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Staying Underground: Informal Work, Small Firms, and Employment

Regulation in the United Kingdom
Monder Ram, Paul Edwards and Trevor Jones
Work and Occupations 2007 34: 318
DOI: 10.1177/0730888407303223

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 Work and Occupations
Volume 34 Number 3
August 2007 318-344
© 2007 Sage Publications
Staying Underground 10.1177/0730888407303223
http://wox.sagepub.com
hosted at
Informal Work, Small Firms, and http://online.sagepub.com
Employment Regulation in the
United Kingdom
Monder Ram
de Montfort University
Paul Edwards
Warwick University
Trevor Jones
de Montfort University

Why does a universal labor law, the National Minimum Wage (NMW) in the
United Kingdom, have little effect on firms operating in the informal econ-
omy? In explaining this particular empirical puzzle, the authors go beyond
dominant accounts of the informal economy—the neo-liberal and the margin-
alization theses—to develop analysis based on the negotiation of consent
within the labor process. Evidence from employers and employees in 17 firms
is presented. The informal sector developed social relations of work that oper-
ated independently of the NMW, a key aspect being a tacit negotiation of order
even under conditions apparently unhelpful to such practices. Informality was
deeply embedded in relations of work that continued to reproduce themselves.

Keywords: employment regulations; ethnic minority enterprise; informal

economy; National Minimum Wage

H ow does the informal economy continue to reproduce itself? This ques-

tion is examined by taking a major labor market innovation, the intro-
duction of the National Minimum Wage (NMW) in the United Kingdom
in 1999, to explore the interplay between employment regulation and informal
economic activity.1 The overwhelming picture of the NMW is one of minimal
effects on employment, unemployment, and wage differentials (Dickens
& Manning, 2003), with compliance being the modal response, even among
small firms, where evasion might be expected to be most common (Arrow-
smith, Gilman, Edwards, & Ram, 2003). Yet there are parts of the economy

318

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 Ram et al. / National Minimum Wage in the United Kingdom 319

where evasion of the NMW exists. A first aim of this article is to explain
why by focusing on firms in the “informal economy.” We take firms that are
likely to demonstrate informality in a high degree, which thus act as extreme
cases: firms that are small and owned by members of ethnic minorities, for
these are two key features placing firms outside the “mainstream.” The second
aim is to contribute to sociological understanding of the informal economy. As
defined by Tilly and Tilly (1998, p. 32), much of this sector comprises
“barter, entrepreneurship and nonmarket social relations”; examples include
“casual house repair and street peddling of contraband.” Our focus, by con-
trast, is firms that are clearly located in conventional labor markets but
engage in one or more illegal employment practices; we thus throw light on
a particular part of the informal sector. Third, we show that one reason for
evasion of the NMW was the pattern of negotiated order in the informal sec-
tor. Workplace negotiated orders are a well-known phenomenon (Burawoy,
1979; Hodson, 2001); however, they are thought to be least likely in a sec-
tor where competition is relentless and workers lack labor market power,
that is, where the “whip of the market” (Burawoy, 1985) is dominant. Yet, even
here, a form of negotiated consent was evident (see Scott, 1985). We show how
it existed, and how it contributed to the maintenance of informality despite
the arrival of the NMW. Finally, there is a business lobby view that employ-
ment regulations are driving firms into informality. We show, by contrast, that
informality is created by deeper processes and that any effects of the NMW
depended on these forces.
The article begins with an assessment of extant conceptualizations of the
informal economy, namely, neo-liberalism and the marginalization thesis.
Both approaches are found wanting in explaining the key question of the
persistence of the informal economy. Data and methods are then discussed
in the context of the issues involved in researching firms operating illegally;
firms from two sectors were studied, and the research design permitted
comparison between firms that did and did not comply with the NMW. The
first empirical section presents evidence on pay and working hours, thereby
illuminating the persistence of the informal economy despite the advent of
the NMW. The very low levels of wages are then explained in terms of the
nature of informal organization. This discussion leads into an analysis of
the contradictory relationships of exploitation and consent; this is crucial in
explaining how employers are able to evade the NMW and other regula-
tions. We then examine the compliant firms to identify what factors may
lead firms out of informality. This leads into the concluding discussion of
the likely future course of the informal economy in an industrialized society
such as the United Kingdom.

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320 Work and Occupations

The Persistence of the Informal Economy

At the outset, we need to establish definitional clarity because the very term
informal economy is bedevilled with a whole range of competing labels and
interpretations (Williams, 2004, 2006). For present purposes we define it as
the remunerated production of goods and services perfectly legal in them-
selves, but hidden from the state for tax and welfare purposes. As Leonard
(1998) and Williams (2004) pointed out, much of this work is simply unre-
ported but entirely harmless. At the other end of the spectrum, however, there
is much that involves the purposeful avoidance of tax and/or evasion of
employment and immigration regulations (see Kesteloot & Meert, 1999, for
comprehensive classification of informal activities). Essentially the ends are
perfectly legal; however, some of the means used to attain them are extrale-
gal (Williams, 2006). Adding to the morally ambiguous flavor is the effect of
changing legal definitions, where, as in the case of the British NMW, legisla-
tive change operates to criminalize what had previously been a perfectly legal
if regrettable practice—that is, low wage payments (Arrowsmith et al., 2003;
Heyes & Grey, 2001; Ram, Edwards, Gilman, & Arrowsmith, 2001).
Even though the scholarly discourse on the informal economy ranges
across a broad philosophical spectrum, most interpretations tend toward the
economistic. For neo-liberals (de Soto, 1989 2001; see Williams 2006, for
critique), state regulation is essentially a distortion of the market, which can
only produce misallocation of resources through disrupting the proper
interaction between supply and demand. This, they would argue, is graphi-
cally demonstrated in the present case, where artificially imposed minimum
wage thresholds act to drive up labor costs to levels beyond the reach of
most small employers. In consequence, firms can only continue to satisfy a
legitimate customer demand for their goods and services by circumventing
the regulations and avoiding the extra cost incurred. In this view, the state
itself is blamed for creating its own nemesis because the “burden of exces-
sive regulation” is the very force, which drives otherwise honest entre-
preneurs underground as their only means of business survival. Taken to
its inescapable conclusion, this logic would see such entrepreneurs as heroes
rather than villains and the informal economy itself as nothing less than the
archetypal “mechanism through which enterprise culture can express itself”
(Williams (2006, p. 121). All this is a plea for the lifting of regulations and
a return to something closer to laissez-faire, in which all activities currently
pursued in the underground economy are legitimized, thereby effectively
abolishing all distinctions between formal and informal (de Soto, 2001).

