Sense of fair play `will prevent a wage spiral'

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The Independent Online
The introduction of a minimum wage will not have the knock-on inflationary effect that has been feared, a report published today suggests.

Employees do not appear to be greatly concerned about differentials, which means they will not demand pay rises when a minimum level is set.

The study - of personnel managers, union representatives and employees in 11 private companies for the Economic and Social Research Council - says the lack of interest in differentials arises from the almost-forgotten British yearning for fair play.

It says most employees are paid on the basis "of what is considered fair for the position and its responsibilities". When a company is reshaped, pay structures are rarely revamped in line because "most people think it is unfair if a restructuring causes some employees, through no fault of their own, to take a drop in pay".

The study showed that soft factors, such as fairness, are more important in employees' minds than elements such as company profitability and maintaining differentials. That means they sometimes restrain their demands. "There is some evidence that employees only resent narrowing differentials when they ... feel they have a case for doing so," the authors say.

The importance of differentials is also undermined by widespread ignorance of how much people in other jobs are paid. "It appears that if you don't know what other people are paid, you are less likely to mind about differentials," said Julie Dickinson of Birkbeck College.

Managers and union representatives judged reliance on market forces to determine pay to be naive, because they might lead to disparities such as experienced employees being paid less than new recruits. Once again, fairness came though as the main yardstick.

"The widespread use of job evaluation suggested that equity was the most important factor for determining pay differentials within companies," the report says.

The study, The Role of Beliefs about the Fairness of Wage Differentials in Wage Setting, is part of the Economic and Social Research Council's programme on Economic Beliefs and Behaviour.