportion of part-tim workrs, proportion of workrs not on 19

22 prmannt contracts, proportion of non-uk born workrs, proportion of non- UK nationals, proportion of workrs with no qualifications, proportion of thnic minority workrs. W stimat ths modls using diffrnt non-complianc masurs to s how robust th modls ar to ths diffrnt spcifications. Th rational bhind this is that th mor a rsult is robust to th variation in th masurmnt of noncomplianc th lss w nd to b concrnd about th undrlying data limitations. 20

23 4 Estimats of non-complianc rats This sction prsnts stimats of th non-complianc rat for th ovrall population and crtain ky workr charactristics using th LFS and ASHE. Our LFS stimats ar basd on th main job of ach workr and most of th stimats ar prsntd only for thos ntitld to th adult rat of th NMW. Sction 4.1 dscribs our baslin stimats of non-complianc whr w considr a strict dfinition of th non-complianc rat that includs all jobs paid blow th xact valu of th NMW as a proportion of all jobs. W do not adjust for rounding rrors, or tak into account any of th possibl biass 8 in th data. In Sction 4.2, w considr th impact of rounding rrors and possibl biass on our baslin stimats of th non-complianc rat. W also prsnt data on th bit of th NMW 9 stimatd using th LFS and ASHE data rspctivly. Th stimats provid som vidnc for th rsults found by Ashnfltr & Smith (1979) that th non-complianc rat was positivly rlatd to th non-complying markt wag. This will b furthr xplord in Sction 5 using conomtric modls for local aras. 4.1 Baslin stimats of non-complianc Ovrviw of non-complianc Figur 1 blow shows th baslin non-complianc rat as wll as numbr of jobs with an hourly wag lowr than th NMW for ach scond quartr of LFS data 10, basd on th mthod dscribd in sction 3.1 on pag As discussd in sction Dfind as: Bit of th NMW = NMW rat/rlvant mdian wag 10 Excpt 2006 whr w hav had to us q3 rathr than q2 du to missing incom wights in th LFS data. Th scond quartr is also th closst match to th ASHE data. 21

24 Th non-complianc rat was rlativly stabl btwn 2000 and 2004 aftr which it incrass yar-on-yar, with th xcption of 2010, raching 2.1% (516,000 jobs) in th first quartr of Figur 1: LFS baslin non-complianc rat and numbr of jobs, all workrs in main jobs Prcntag 2.50 Numbr of Jobs 600, , , , , , q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 Non-complianc rat (LHS) Numbr of Jobs paid blow NMW (RHS) Not: Estimats ar calculatd from data for th scond quartr of ach yar, with th xcption of 2006q2 (du to missing data) and 2012q2 (not availabl at tim of calculation). - Thr ar four diffrnt rats of th NMW rlating to diffrnt groups of workrs 12. Thr groups ar basd on ag (16-17 yar olds, dvlopmnt and adult) and on for thos doing an apprnticship. Figur 2 shows th NMW rats applicabl for ach group. 11 This is th latst quartr of LFS data w hav availabl. 12 Th Apprntic Rat applid to apprntics undr 19 or 19 or ovr and in th first yar of thir apprnticship from 1 Octobr Bfor this dat, apprntics wr xmpt from th NMW. Th Yar Old Rat (which cam into forc in Octobr 2004) applis to all workrs agd not doing an apprnticship. Th Youth Dvlopmnt Rat applid to all workrs agd bfor 1 Octobr 2010 and to all workrs agd thraftr not doing an apprnticship. Th Adult rat applid to all thos agd 22 and ovr bfor 1 Octobr 2010 and to all workrs agd 21 and ovr thraftr (and not in th first yar of an apprnticship). 22

25 Figur 2: Official NMW rats in ach quartr of analysis q2 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 Adult rat Dvlopmnt rat yar olds rat Apprntic rat W will first considr baslin non-complianc rats for th diffrnt ag-rlatd groups. Du to th difficulty in corrctly idntifying apprntics, w will dal with thm sparatly in sction 4.2 along with othr rasons why an individual may b lgitimatly paid blow th NMW. Having discussd baslin non-complianc by ag group w thn focus on th charactristics of adult workrs only NMW ag groups 14 Figur 3 and Figur 5 show stimats of baslin non-complianc from th LFS and ASHE rspctivly. Baslin non-complianc is typically highr for youngr workrs 13 This is bcaus sampl sizs ar too small to allow any disaggrgation of complianc rats by workr charactristics for workrs ligibl for th Yar Old Rat and Youth Dvlopmnt Rat. 14 Th ag-rlatd groups ar basd on NMW ntitlmnt. This mans that whn thos agd 21 bcam ntitld to th Adult rat of th NMW rathr than th Youth Dvlopmnt Rat on 1 st Octobr 2010 thy movd ovr to th Adult rat group. Thrfor, 21 yar olds ar includd in th Youth Dvlopmnt Rat group bfor this dat and in th Adult rat group aftrwards. 23