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 Ram et al. / National Minimum Wage in the United Kingdom 321

Whereas neo-liberalism sees underground entrepreneurs as a misbegotten

creation of the state, proponents of the marginalization thesis (Castells &
Portes, 1989; Portes, 1994) would switch much of the onus on to market
forces. They would argue that it is the uneven development of the market
itself that dictates that many classes of goods and services must be sold at a
price insufficient to offer an economic return either to entrepreneurs or
workers (Jones, Ram, & Edwards, 2006). Informal working is the only basis
on which the unprofitable residual markets left uncontested by large corpo-
rate capital can exist. Unquestionably this school has produced many use-
ful insights, none more valuable than its rejection of the notion of informal
activities as a purely premodern transitional aberration, overwhelmingly the
preserve of marginal groups such as immigrant minorities (Light, 2004).
Instead it presents economic informality as an absolutely integral element in
the contemporary economy, a response to the burgeoning demand for cheap
goods and services spawned by postindustrial urbanism (Sassen, 1991). It
also stresses the strength and variety of in-built interlinkages between the
formal and informal spheres, notably subcontracting arrangements (Rainnie,
1989; Ram, 1994); and the double standards attending a form of unequal
exchange that enables the large formal firm to keep its own hands clean
while minimizing costs through the use of super-cheap goods and services
produced by someone else’s extralegal practices (Jones et al., 2006). Nor
should we forget the universal role of extralegal production in “supporting
the lifestyles of the professional middle classes” (Hagan, 2004, p. 420)
This school is as preoccupied with the economic as is neo-liberalism.
It is true that the market imposes strong imperatives. Economic marginal-
ity is one of the most enduring themes in the sociology of small enterprise
(Bechhofer & Elliott, 1985; Scase, 2003; Scase & Goffee, 1982a; Wright
Mills, 1957), and it is the case that the great majority of small firms operate
in hypercompetitive markets, where low or nonexistent profit margins do not
leave room to readily absorb extra regulatory costs. According to Barrett and
Rainnie (2002), the existence of small clothing firms such as those inter-
viewed for this article is predicated entirely on their dependence on large
Main Street retailers for whom they subcontract, usually on highly disadvan-
tageous terms, which support only a precarious survival. Consequently own-
ers maintain that they flout the NMW because they simply cannot afford to
meet it (Jones et al., 2006). Thus it is not the regulatory system as such that
fuels the informal economy but the sheer pressure of competitive forces in
markets where the supply of entrepreneurs outruns demand for their product.
Yet economics does not tell the whole story. Although small firm owners
certainly are powerfully shaped by their economic environment, they cannot

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322 Work and Occupations

be simply dismissed as passive pawns, and it is important to acknowledge

that they also enact their own economic destiny to some degree. In explain-
ing noncompliance with the NMW, will not is perhaps as important as can-
not in the majority of cases. Here we would argue that the NMW is perceived
as a violation of the norms and rituals around which small business life
revolves. The hallmark informality of the small business class—their con-
scious avoidance of contractual, legalistic, and bureaucratic practices—is
an expression of the fierce sense of independence, which constitutes their
primary driving force (Bechhofer & Elliott, 1985; Scase & Goffee, 1982b;
Wright Mills, 1957). Most pertinent here, among the cluster of values making
up the small entrepreneurial ethos, one of the most consistently voiced is anti-
statism, where any kind of state intervention is construed as negative intru-
sion and is invariably opposed (Bechhofer & Elliott, 1985).
Resistance to the NMW is a case in point, with the state attempting to
impose its own formalized contractual regulations on a world that is its
direct opposite, a quasi-anarchic antibureaucracy of face-to-face networks,
tacit trust-based understandings, and minimal paperwork (Jones, Ram, &
Edwards, 2004). In the case of our own Asian respondents, many of whom
are immigrants from traditionalist backgrounds, this ethos may be given an
extra spin by ethnic cultural norms rendering them even more than usually
alienated from the state’s bureaucratic values. In passing, we would insist that
this be seen essentially as an ethnic version of a class culture, rather than an
exceptionalist form in its own right.
State regulations trespass against the norms of the informal labor process,
running counter as they do to the expectations of the parties involved.
Crucially, this refers to bosses and workers because, perverse though it may
seem, it cannot necessarily be assumed that small firm employees will auto-
matically welcome government intervention to impose a statutory wage on
their behalf. This is the decisive, and hitherto underexplored, factor explain-
ing the continued reproduction of the informal economy. Until recently, the
predominant weight of emphasis has been placed on the sheer exploitation
of an unskilled labor force rendered captive by its lack of labor market choice
and in most cases of collective bargaining leverage (Hoel, 1984; Mitter, 1986;
Rainnie, 1989). To question this is not to argue for the discredited “harmony
thesis” in small firms’ employee relations. Indeed, we would acknowledge
the validity of Scase’s (2003) observation that the small workplace embodies
conditions that “militate against the development of collective organization
and consciousness among employees” (p. 473). Yet, though all this is
undoubtedly of the highest importance, it is not the whole story. For a prop-
erly rounded and nuanced picture, the insights gained from the developing

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 Ram et al. / National Minimum Wage in the United Kingdom 323

discourse on small firm employment relations need to be brought to bear

on those contributed by the marginalization thesis. This entails recogniz-
ing that the economic behavior of the actors in the informal economy is
very much embedded in social relations within households and communi-
ties. In this system, workers’ entitlements are asserted not by trade union
muscle or official legislation but by membership of a social network
defined by kinship, friendship or, as in the case of our own respondents,
ethnicity. They are part of a “web of dependency relationships” (Ram et
al., 2001, p. 852).
At the household level, many informal workers are themselves family
members, whose willingness to adjust their daily lives to accommodate fluc-
tuating workloads is essential to the firm’s survival (Wheelock & Baines,
1998) but who in return enjoy a direct stake in the firm’s fortunes. For non-
family employees, too, authority relations are softened and humanized by
face-to-face personal interactions. It is of course well established that pater-
nalism is a mainstay of the small firm labor process (Barrett & Rainnie,
2002; Chapman, 1999; Ram 1994; Scase, 2003; Scase & Goffee, 1982b), a
process that, in effect, creates an ambience whereby workers feel a sense of
belonging as if they actually were members of the extended family (Holliday,
1995). As we see from the present case studies, this sense of mutual identi-
fication and interdependence between worker and boss is reinforced by all
sorts of nonmonetary perks and extras.
Integral to the process too is individual bargaining and negotiation,
enabling the employee to enjoy a certain measure of autonomy and leverage
that, in the case of key workers such as head chefs in restaurants or skilled
cutters in the rag trade, is not entirely illusory. Moreover, there are grounds
for believing that this extends also to more routine workers such as waiters.
There is a powerful argument to suggest that, for personal service workers,
a “unique brokering position” (Troyer, Mueller, & Osinsky, 2000, p. 412)
between employer and customer enables them to enjoy considerable auton-
omy in the matter of “establishing the tempo of their work and the nature of
their interactions with customers” (McCammon & Griffin, 2000, p. 283; see
Heimer & Stevens, 1997, for a parallel argument on hospital social workers).
These last authors discuss the “coping practices” of such workers, a mixture
of accommodation and resistance.
For us, this is the nub of the matter and the chief thrust of our argument
is that informal working relationships are too complex and subtle merely to
be dismissed as exploitation cloaked in false consciousness. This is not to
deny the existence of inequalities and abuses. There is, for example, no com-
parison between the relative power of a skilled experienced chef and the

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324 Work and Occupations

abject dependence of an illegal immigrant kitchen porter, utterly reliant on

the caprices and whims of his employer (Jones et al., 2004, Rodriguez,
2004). Yet it is the web of consent, and not just the brute fact of economic
marginality, that explains how informality is reproduced.

