Flexible working isn’t a free lunch

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Before Covid, flexible work was an unusual perk. But as lockdown upended our way of life, the drive for working when, where and how an employee chooses accelerated. Insofar as there has been a return to the pre-pandemic era, it has been limited. In some quarters, the idea that workers might be obliged to follow a standard pattern of hours is increasingly viewed as bordering on exploitation.

Flexible working opportunities – home or remote work, compressed hours, four-day weeks, flexitime, job shares and so on – can bring real benefits which employees value. However, they may have knock-on consequences, often hidden, which may not be so welcome. Flexible work is rarely a completely free good. If it were, employers would offer it without badgering from government. Where flexible work has significant costs, glossed over in government impact assessments but examined in a new paper I co-authored for the IEA, there are clearly consequences for pay and employment.

When decisions are left to employers and employees to reach agreement, these consequences can be discussed and weighed up. If this leads to a movement towards greater flexibility, that’s fine and dandy. But if some forms of flexibility are inappropriate to a particular sector or organisation, legal compulsion and possible tribunal penalties are neither necessary nor desirable.

The rationale for the legal ‘right to request’ flexible working has expanded from concern for economically disadvantaged workers with health issues or caring responsibilities to a belief that all employees should be able to request a change to their working arrangements from their first day of employment.

Labour’s new Employment Rights Act strengthens this right to request and will make it very difficult for organisations to refuse. Employers have been able until now to justify refusals in relation to a number of criteria such as the effects on costs. But whereas previously tribunals could only question decisions in terms of the processes undergone, they can now challenge the ‘reasonableness’ of the employer’s decision and reexamine the arguments and the evidence that the employer produces. It will be a brave employer who will take the risk: better to try to absorb the cost.

Not that this will calm the demand from trade unions, single-issue pressure groups and HR professionals for yet more government promotion of flexible working. The TUC, for instance, now wants ‘the introduction of a legal duty on employers to consider which flexible working arrangements are available in a role and publish these in job advertisements’. Another suggestion is ‘the use of flexible working clauses in public procurement or government-funded projects’. And there is also strong pressure for a ‘right to disconnect’ which would effectively forbid employers from contacting workers outside normal working hours.

Suggestions such as these need to be assessed critically, for their advocates rarely look beyond the immediate appeal of the proposals to consider wider labour market consequences.

A rearrangement of contracts to accommodate flexible working can be equivalent to a significant pay increase. Working from home saves considerable costs of commuting, while a switch to a four-day week on the same salary is an increase in hourly pay. But because some types of flexible working are not going to be available to all groups of workers – home working for train drivers, compressed hours for surgeons – wage adjustments will need to occur in order for supply and demand to be brought back into balance. Frictions that prevent this adjustment will damage productivity and growth. Moreover a ‘pay increase’ that is not clearly justified by a productivity increase is always problematic. At a time when the economy is stagnating, the focus needs to be on improving its responsiveness to external factors, not simply to the wishes of employees.

This is a particular worry in relation to the public sector. The private sector may be able to mitigate problems arising from changing work arrangements by, for example, using temporary contracts or agency workers or outsourcing tasks (although its ability to do so is subject to increasing restrictions). But the public sector – which rewards conformity and procedure rather than innovation and initiative and is too often constrained by trade union intransigence – rarely does so, and the customer and the taxpayer suffer. Four-day weeks in the passport office or council offices, or tax officials working at home who do not answer urgent phone calls because they are answering the door for Amazon deliveries, are unlikely to boost the sector’s abysmal productivity record.

There is a constant temptation for policymakers to use employment mandates to pursue social objectives because this has little visible cost to the taxpayer – an important consideration when the fiscal deficit is on everybody’s mind. But there can be very real costs if the government in effect imposes changes to the form of the employment contract.

We are certainly not pretending that we can evaluate the benefits and costs of particular working practices across millions of jobs. But the point is that neither can politicians, civil servants or tribunal judges. Evaluations should be done by employers and employees who better understand the circumstances of each individual family, business or organisation. Government should take its clumsy finger off the scales.

Read the full report ‘Is Flexible Working?’ here.

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