26 than adult workrs. Th diffrncs ar clar according to ASHE data, but th volatility of th stimats according to th LFS data (du to modst sampl sizs, particularly for workrs ligibl for th Yar Old Rat) mak th pattrns lss clar cut. Th ASHE stimats of adult baslin non-complianc (Figur 5) ar rlativly stabl for most of th priod, typically just blow 1%, whilst th LFS stimats (Figur 3) show a diffrnt pictur with th baslin non-complianc rat incrasing from 0.4% in 2000 to 2.0% in In Sction 4.2 w xplor th xtnt to which rounding and th xmptions discussd abov chang ths stimats. Baslin non-complianc rats for Yar Old Rat and Youth Dvlopmnt Rat workrs ar also stabl for much of th priod, according to ASHE stimats, but both incras btwn 2009 and This may b rlatd to th rcssion or to th rduction in awarnss-raising activitis. Th LFS stimats of baslin noncomplianc for Yar Old Rat and Youth Dvlopmnt Rat workrs also show an upward trnd, albit with som volatility in th stimats, from 2007 for Youth Dvlopmnt Rat workrs and from th introduction of th Yar Old Rat for ths workrs. Th rlationship btwn rcssion and non-complianc will b xplord through conomtric analysis (Sction 5). Howvr, sampl sizs man that this analysis can only b carrid out for adult workrs, so it will not b possibl to say whthr incrass in non-complianc for Youth Dvlopmnt Rat and Yar Old Rat workrs is rlatd to th rcssion. Figur 4 and Figur 6 show th bits of th NMW for ach of th ag groups for th LFS and ASHE rspctivly. This is dfind as th ratio of th NMW to mdian arnings for ach ag group. Th pattrns ar similar for ach datast, with an upward trnd in th bit of th NMW for ach ag group and th lowst bit bing for adult workrs followd by Yar Old Rat workrs and thn thos ligibl for th Youth Dvlopmnt Rat. For adult workrs th bit incrasd from 50% in 2001 to 60% in 2012; and for dvlopmnt rat workrs from 69% in 2001 to 81% in 2012 (LFS stimats). Th positiv corrlation in baslin non-complianc rats (Figur 3) and bits (Figur 4) shown by th LFS (both hav an upward trnd) suggst that baslin non-complianc may b highr whr th NMW is closr to th markt wag, in lin with th 24

27 proposition of Ashnfltr & Smith (1979). Howvr, th ASHE data (at last for adult workrs) dos not show th sam raw corrlation (baslin non-complianc is rlativly stabl, Figur 5, whilst th bit, Figur 6 incrasd ovr tim). Th rlationship btwn non-complianc and th bit of th NMW for adult workrs will b xplord furthr in our conomtric analysis (s Sction 5). Figur 3: LFS Baslin non-complianc rats by NMW Ag bands Figur 4: LFS Bit of th NMW by th thr NMW ag bands 7 90% 6 80% P r c n t, % % 60% 50% 40% q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 30% 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 Youth: Dvlopmnt rat: 18-20/21 Adult: 21/22+ Youth: Dvlopmnt: 18-20/21 Adult: 21/22+ Figur 5: ASHE Baslin non-complianc rats by NMW Ag bands Figur 6: ASHE Bit of th NMW by th thr NMW Ag bands. 7 90% 6 80% P r c n t, % % 60% 50% 40% % Youth: Dvlopmnt rat: 18-20/21 Adult: 21/22+ Not: ASHE data ar only availabl up to is only includd as a placholdr to mak th chart asir to compar with th on in Figur 3 abov. Youth: Dvlopmnt rat: 18-20/21 Adult: 21/22+ Not: ASHE data ar only availabl up to is only includd as a placholdr to mak th chart asir to compar with th on in Figur 4 abov Gndr Nxt w considr how baslin non-complianc and th bit of th adult NMW vary by gndr. Hr th pattrns across th two datasts ar similar. Baslin noncomplianc is highr for womn than for mn (Figur 7 and Figur 9) and th bit of th NMW is also highr for womn than mn (Figur 8 and Figur 10). Th bit for mn and womn incrass ovr tim and ASHE baslin non-complianc stimats ar rlativly stabl ovr tim, whilst LFS stimats show an upward trnd in lin with th ovrall figurs. 25

