Last reviewed 22 November 2021

Publicly naming businesses using exploitative practices or underpaying workers encourages other firms to comply with labour market rules — but tougher financial penalties and better detection of those breaking the law are still essential.

This is the view of a leading independent think tank, the Resolution Foundation, which has published details of its research in the area in a new report, No Shame, No Gain?.

This agrees that the Government’s “naming and shaming” of firms underpaying the minimum wage does have a deterrent effect, and that sectors with more naming do tend to see a subsequent reduction in underpayment.

However, it points out that this impact is very small and is concentrated in sectors where detection rates are already high.

Overall, the Foundation believes that the Government’s “naming and shaming” policy is useful but suggests that it could be strengthened with far wider and more tactical publicity given that only one-in-five of the firms interviewed had heard of the policy.

The think tank highlights that while smaller businesses are more likely to break the rules — minimum wage workers in micro-businesses are 37% more likely to be underpaid the minimum wage compared to those in the largest businesses — they are less likely to get caught and named for doing so.

And while public naming is more associated with bigger, well-known firms, those companies tend to be better able to manage the effects of a scandal.

For example, the share prices of Primark, exposed in December 2017 for underpaying 9735 workers over £200,000, and Tesco, named for underpaying 78,199 workers over £5 million, were unaffected.

Crucially, the Foundation’s study finds that it is not the fall-out from customers that businesses fear most, but the impact that reputational damage can have on their relationship with other firms in their supply chain who might be reluctant to work with them after hearing negative reports.

No Shame, No Gain? The Role of Reputation in Labour Market Enforcement can be found at https://www.resolutionfoundation.org/app/uploads/2021/11/No-shame-no-gain.pdf.