Data and Methods

To achieve the task of accounting for the resilience of the informal econ-
omy in the light of the “shock” of the NMW, we focus on the clothing and
restaurant trades. This choice reflects the fact that, historically, these are two
sectors in which informal economic activity has been widespread (Rath, 2002):
They are characterized by small low-paying enterprises operating based on
informally recruited and noncontractually employed workers, some of whom
are illegal immigrants (Jones et al., 2004). A total of 17 case studies was con-
ducted, nine from clothing and eight from catering.
Firms in both sectors struggle to survive in the face of harsh competition
and adverse trends. For catering, the problem is one of commercial “over-
population,” with the stock of cheap eating places outrunning even a spec-
tacular growth in demand. Drastic price cutting is often the only perceived
means of survival (Ram, Abbas, Sanghera, Barlow, & Jones, 2001), a mea-
sure inevitably aggravating the problem of low pay and poor working con-
ditions and leading to yet further difficulties in recruitment and retention.
Clothing, by contrast, is a classic “sunset” industry, suffering long-term
decline because of intensifying penetration of home and world markets
by emergent industrial nations. Despite optimistic predictions of post-
Fordist restructuring (Piore & Sabel, 1984), it is a sector that has attained
“flexible production without compromising [its] traditional control impera-
tives” (Taplin, 1995, p. 434). Immigrants have been integral to this process.
As long ago as the mid-1980s, the industry’s survival in Britain rested largely
on the presence of immigrant entrepreneurs competing based on cheap and
flexible labor from within their own communities (Mitter, 1986). Since then,
global competitive pressures have if anything become even more stringent
(Ram, Husband, & Jerrard, 2002), necessitating further painful cost cutting.
Given the sensitivity of investigating firms whose practices may be at odds
with official requirements, our initial challenge was one of access. To over-
come the trust barrier, the research team employed community insiders to
carry out the interviews, a Bengali-speaking Bangladeshi for the restaurants
and a Punjabi-speaking Indian for the clothing factories. Each interviewer
had long experience of the respective trades as worker and owner. Both

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 Ram et al. / National Minimum Wage in the United Kingdom 325

interviewers were fully apprised of the aims of the research and the critical
importance of confidentiality. To monitor the quality of the data, it was
common practice for each intermediary to discuss interviews with a member
of the research team while the research was in progress. Members of the
research team also conducted 6 of the 17 case studies, drawing on personal
networks, working experience in these trades, and contacts from previous
research. The appendix gives more detail on how we addressed the substan-
tial ethical and practical issues of this kind of research.
This approach can be seen as a form of “chain referral sampling”
(Biernacki & Waldorf, 1981; Penrod, Preston, Cain, & Starks, 2003). It is
similar to snowball sampling inasmuch as participants make referrals to oth-
ers who have experienced the phenomenon of interest. However, a potential
drawback of snowball sampling is that the networks of gatekeepers can be
limited and somewhat homogeneous. The key strength of chain referral
sampling is that “multiple networks are strategically accessed to expand
the scope of investigation beyond one social network” (Penrod et al., 2003,
p. 102). Such an approach is particularly valuable when there is no readily
accessible sampling frame (Faugier & Sargeant, 1997; Heckathorn, 1997;
Penrod et al., 2003). Accordingly, as noted above, the researchers conducted
a third of the case studies; hence there were at least three different channels
to the case firms. However, this did not exhaust the chain referral points. The
firms themselves were initially located via our previous research in this
area, which had discovered several firms not complying with the NMW. The
firms participating in the earlier research were identified using the advice of
22 business associations and similar bodies with which we developed exten-
sive contacts. Although many of these had since closed down, five firms
were located and reinvestigated, giving the current study a rare longitudinal
dimension.
In line with our theoretical approach to the informal economy, the prin-
ciple of variation or “heterogeneity” informed the selection of case study
firms. This militates against a “thin” (Williams & Windebank, 2004) reading
of the informal economy that sees such activity as the preserve of entrepre-
neurial heroes (neo-liberal approaches) or the “superexploited” (marginaliza-
tion thesis). Hence, the sample includes restaurants in rural and inner-city
locations, “up-market” restaurants, and take-aways. Similarly, the clothing
firms range from cut-price manufacturers and market traders to suppliers of
major chain stores. The diversity of the sample was further enhanced by
the inclusion of four firms known to be compliant with the NMW; this
allows an assessment of why some employers feel able to meet formal reg-
ulations despite operating in an environment ostensibly identical to that of

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326 Work and Occupations

the noncompliers. The selection of the firms was, then, informed by a

“multiple case logic” (Eisenhardt 1991; Eisenhardt & Bourgeois, 1988).
Hence, a form of “sociological sampling” was adopted, the purpose of
which is to “generate new knowledge of theoretical importance through
describing the basic processes at work in members’ daily situations” (Gold,
1997, p. 391). We are not seeking here to generalize to a population but to
examine processes and dynamics within each case, supported by some com-
parisons within and between sectors to generate additional insights. We
generalize to the level of theory rather than any statistical notion of repre-
sentativeness (Edwards, 1992).
To establish the basis of negotiated orders, we questioned employers on
a range of issues, including market pressures, rationale for noncompliance
with NMW, recruitment, role of the family, and the extent to which for-
malization was a realistic option. An important feature of the study is the
researching of employee perspectives, which is extremely rare in studies on
the informal economy. We were able to interview employees in firms that
were not complying with the NMW. In most cases, workers who happened to
be around at the time of the researcher’s visit were interviewed. Issues pur-
sued with workers included their labor market background, experiences of
working in the informal economy, pay, and aspirations. The study ran from
October 2003 until September 2004. At that time, the NMW for workers
age 22 years and older was £4.50 (US$7.65) per hour; for those aged 18 to
21 years, it was £3.80; there was no coverage of workers younger than age 18
years, though a rate for such workers was introduced in October 2004.2 The
adult rate is around the median for minimum wages in Western European coun-
tries, though well above the U.S. federal rate of $5.15 (Low Pay Commission,
2005, pp. 233-241).

