Are Sainsbury’s pay proposals a sign of things to come in low-paying sectors?

Sainsbury’s has announced proposals to boost its base pay, from £8 per hour to £9.20. This, of course, is important news for the 130,000 people who work there, even if it won’t be welcomed by every one of them, as explored below. But the action Sainsbury’s has taken – and the ways it has outlined to offset it – provide a useful case study in how firms in low-paying sectors are adapting to big changes in the labour market.

First, and although not mentioned explicitly in the press release, the government’s National Living Wage (NLW) is a key factor in this decision. The pay bump puts clear water between Sainsbury’s and the wage floor (£7.83 from next month). Unite have noted, however, that no further pay increase is expected until 2020, eroding that gap. But with the NLW currently on course to be £8.56 in 2020, that gap will persist. And while this moves Sainsbury’s above the real Living Wage – the voluntary one designed to provide a decent standard of living – this year (outside of London), it hasn’t committed to adhering to that benchmark in the years ahead. If pay is frozen till 2020, it’s very likely it will fall behind, unlike other retailers who have become accredited Living Wage employers.

Second, with employment rates at record highs and the ratio of unfulfilled vacancies higher in retail than in most sectors, it may be the case that such a move is necessary to attract and retain staff. Although previous RF analysis found EU migrants comprise just 6 per cent of the retail workforce, question marks over the future immigration regime may also be playing a part in this move.

Third, Sainsbury’s isn’t just raising pay. One of the main questions around the introduction of the NLW has been how affected employers would react. Arguably the simplest approach – employing fewer low-paid people – thankfully doesn’t appear to be widespread. But surveys we’ve conducted with employers suggest a variety of other tactics being used, often in tandem. Sainsbury’s has announced vague “changes to productivity” but have also proposed making roles “streamlined and broader”, and shifting from 22 specific positions to five. In this, it appears to be buying into – at least rhetorically – MIT academic Zeynep Ton’s ‘good jobs strategy’, which advocates a move away from tightly-defined low-productivity jobs that require little training and are often repetitive.

Of course, we can’t say how different any of these roles will be. And with some firms responding to our survey admitting they will just seek to make workers to do more in the same amount of time without new skills or equipment, that’s a far more worrying prospect. But actively considering job design and the kinds of tasks employees have to carry out is welcome.

Fourth, there will be other changes that are less welcome for those affected. In a survey as part of our research for the Low Pay Commission, one in six affected employers said they would make changes to other parts of the pay and benefits package. Responses to this included removing paid breaks, bonuses or premium pay for overtime or anti-social hours. Sainsbury’s has opted to do some of these: an end to paid breaks and bonuses, as well as making premium payments “fairer and consistent”. As our analysis in response to the Taylor Review has illustrated, such “perks” are the exception rather than the rule in many low-paying sectors. Time-and-a-half for overtime, for example, is already a rarity with a trend across supermarkets in recent years to boost basic pay while cutting a Sunday premium for example.

Who gains and loses from this sort of move depends on working patterns. We know for instance that 12 per cent of men report doing overtime compared to 7 per cent of women. Sainsbury’s has pledged to top-up the wages of anyone losing out but decisions over such ‘perks’ and their future in a world which focuses on the hourly rate remain hotly debated.

Sainsbury’s will be consulting on these changes over the coming months, but similar discussions will be taking place in firms across the UK as they deal with rising wages, a tight labour market and potential falls in migration. That’s why now is the right moment for the government to take a more active role. The industrial strategy acknowledged the importance of large sectors like retail and hospitality that employ millions of workers, but who often fall outside of traditional discussions of how productivity can be raised. Productivity in these sectors is higher in other countries, so there is obvious room for improvement. And while few firms would welcome direct intervention, support with training, skills, job design and other options available could provide a useful nudge in the right direction, and in the long run benefit both employees and employers.