5 December 2022

Flexible working has become a one-sided bargain – with serious hidden costs


‘Flexible working’ could mean many things. To employers such as the train operating companies, it might mean unions which are prepared to change rigid rostering systems dating back decades. To other employers it might mean employing people who are prepared to put in extra hours when necessary, or are prepared to switch tasks as demands change. It could involve dismantling many of the regulatory barriers which make taking on workers such an expensive business.

But the term has recently come to be focused entirely on the perceived needs and wishes of workers. Following a consultation process, the Government is going to extend the ‘right to request flexible working’ to Day One of a new job.

This right to request goes back to 2002, when it was originally focused on those with children under the age of 18. It was extended to carers of adults in 2007, and to all workers by the Coalition. Under current rules an employee with 26 weeks’ service can ask the employer to change working arrangements – from full-time to part-time, to termtime-only working, to compressed hours, to job-sharing, working at home and so on.

The employer doesn’t have to accede, but must take the proposal seriously and offer plausible business reasons why it can’t be implemented. If employees feels that their employer’s rejection is unfair, they can take their case to an employment tribunal.

What is now proposed is that someone who has been newly appointed to a full-time job can immediately request a switch to part-time, or to partial or complete home working, or to a four-day compressed week, before having settled into the job and enabled the employer to assess how they’re fitting in.

In addition, the grounds for rejecting such a proposal are to be narrowed, with employers having to come up with alternative options.

This change has been strongly advocated by the Labour Party and the TUC. They want to go further – to make flexible working the default, and to make it virtually impossible for an employer to refuse. The TUC’s Frances O’Grady would require all job adverts to carry details of different types of flexible working arrangement which employees could choose.

The Government asserts that flexible working ‘has been found to help employees balance their work and home life, especially supporting those who have commitments or responsibilities such as caring for children or vulnerable people’. The TUC goes further in its claims: it’s ‘how we keep mums in work, close the gender pay gap… and it’s how we keep disabled workers, older workers and carers in their jobs’.

All good. So who could possibly gainsay the arguments for this change?

One thing missing from this one-sided debate is why flexible working is not already offered by all employers, and why compulsion is now needed. The answer must surely be that for many employers flexibility imposes significant costs.

If there is a job-share, for example, there are two lots of training and overheads plus possible problems associated with coordination and decision-making. If an employee wants to leave early to pick up children from school, or doesn’t want to work during school holidays, somebody else has to cover for them. If people are working from home, supervision of their work may be more difficult. If some employees work a four-day week, communication with other members of staff will be more difficult and delays may result.

And the new possibility of requesting changed conditions of employment right from the get-go, before employers have even had a chance to evaluate the rookie employee’s performance, increases the likelihood of costly problems arising.

Moreover, the threat of employment tribunals – or just the bad feeling resulting from a rejected proposal – will often lead employers to acquiesce in arrangements which they know will be costly to them.

It is sometimes claimed that employee productivity will rise to offset these extra costs. Mechanisms by which this might occur include lower absenteeism and lower turnover, as well as extra effort by more contented and less stressed workers.

However the ‘evidence’ on this is largely anecdotal: there are few properly controlled studies. One issue is that businesses which currently offer particularly generous arrangements will attract better motivated workers: but if all employers have to provide these arrangements to every worker, this effect will be less pronounced.

it seems likely that some employers at least will face extra net costs as a result of providing greater flexibility. If so, consequences will follow.

Employers will seek to avoid taking on workers who are particularly likely to take advantage of flexible working – mothers, older workers, those with health problems. Although discrimination laws might seem to prevent this, in practice  monitoring is difficult, particularly in small businesses where jobs are not always publicly advertised and recruitment practices are often informal.

Nor should we assume that flexible working arrangements which are disproportionately taken up by women will contribute to narrowing the gender pay gap. On the contrary, where women reduce working hours or work largely from home, it may well be that they miss out on promotion opportunities. And if flexible working means they are less likely to change jobs, as advocates of flexibility argue, this may also reduce their longer term earning power. Indeed, the greater propensity of men to change jobs (which usually leads to a pay increase) has been identified as one of the causes of the pay gap.

More generally, where flexibility gives rise to extra costs, this will likely have an impact on pay. Employment mandates of all kinds – other examples include pension obligations and holiday entitlements – reduce employer profits. In competitive markets the extra costs are gradually passed on to employees in terms of lower pay. Moreover, reduced pay is not confined to those taking advantage of flexible working, but the cost falls on all employees.

The considerable expansion of employment mandates in the last 20 years is one important – and very little understood – reason why pay has grown only very slowly. In the current climate of falling real wages, to add to employer costs is not an obviously sensible policy.

Of course, many workers might deliberately choose a combination of lower pay and more attractive working arrangements. But this choice is not being explicitly offered. Instead, as all too often, the illusion is created that business will pay, an illusion which the Government should not endorse. Such illusions lie behind too many of our economic problems.

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Professor Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.