Pay and Breaches of the NMW

Widespread underpayment of the NMW was revealed, as shown in Tables 1

and 2. Firms are designated by a letter, C for clothing and R for restaurants,
and a number. In several of the noncompliant firms average wages, and in
some cases (notably C2, C6 and R3) even the highest wages, were below
the NMW level. In assessing these figures, however, it is important to bear in
mind the difficulty of establishing precise hourly rates in an industry where
sewing machinists are customarily paid by garments produced rather than
hours worked. Overtime was rarely if ever paid for extra work, with addi-
tional working hours seen an accepted part of working life.

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 Ram et al. / National Minimum Wage in the United Kingdom 327

Table 1
Pay and Conditions in Clothing (C) Firms
Pay Rates (£ per hour)
Working Annual Breaches of
Company Lowest Average Highest Hours Leave Regulations

C1 2.30 4.00 6.00 60 10 days, NMW,

(Revisit) plus public VAT, WTR
holidays
C2 3.10 3.30 3.80 45 10 days, NMW
(Revisit) plus public
holidays
C3 2.00 3.30 5.00 45 10 days, NMW
(Revisit) plus public
holidays
C4 2.70 3.20 4.40 45 10 days, NMW, VAT
plus public
holidays
C5 2.50 2.75 3.00 48 10 days (no NMW, WTR
public
holidays)
C6 3.70 3.70 3.70 45 10 days, NMW, VAT
plus public
holidays
C7 4.60 4.80 5.00 40 10 days, None. Some
(Compliant) plus public infringements
holidays when NMW
introduced
C8 5.30 5.50 9.60 40 10 days, None
(Compliant) plus public
holidays

Note: WTR = Working Time Regulations; VAT = Value Added Tax; NMW = National
Minimum Wage.

Working hours in restaurants also rendered the specification of an hourly

pay rate a near impossibility. As a typical example, workers in R1 worked
6-day shifts from 11 a.m. to 2:30 p.m., and six evening shifts, notionally
running from 6:30 p.m. to 11:30 p.m. but substantially overrunning if there
were customers to serve. As explained by the owner of R4:
all that stuff about maximum number of hours anyone can work is not really
applied in this trade. People have to work as long as the business is open. No
one can treat it like an office job—clock in at nine and finish at five—it does

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328 Work and Occupations

Table 2
Pay and Conditions in Restaurants (R)
Pay Rates (£ per hour)
Working Annual Breaches of
Company Lowest Average Highest Hours Leave Regulations

R1 2.85 3.00 5.00 55 10 days, NMW, WTR

(Revisit) plus public
holidays
R2 3.15 3.75 5.85 45+ 21 days (not NMW, WTR
(Revisit) incl. public
holidays)
R3 2.80 3.00 3.30 55 10 days, NMW, WTR
plus public
holidays
R4 2.20 3.50 4.25 55 10 days, NMW, WTR
plus public
holidays
R5 3.40 4.00 4.80 50 7 days, NMW, WTR
plus public
holidays
R6 2.50 3.00 5.00 55 10 days, NMW, WTR
plus public
holidays
R7 3.30 3.50 5.40 50 10 days, NMW, WTR
plus public
holidays
R8 4.65 5.00 7.00 40 10 days, None
(Compliant) plus public
holidays
R9 4.50 4.50 5.00 45 10 days, None (since
(Compliant) plus public 2004)
holidays

Note: R = restaurant WTR = Working Time Regulations; NMW = National Minimum Wage.

not work like this. There is no fixed timetable; the opening hours do not mean
a thing for the staff.3

Many clothing manufacturers felt that the NMW, including the progressive
upratings, had little influence over the level of pay in their firms. For instance,
C1 asserted that the NMW had “no influence at all. It’s just another level of
bureaucracy we have to deal with.” Pay rates in the firm were set at current
levels because “that’s all the market requires us to pay.” Restaurant owners were

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 Ram et al. / National Minimum Wage in the United Kingdom 329

also largely unaffected by the NMW. As R2 commented, “I don’t think the

NMW influences our pay rate whatsoever; we just pay what we can afford.”
Echoing this point,

the NMW does not really influence how wage rates are determined. NMW has
not had any impact as it is not applied in this trade; employees are just paid a
weekly sum, hourly calculations don’t really come into the equation. (R7)

For many owners, resentment stemmed chiefly from the way in which
officialdom encroaches on managerial discretion and expertise. This sense
of a right being trampled on is captured by C4’s barely disguised contempt:
“I know exactly how much a job is worth, the government doesn’t.” For C3,
“the NMW doesn’t account for crap workers.” For C1 and others, the para-
meters of pay determination were set by the market, “a case of supply and
demand.” Thus C1 paid his least skilled workers (mainly undocumented
immigrants) as little as £2.30 an hour. Owing to the major layoffs in the
industry during the past decade, there was a very substantial labor surplus,
with firms like C6 constantly besieged by desperate job seekers, “I get 10
calls a day. We employ who we want, when we want and for however long.
They get £10 for a day’s work.” With such an oversupply of labor, market
conditions were highly unfavorable to the enforcement of the NMW.

Organizing Informally

What explains the pervasive evasion of the NMW and other regulations?
The answer lies in the organization of employment, which is built on the uti-
lization of informal networks. These can serve in small firms generally as
means of information exchange on job opportunities and the suitability of
potential workers, as a vehicle for job mobility, as a source of flexibility; and
as a means of managerial control. Their importance in the case of firms rou-
tinely evading statutory duties is clearly even more pronounced.
The overwhelming majority of worker respondents were recruited through
informal networks. Contacts of friends and family were the principal means
of attracting new workers to the firms. The advantages, in terms of reducing
transactions costs and generating reliable information, are clear. However,
there were also drawbacks, as restaurant owners were particularly keen to
point out: There was a recurrent complaint about the “quality” of available
workers. In the case of R4, local informal recruitment within the ethnic
community was turning up people with a “lack of experience; there is a lim-
ited pool of skilled labor.” Similar problems were voiced by R5, who, despite

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330 Work and Occupations

having recently obtained two new workers through informal means, com-
plained of lack of experience and of high staff turnover: “Some have moved
to larger restaurants after learning the job, one has opened his own business.”
Quality and retention were also problems for R7, for whom the informal
trawl tended to bring in “poorly educated low skilled people, and as soon as
anyone gets a bit of experience he moves on; if he has saved enough he opens
his own business.”
One might expect worker recruitment to be much less of a problem in
the clothing sector. As small manufacturers have increasingly fallen prey
to the effects of globalization, so the widespread trend since the mid-1990s
has been one of downsizing, with many firms shedding rather than recruit-
ing workers. However, for some respondents the situation is more compli-
cated, with owners juggling with the logistics of maintaining their labor
forces at the requisite levels of quantity and quality. Even in the most drastic
cases of shrinkage, high labor turnover rates make regular recruitment neces-
sary. This was evident in C2, which had been running down production and
regularly laying off staff since 1999. Although the owner claimed generally
to have no problems obtaining workers through informal word-of-mouth hir-
ing, he also admitted that the NMW has made him less attractive to job seek-
ers, who can now “go to McDonalds or Woolworths, just stand around and
get the same money.”
Familial networks inside and outside the firm were an important means of
coping with the competitive and unpredictable market place and the uncer-
tainties deriving from labor supply and management. Most of the businesses
were family owned and run; and it was clear that owners viewed their role as
pivotal to the day-to-day management of the enterprise. Typically, on the
subject of family involvement, R5 commented,

We are always working as a team; they [the family] help out as and when nec-
essary. We are a small business; sometimes we are not very busy, sometimes
we may be. We all live locally, when we need someone they come and help.