28 Figur 7: LFS Adult baslin non-complianc rats by gndr Figur 8: LFS Adult bit of th NMW by gndr 3 70% % P r 2 c 1.5 n t, 1 % 50% 40% q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 30% 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 Adult mal Adult fmal Adult mal Adult fmal Figur 9: ASHE Adult baslin non-complianc rats by gndr Figur 10 ASHE Adult bit of th NMW by gndr 3 90% % P r 2 70% c 1.5 n t, 1 60% 50% % % % Adult mal Adult fmal Mal Fmal Not: Unwightd sampl sizs from th LFS rang from 5,086 to 8,539 rspondnts for mn; from 5,766 to 9,718 rspondnts for womn. For ASHE stimats th unwightd sampl sizs rang from 61,754 to 62,744 (mn); and 80,849 to 86,144 (womn) Rgions Figurs 11 and 12 prsnt th baslin non-complianc rat and bit of th NMW for th countris and rgions of th Unitd Kingdom stimatd using th LFS. Th pictur is not as clar as for som of th othr charactristics du to smallr sampl sizs in many rgions lading to stimats that ar mor volatil. Baslin noncomplianc tnds to b high in Northrn Irland, whilst th bit is lowst in London followd by th South East and East of England. ASHE stimats of baslin non-complianc (only covring Grat Britain) shown in Figur 13 ar mor stabl for all rgions, rflcting th largr sampl sizs upon which ths stimats ar basd. Hr, baslin non-complianc is lowst in London, whilst, in gnral, rats for othr rgions ar similar. Th ASHE stimats of th bit of th adult NMW (Figur 14) show a similar pattrn to th LFS stimats with th lowst bit in London followd by th South East. 26

29 Figur 11: LFS Adult baslin non-complianc rats by country and rgion of th Unitd Kingdom Figur 12: LFS Adult bit of th NMW by country and rgion of th Unitd Kingdom 5 80% 4 70% P r 3 60% c n t, % % 40% q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 30% 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 North East North Wst Yorkshir and th Humbr East Midlands Wst Midlands East of England London South East South Wst Wals Scotland Northrn Irland North East North Wst Yorkshir and th Humbr East Midlands Wst Midlands East of England London South East South Wst Wals Scotland Northrn Irland Figur 13: ASHE Adult baslin non-complianc rats by country and rgion of Grat Britain Figur 14: ASHE Adult bit of th NMW by country and rgion of Grat Britain 5 80% 4 70% P r 3 60% c n t, % % 40% % North East North Wst Yorkshir and Th Humbr East Midlands Wst Midlands East of England London South East South Wst Wals Scotland North East North Wst Yorkshir and th Humbr East Midlands Wst Midlands East London South East South Wst Wals Scotland Not: Unwightd sampl sizs from th LFS rang from 254 in Northrn Irland in 2011 to 2,635 South East in For ASHE stimats th unwightd sampl sizs rang from 4,925 in th North East in 2008 to 25,036 in London in Industry Figur 15 and Figur 17 prsnt stimats of th baslin non-complianc rat of th NMW for six main industrial sctors 15 from th LFS and ASHE rspctivly. Both show baslin non-complianc was highst in Distribution, Hotls and Rstaurants followd by Othr Srvics. According to LFS stimats th baslin non-complianc rat was considrably highr in Distribution, Hotls and Rstaurants than othr sctors (in 2012 it was 5.2% compard with 3.1% in Othr Srvics and lss than 1.5% in all othr sctors), whilst diffrncs according to ASHE wr much smallr. 15 Th sctors ar basd on SIC92 for LFS and SIC 2003 for ASHE. Du to small sampl sizs in th LFS, w combind four sctors into th production sctor. Th Production sctor is a combination of Agricultur and Fishing, Enrgy and Watr, Manufacturing and Construction. Workplacs outsid th UK wr xcludd from th analysis at th start. 27