The advantages included “not having too many staff on the books . . . when
you need someone they are there, the reliability factor is important. . . . Without
them I would struggle.”
As this illustration implies, even family members who are not formally
employed in the firm play a vital role. Typical here is R4, who used three
relatives as “casuals when necessary, in times of crisis and emergencies.”
Not only were family members more dedicated but they also could also be
depended on to act as a stopgap, a buffer against sudden unexpected staff

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 Ram et al. / National Minimum Wage in the United Kingdom 331

shortages. As R7 explains, “when there are a lot of sudden bookings, it is dif-

ficult to get staff at short notice, so relatives come and help out.” Inevitably
there are also certain disadvantages here, and R6 found that his relatives’ own
outside activities often made them unavailable when most needed. Moreover,
the presence of family members could be divisive, with other staff members
liable to be suspicious that family insiders were “being given preferential
treatment.” In general, however, the family still offered an important source
of labor flexibility, geared to the rapid fluctuations in customer demand typ-
ical of this most volatile of trades. In Song’s (1999) terms, this can be seen
as part of a family work contract.
This implicit contract extends to the management of workers and can be
seen as a form of paternalism whereby owners are “unencumbered by formal
rules regarding pay, fringe benefits, or work organization . . . [but] are con-
strained by an implicit understanding concerning the rights and obligations
of employees” (Bailey, 1987, p. 24). For example, employers evaded the
NMW by underdeclaring the number of hours worked by employees. How-
ever, workers were complicit in this activity, as the owner of C1 explained:
“Some employees underdeclare their hours to get a better family credit
rating. They suggested this themselves. They get £150 from me, show £85
and get another £200 from the government.” The compact between owner
and worker makes detection extremely difficult, a point vividly illustrated
in the case of C1, the only firm in the sample to have received a visit from
government compliance officials. Despite the firm’s noncompliance with
NMW and other regulations, the inspector did not detect any malpractice.

An [inspector] came three weeks ago to look around. He sent a letter to all our
employees saying if you are being paid NMW don’t reply. Obviously, they’re
all in cahoots with their family credit. I’m not doing anything wrong . . . He
found no problem. He was supposed to come in for the day [but] he spent an
hour going through the books and two hours talking about [local soccer team].

Exploitation and Consent

This state of paternalistic reciprocity is highly fluid in practice and

subject to constant challenge and renegotiation (Ram, 1994). Respondents
were aware of all manner of contradictory pulls between material and sen-
timental motivations, a complex blend of co-option and coercion, volun-
tarism and arm twisting. Certainly any notion of satisfied workers basking in
familial security is misleading; many respondents were only too conscious of
pay grievances. These include Koh (£4 an hour as restaurant manager at R6),

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332 Work and Occupations

Ria (head waiter at R1, £200 for a 70-hr week), Khan (£3 per hour as waiter
at R4), Jit (an experienced clothing cutter in his 40s on £4 per hour), and
Askar, a packer, taking home £150 “cash in hand” for a 60-hr week. (All per-
sonal names are pseudonyms). Such wages are, as Inza, a waiter at R2 com-
plained, “a pittance, in other industries there would be an outcry and the
unions would not accept it.”4 Underlining the fact that these pay levels were
too low to support independent living, Javed, a 24-year-old tandoori chef was,
on a wage of £2.54 an hour, compelled to live with his parents. “We could do
with more money,” declared Khan, “we don’t just want to scrape by.” A fur-
ther issue is the absence of overtime rates and automatic cost-of-living
rises, as with Mirza (R7), whose current wage was only £10 a week above
his 1994 rate and who observed, “in reality, pay has decreased . . . I feel really
demoralized that pay has not kept up with the cost of living.”
These comments reflect a resigned resentment. Mirza’s comment, “you
just have to keep quiet and put up with it,” sums up a fairly widespread atti-
tude. Important though voluntarism and complicity may be, in the last instance
work discipline is imposed by lack of choice. True, there are still many
instances where nonmaterial benefits are seen as paramount, as with Ria (R1),
who extolled the “good atmosphere and working relationships” at the restau-
rant. Here, as elsewhere in the informal economy, the personal advan-
tages of working for a fellow Asian may be highly valued, as with Javed
(R3), a devout Muslim whose co-religionist boss understood his need for
prayer breaks.
At the same time, however, it cannot simply be assumed that intangible
rewards and sentimental ties are always unquestioningly acceptable as com-
pensation for low wages. Even Ria, who in other respects evidently enjoyed
a degree of job satisfaction, was well aware of the NMW and bitter at being
denied it: “As we all know in this trade, it never happens.” For his part, Jit
(C4) only stayed on in his job because “I am a friend of the boss. I’m not that
happy in reality. How long will I go on working here? Until I can’t [put up
with it any longer].” In similar vein, Mirza at R7, “would love to leave but I
have no other qualifications.” Irrespective of any intangible benefits, low paid
informal workers are subject to the ultimate sanction of lack of any viable
alternative.
Consequently—and crucially for the present argument—employers are
insulated against any effective internal pressure to conform to the NMW
because any worker grievances are unlikely to be translated into activism.
State intervention occurs on behalf of a set of seriously underpaid work-
ers but the latter continue to collude in the status quo. In keeping with the
complexity of this Asian labor process, however, this picture of employer

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 Ram et al. / National Minimum Wage in the United Kingdom 333

invulnerability needs to be qualified. Even in small firms like these, work-

forces are highly variable in terms of skill levels. The relative scarcity of
high-skill workers such as chefs, who are critical to any restaurant’s success,
gives them more bargaining leverage than most. This is reflected in higher
wages, though Table 2 shows that, compared with earnings in the main-
stream formal economy, even chefs’ wages are comparatively low, except
in the case of R8, an NMW-compliant firm. For most chefs, however, lever-
age is directed at securing nonpecuniary concessions. Here, chefs seem to be
especially motivated by workplace autonomy and their frequent refrain that
they “control the kitchen area” expresses the satisfaction derived from inde-
pendent control over their own working conditions. Often, too, chefs are
granted lengthy leave of absence for home visits to the subcontinent, a con-
cession rarely enjoyed by other restaurant workers, unless members of the
owner’s family.
All this serves to confirm that, though certainly based on social exclusion
and exploitation, the decisive quality of the informal labor process is negoti-
ated consent, with workers in effect co-opted and rendered complicit by being
treated as active agents, consulted and respected rather than dictated to. One
effect of this, as in the case of the chefs, is that even where some small degree
of bargaining muscle does exist, a tacit understanding ensures that this is not
used to lever up wage rates.
At the same time the stability of these arrangements is constantly under
challenge, not least from the changing nature of Britain’s Asian communities
themselves, which can no longer be regarded as an unproblematic reservoir
of recruits for the informal economy. British-born Asians not unexpectedly
tend to have much loftier expectations than newly arrived immigrants and
are decreasingly likely to enter the informal small firm economy either as
owners or workers (see Waters, 1999, p. 363, for similar argument for the
United States in respect of the “maturation of the second generation”).
Increasingly it is becoming the case that only new immigrants with “third
world” standards will work uncomplainingly for the pay and conditions preva-
lent in Asian-owned restaurants and clothing factories (a situation paral-
leled Mexican immigrants to the United States: Bean, Leach, & Lindsay
Lowell, 2004). Given the strictness of the current U.K. immigration regime,
this often entails the employment of illegal entrants (Jones et al., 2004).
One illegal immigrant interviewed here was Askar, a packer at C1 whose
enthusiastic job satisfaction despite a truly abysmal wage was entirely con-
sistent with his inexperience and vulnerability: “the boss can only give me
what he can afford. Money is not that important, I’m happy here.” By con-
trast, nonimmigrants tended to evaluate their lot in terms of the mainstream

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334 Work and Occupations

labor market, as with Jit (C4): “You get a proper wage at white firms, with
proper holidays. I would like to get a factory job for £300 or £400 a week
for the same work.” As such attitudes take hold, it becomes increasingly nec-
essary to use invisible workers for unskilled work such as kitchen portering
or loading and packing in clothing factories. According to C1, “You can get
packers, ten to a penny. All Asians, Bosnians, asylum seekers can do that.”
If C2’s rates for such work—way below the NMW at little more than £3 an
hour—were normal, it is hardly surprising that only the most desperate out-
casts of the labor market were prepared to work for them.

Regularizing Informal Work: A Likely Option?

As noted at the outset, there is growing interest in the extent to which infor-
mal economic activity can be brought within the realm of the “formal” econ-
omy. The evidence from our case studies highlights major obstacles to
effecting such a transition. For much of the 1980s and 1990s, clothing firms
of the kind studied here survived on the edges of a fiercely competitive
marketplace. Despite intense international competition, the sector survived
because the inherent unpredictability of the market provided enough oppor-
tunities that could be exploited by manufacturers, who in turn, drew on a vul-
nerable coethnic workforce. However, the current research, in line with earlier
studies (Ram et al., 2002), has demonstrated that even this limited and pre-
carious market niche is under threat. There can be little doubt that the cloth-
ing sector is in steep decline, and the firms in the current sample appear to be
responding by retreating further into their informal networks, or abandoning
small business ownership altogether.
Four of the eight clothing firms (C1, C2, C3, and C8) had shifted largely
or entirely from manufacturing to wholesaling or importing. Similarly intent
on retrenchment, C4 moved from selling to the general market to absolute
reliance on a single chain-store customer, and C6 survived by diversifying
into property. Accompanying all this has been a drive to cut labor costs,
through reducing production and employment and through containing the
wages of any workers retained. As an example of the former, C5 eliminated
all nonfamily members from the workforce. Pursuing the second strategy,
C3 appears to have retained staff at a steady level but insists he could only
afford to meet the NMW “if the selling price rose.”
Similar downward pressure on wage levels prevailed in the equally belea-
guered curry house sector, where there were “just too many restaurants in
the same area undercutting each other” (R4). This respondent was one of
several proprietors who had fallen back on the ultimately self-defeating

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 Ram et al. / National Minimum Wage in the United Kingdom 335

strategy of price competition, which can only be supported on the back of

extremely long hours working, reliance on family members, and sub-NMW
wages. As R4 insisted, “We can only afford to pay in relation to the amount
of trade.” The general mood among the respondents was that, if they were
compelled to pay the NMW, it would drive them all to the wall. Largely as
a consequence of these low wages, there are now complaints of recruitment
problems and staff shortages, thus adding further to the host of management
problems to be juggled by restaurateurs.
It seems unlikely that the path of the four NMW-compliant firms in the
sample will be followed by many other small firms in these sectors. In two
cases, C7 and R8, the decision to comply was largely driven by their growth
orientation, an approach more consistent with openness and conventional
business formality than with hole-in-corner subterfuge. As C7 put it, “We
wanted to progress our business and that can only be done in a formal man-
ner.” The identification of baby-wear home order shopping as an expanding
niche had guaranteed him strong growth from the mid-1990s onwards.
Crucially, however, he had received strong backing from business support
agencies and confessed that as “I work closely with the council and Business
Link, for me to act inappropriately would not be right.”5 Also driving for
growth was R8, who had shifted from the frantically competitive restaurant
sector into food manufacture, producing South Asian cuisine for which there
was a strong supermarket demand. As with C7, compliance was seen as the
only option consistent with “the type of customer we’re supplying” such as
corporate clients.
Storey’s (1994) review of the literature on fast-growth small entrepreneurs
reveals that such individuals tend to be modernizers, with a progressive, inno-
vative, and outward-looking mind-set and little time for particularistic
informal practices. Unhappily for those who advocate the assimilation of
informal practitioners into the formal mainstream, however, Storey’s overview
also reveals these fast-trackers to be atypical of a small business population
more preoccupied with survival—the “trundlers” as Storey called them.
More pertinently still, even the two modernizers in our sample showed
extreme initial reluctance, with C7 suggesting that he “could have got away
with paying less than the NMW” and describing his fears that it “would lum-
ber me with lots of extra paperwork and the costs would escalate.” Similarly
R8 saw the NMW “as hugely detrimental to my business.” Subsequently,
both these owners admitted that there were some benefits to compliance. R8
saw the NMW as a spur to “innovative ways of selling, innovative products,
innovative methods,” while C7 saw it as a catalyst for a more committed
workforce, with productivity boosted by staff training and responsibility.

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336 Work and Occupations

The other two compliers are unrepresentative in other ways. C8 was dis-
tinguished by being much less labor intensive than the others, largely as a
result of a spectacular downsizing from a workforce of more than 90 in the
mid-1990s to a mere 8 today. According to its owner, “we have moved from a
very manufacturing orientated business to an almost exclusively distribution
one,” a switch from a small army of machinists and cutters to a skeleton staff
of warehousemen, enabling the employer to take an unusually relaxed atti-
tude to the NMW: “it didn’t hurt.”
Unusually, in the case of R9, fear of detection seems to have acted as the
main motivation for compliance: “it has become too risky and we could face
big fines.” The significance here is that R9 was the sole case of an entre-
preneur motivated by deterrence. For the great majority of informal firms,
there is surprisingly little external pressure from the state itself. Partly, this
had to do with the lack of transparency of these firms’ working practices,
which rendered them all but impenetrable to attempts to police them. Indeed,
greater transparency was one of the contributory factors in the compliance
of firms such as C7 and R8. Alongside this, as Freeman and Ogelman (2000)
reminded us, the modern state is often inclined to weigh the benefits of
employment and job creation in the informal economy and hence to turn a
blind eye toward it.