30 Th high baslin non-complianc rat rcordd by th LFS may b partly xplaind by many workrs (waitrs, hotl portrs, tc.) in this sctor rciving tips in addition to thir hourly pay and th potntial masurmnt rror introducd by th incorrct inclusion/xclusion of such paymnts from th hourly pay rportd in th LFS may lad to an ovrstimat of th xtnt of non-complianc. Th pattrn for th bit of th NMW is also similar for ASHE (Figur 18) and LFS (Figur 16). According to both sourcs th bit was highst in Distribution, Hotls and Rstaurants followd by Othr srvics. Not this is th sam ordring as for th rats of baslin non-complianc. According to LFS data thr was a sharp fall in th bit of th NMW for th Transport and Communication sctor aftr Howvr, no such fall was vidnt in th ASHE data. This may b rlatd to a chang in th industrial classification systm as th LFS movd from using SIC 2003 to SIC Transport, storag and communication (Sction I in SIC 2003) maps to transport and storag (Sction H in SIC 2007) and information and communication (Sction J in SIC 2007). Som of th activitis includd in information and communication in SIC 2007 wr classifid undr a numbr of Sctions in SIC 2003 including Manufacturing; Transport, storag and communications; Ral stat, rnting and businss activitis; and Othr community, social and prsonal srvic activitis. 28

31 Figur 15: LFS Adult baslin non-complianc rats by industry sctors in th Unitd Kingdom Figur 16: LFS Adult bit of th NMW by industry sctors in th Unitd Kingdom 6 90% 5 80% P r c n t, % 60% 50% % 1 40% q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 30% 2000q2 2001q2 2002q2 2003q2 2004q2 2005q2 2006q3 2007q2 2008q2 2009q2 2010q2 2011q2 2012q1 Production Transport & communication Public admin, ducation & halth Distribution, hotls & rstaurants Banking, financ & insuranc Othr srvics Production Transport & communication Public admin, ducation & halth Distribution, hotls & rstaurants Banking, financ & insuranc Othr srvics Figur 17: ASHE Adult baslin non-complianc rats by industry sctors in Grat Britain Figur 18: ASHE Adult bit of th NMW by industry sctors in Grat Britain 6 90% 5 80% P r c n t, % 60% 50% % 1 40% % Production Transport and communication Public administration, ducation and halth Distribution, hotls and rstaurants Banking, financ and insuranc Othr srvics Production Transport and Communications Public administration, ducation and halth Distribution, hotls and rstaurants Banking, financ and insuranc Othr srvics Not: Unwightd sampl sizs from th LFS rang from 425 in Othr srvics in 2011 to 5,884 in Public administration, Education and Halth in For ASHE stimats th unwightd sampl sizs rang from 4,624 in Othr srvics in 2001 to 60,894 in Public administration, Education and Halth in Firm siz Figur 19 and Figur 20 blow show th stimats for diffrnt firm sizs using th LFS. Du to changs in th LFS variabls, w show on dfinition for th whol sampl and anothr for th yars from 2001 onwards. Th first dfinition only divids firms into two catgoris, thos with fwr than 25 mploys and thos with 25 or mor mploys. Th scond dfinition allows us to dfin thr catgoris within th 25 or mor mploys catgory (25-49, and 500+ mploys). Th Figurs again show both sris hav upward trnds and that smallr firms hav highr rats of baslin non-complianc as wll as a highr bit. Furthrmor, it is worth noting that across all yars considrd, whilst roughly on-third of adult 29

32 mploys workd in firms with lss than 25 mploys, roughly thr-fifths of adult mploys with arnings blow th NMW wr working in firms with lss than 25 mploys. Figur 21 shows th stimats of th non-complianc rats by firm siz for ASHE data. Hr w considr siz bands of lss than 25 mploys, 25-49, , and 500+ mploys. Baslin non-complianc rats ar similar for all siz bands abov 25 mploys, particularly from 2003 onwards. Howvr, baslin noncomplianc rats wr consistntly highr in vry small firms (with lss than 25 mploys). Figur 22 show th stimats of th bit of th adult NMW by firm siz. Similar to th LFS stimats w s a gnral upward trnd with th bit highst among mploys of vry small firms (lss than 25 mploys). 30