Discussion

In explaining the persistence of evasion of the NMW, we found that

pay practices are more likely to be determined by established norms in the
relevant trades than by official diktat. Firms using informal employment
practices existed long before the arrival of the NMW, a single measure
hardly likely to overturn deeply embedded practices. Here, the most impor-
tant considerations are market conditions, “ability to pay,” negative percep-
tions of state interference, and the absence of compelling pressures for wage
increases from employees. The latter factor itself reflects the paternalistic
bargain prevailing in such firms. This informal status quo is further reinforced
by the absence of any truly effective external deterrence from the state. This
explanation accords with Williams and Windebank’s (1998) programmatic
call for the development of an “embedded understanding” of the informal
economy. It certainly demonstrates the limitation of neo-liberal approaches
and unmodified marginalization theorists.
Perhaps most revealing of our findings is the contrast between the infor-
mal majority and the comparatively small minority of compliant firms, who

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 Ram et al. / National Minimum Wage in the United Kingdom 337

for a variety of reasons—fear of detection, desire for growth, greater trans-

parency, better information, positive perceptions of the benefits of “going
straight”—have decided that informal working beyond the reach of official
regulations is simply unworkable. Unhappily for advocates of assimilating
informal enterprises into the mainstream, it would evidently take a great deal
more than pious exhortation to get others to follow the example of these role
models. Quite simply, the typical small Asian operator shares neither their
market advantages nor their mind-set. Apart from that, his or her position out-
side the NMW is often connected to and further entrenched by tax irregular-
ities, the use of undocumented workers, and other breaches. Providing the
necessary incentives for such firms to redefine themselves would demand
truly substantial policy measures to alter their market position and hence their
perceptions.

Conclusion

In addressing the continued reproduction of the informal economy, we

have sought to shift the focus beyond the purely economic toward the employ-
ers’ culture of resistance against the perceived intrusion of government wage
regulation and the labor process, which permits such practices to operate.
Employers’ ability to flout the law is decisively enabled by the collusion,
often entirely conscious, of their employees. Yet, this is a highly complex
relationship not to be resolved straightforwardly with reference to exploita-
tion or paternalism alone, and we have sought to demonstrate the ever-chang-
ing interplay of various forces—lack of job choice, negotiated consent,
differentials in individual bargaining power, role conflict, ethnic ties—that
help to cement the boss–worker bargain. In reality, this bargain can never
be simply assumed. On the contrary, it must be constantly remade, as for
example with the use of new groups of workers to plug recruitment gaps
arising from growing dissatisfaction with wages and conditions. The infor-
mal economy is deeply embedded and will remain so in the absence of any
compelling pressures on entrepreneurs to comply with official rules. The
palpably exceptional character of the mind-sets and the markets of the four
compliant firms studied here only goes to reinforce this verdict.
The informal economy thus looks set to continue to exist. It is created
not only by structural conditions but also by the active involvement of firms
and workers. Agents strive to make life more tolerable but also unwittingly
contribute to the continuation of their own exploitation. We have shown that
such processes of active creation of a social world occur even under the extreme
conditions studied here, and our work is thus consistent with that of Scott

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338 Work and Occupations

(1985) and complements analysis of the very different processes of “hege-

monic” capitalism (Burawoy, 1979). Under the extreme conditions addressed
here, consent rested on the constraining conditions of an absence of meaningful
alternatives and an inability to organize effective voice. However, it also
reflected family and kinship ties that to a degree gave workers some shelter
from the winds of the pure market. Consent is generated in many different
ways, and capitalism continues to be characterized by poor labor market
conditions, even in large and wealthy societies such as the United Kingdom.
Several lines of inquiry are opened up for further research. In understand-
ing the collusive labor process itself, there is much scope for further applica-
tion of role conflict theory to workers such as waiters in ethnic restaurants, one
of our own special interests. We also propose to delve deeper into the recruit-
ment of undocumented immigrant labor, an issue where the moral ambigui-
ties surrounding this entire field become most painfully acute. Overlaying
all this, there is a great deal more to be said about the role of the state itself
because the lack of effective government deterrence might be seen essen-
tially as additional form of collusive enablement of the informal employer.
Thorough examination is needed of the clashing and ambiguous priorities
to which state regulation is subject, in this instance the head-on conflict
between upholding the law and protecting job and wealth generation often in
very deprived urban areas. Related to this is the further question, only briefly
explored here, of why a minority of firms in these sectors do decide to com-
ply, a matter of close relevance to policy makers intent on diverting the
undoubted entrepreneurial qualities of underground operators into the legiti-
mate mainstream economy (Williams, 2006). Without understanding of such
behavior, there can be no constructive intervention in the informal economy,
deeply embedded as it is in structural conditions and the active involvement
of its agents.

Appendix
Researching Illegal Employment
It is perhaps surprising to note that concern about access and ethics are rarely evi-
dent in qualitatively oriented investigations of informal work. This may be because
those undertaking informal economic activities are not in fact reluctant to share their
experiences with researchers (Williams, 2004). For example, Leonard (1998) reported
few problems in her study, based in Northern Ireland, of women operating in the infor-
mal economy. The self-employed workers interviewed by MacDonald (1994) were
equally willing to reveal the “fiddles” that were a routine part of their entrepreneurial
activities. Similarly Snyder’s (2003) study of “autonomous” informal economy
workers in a New York village betrays little reticence on the part of its respondents.

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 Ram et al. / National Minimum Wage in the United Kingdom 339

Yet such studies, like the current one, fall within the domain of “sensitive” research,
defined by Lee (1993, p. 2) as “research which potentially poses a substantial threat
to those who have been involved in it.” Lee specified three elements to this threat.
First, there is a political dimension, which in the context of the current study relates
to popular concern over illegal immigration, asylum seekers, and “race” relations. At
the time that the study was undertaken, illegal immigration (conflated in the public
mind with asylum seeking) helped set the tone of an exceedingly negative U.K. par-
liamentary election campaign pervaded by the politics of fear. The second element
relates to the study of “deviance and social control” and involves information that
may be revealed that is stigmatizing or incriminating in some way. Our central con-
cern was to understand why small business owners, and workers, were not complying
with NMW legislation. The final source of threat is the potentially intrusive nature
of the study; we wanted to understand how respondents evaded employment regu-
lations. In some cases, it was clear that these discussions were being undertaken
with individuals who were in the country illegally.
A clear starting point was that the principle of informed consent was adhered to;
that is, the participants of the research were informed that they were being researched
and also told about the nature of the research (Punch, 1994, p. 90). Assurances of con-
fidentiality were given, and the data were anonymous. However, as Sin (2005) argued,
negotiating and maintaining consent is a fluid and ongoing process that is more com-
plex and involving than ritualistic adherence to ethical procedures. To this end, a crit-
ical feature of the current study was the approach taken to secure respondents, namely,
chain referral or network sampling. Such an approach can be advantageous when
studying vulnerable groups: “Security’ features are built into the method because the
intermediaries who form the links of the referral chain are known to the potential
respondents and trusted by them. They are thus able to vouch for the researcher’s
bona fides” (Lee, 1993, p. 67).
Both intermediaries were insiders in the sense that they were of Bangladeshi and
Indian origin and were fluent in their mother tongue (all clothing sector participants
were Indian, whereas restaurant interviewees were Bangladeshi). Moreover, they had
long experience of the respective sectors as workers and business owners. Interme-
diaries were fully apprised of the aims of the research, the types of employers and
workers required, and the critical importance of confidentiality. The intermediaries’
“practical understanding” (Van Maanen, 1991) of the exigencies of small firms oper-
ating in the informal economy was therefore of vital importance in expediting the
research reported on here. This understanding was based on more than co-ethnic ties,
which for some is seen as the most appropriate means of undertaking research on eth-
nic minorities (Blauner & Wellman, quoted in Andersen, 1993; Brar, 1992; see Fortier,
1998, and Ram, 2000, for critique). In addition, it stemmed from their location as
insiders trusted by communities that had common experiences of a sector and milieu
that often operated in a clandestine manner. Hence, the nature of the social context
in which they were involved was of key importance, and the source of their practical
understanding.

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340 Work and Occupations

We were thus able to minimize Lee’s three threats. It is also worth stressing that
the research was carried out for the body responsible for recommending the level of
the NMW, the Low Pay Commission. At no stage did the commission suggest in any
way that details of the illicit activities that we uncovered should be disclosed to any-
one outside the research team. Our confidence in the integrity of the LPC and its staff
meant that we could enter the field without ourselves coming under any threats that
might compromise our informants.

Notes
1. The incoming Labour Government of 1997 was elected with a pledge to introduce a
National Minimum Wage (NMW). It was justified on three grounds: social, equity, and eco-
nomic. The “social” case was predicated on the role of the NMW in combating low pay and
poverty. In terms of “equity,” it was reasoned that a minimum wage would reduce exploitation
and protect employers against the undercutting or wages. The economic case lay in the capacity
of the NMW to boost demand in the economy and enhance investment and productivity.
Increases in the NMW, which is currently £5.35, are not automatic. The government has
appointed an independent Low Pay Commission (LPC) to conduct regular reviews of the impact
of the NMW on employment, productivity, and earnings; furthermore, it makes recommenda-
tions to the government on future increases (e.g., Low Pay Commission, 2005; extensive fur-
ther documentation is on the Commission’s Web site: www.lowpay.gov.uk). The NMW covers
about 10% of all workers. The NMW rates are expressed as national hourly rates. There are no
variations by region or occupation. Workers cannot agree to accept a rate lower than the NMW.
However, the NMW does not apply to the self-employed, most company directors, workers
younger than age 16 years, some apprentices and trainees on government-funded schemes,
higher education students on work experience, people living and working within the family,
friends and neighbors, members of the armed forces, prisoners, voluntary workers, residential
members of religious and other communities. If pay is not time related, employers must pay their
workers the minimum wage for every hour they work or a “fair piece rate” initially set at 100%
of the minimum wage. Only tips and gratuities that are paid by the employer to the worker through
the payroll count toward the minimum wage. Tips and gratuities that are paid to workers by cus-
tomers and are kept by workers do not count. HM Revenue and Customs (HMRC) is the prin-
cipal agency charged with enforcing the NMW. Although compliance is reputed to be high, this
is not necessarily attributable to the probability of being caught for noncompliance. According
to Metcalf (2006, p. 44), a typical employer can expect a visit from the HMRC once every 330
years and to be found not complying once a millenium. He further suggests that more formal
firms tend to be visited, rather than the kind discussed in the current research. This finding is in
line with historical research that suggests that labor law measures are not likely to be effective
unless accompanied by strong enforcement mechanisms (McCammon, 2001b).
2. To turn sterling amounts in the rest of this article into comparable U.S. dollar amounts at
the time of the study, multiply by 1.7.
3. He is referring here to the 1998 Working Time Regulations, which introduced to the U.K.
European legislation regulating maximum weekly hours and also specifying break periods and
vacations; it is still legal to work hours over the stated limits if appropriate consent has been
obtained. For detail see Neathey and Arrowsmith (2001).

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 Ram et al. / National Minimum Wage in the United Kingdom 341

4. The Trades Union Congress has been proactive in providing information about the NMW
to the low paid and individual trade unions in the low-paid sector. However, fewer than 15% of
low-paid workers are members of trade unions; hence, many of the low-paid members are
beyond their organizational reach. In this context, trade unions have supported the operation of
an independent and effective enforcement agency (Finn, 2005). However, as noted above, the
effectiveness of this agency has been seriously questioned. Unionization has never been strong,
if present at all, in the sectors reported on in the current study. A series of studies on clothing
(Hoel, 1984; Phizacklea, 1990; Ram, 1994) and catering (Ram, Abbas, et al., 2001) have high-
lighted the irrelevance of trades unions to the determination of employment practices in such
firms. The particularistic nature of workplace relations is an important explanatory factor, as is
lack of choice for many workers operating in such a context. Legal mobilization is extremely rare
in such circumstances (see Balser, 2002; McCammon, 2001a, for position in the United States).
5. Business Link is a locally delivered but nationally organized system offering information
and support to small firms.

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Monder Ram is a professor of small business and director of the Centre for Research in Ethnic
Minority Entrepreneurship at de Montfort University. His research interests include ethnic
minority enterprise, employment relations in small firms and small business policy. His recent
publications have appeared in Journal of Management Studies, Work, Employment and Society,
and Policy Studies.

Paul Edwards is a professor of industrial relations at Warwick Business School, University of

Warwick. His research interests include employment relations in small firms and employment pol-
icy in multinational firms. His most recent books are The Politics of Working Life (with J. Wajcman,
2005) and Social Theory at Work (with M. Korczynski and R. Hodson, 2006).

Trevor Jones is a visiting professor at the Centre for Research in Ethnic Minority
Entrepreneurship, de Montfort University. He is one of the United Kingdom’s most experi-
enced researchers on ethnic minority entrepreneurship and has published in a variety of jour-
nals, including Urban Studies, International Journal of Urban and Regional Research, Work,
Employment and Society, and Entrepreneurship and Regional Development.

Downloaded from wox.sagepub.com by Alonso Pelayo on October 30, 2014