4 May 2021

With the labour market struggling, this is no time for extra employment rules

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In the December 2019 Queen’s Speech, the Government committed itself to bringing forward an Employment Bill to “protect and enhance workers’ rights”. A lot has happened since, but it seems likely that next week’s Queen’s Speech will reiterate this commitment and make some specific proposals.

‘Workers’ rights’ have an obvious corollary: increased costs and increased restrictions on the ability of employers to respond to changing labour and product market conditions – an important consideration in an economy battered by the pandemic.

When the Employment Bill was first mooted, the labour market was in its best shape for years, with record levels of employment and economic activity and a very low unemployment rate. Now, however, the position is far more worrying. Employment has fallen, unemployment has risen and about 5 million people are still on furlough.

In these changed circumstances it might be prudent to pause any further employment legislation which, however well intended, could reduce job opportunities. But all the signs are that the Government is in the mood to push ahead. We’ve already had increases to the National Living Wage and its extension to younger age groups. And the new Business Secretary, Kwasi Kwarteng, has scrapped existing plans for a post-Brexit review of working hours limits and holiday pay entitlements, telling the House of Commons that he was not interested in ‘whittling away workers’ rights…or trying to reduce wages”.

Three areas where we may see legislative proposals are zero-hours contracts, the gig economy and flexible working.

Zero hours

On the first of these, the TUC last week reiterated its long-standing demand for a complete ban on zero-hours contracts, citing survey evidence suggesting that as many as 80% of the public support such a step. It is easy to see that a government which has badged itself as the real ‘workers’ party’ might see this as the way to go.

They would, however, be unwise to do so. Zero-hours contracts are not ideal for everybody, but for a significant number who cannot commit to regular fixed hours they may be the only form of employment they can take.

Zero-hours workers are overwhelmingly part-timers. Nearly a fifth, for example, are full-time students whose classroom and other commitments change frequently. Many more are semi-retired older workers, or people with family caring responsibilities. They are more satisfied with their jobs than those on conventional contracts, and two-thirds of them are not interested in working longer hours. Very few want a full-time job.

The effect of a ban would be to exclude some workers from employment. It would create no extra hours of work or employment opportunities, and pay would be unlikely to be any higher. Faced with rising costs, businesses would almost certainly consolidate on fewer employees, working longer hours. These employees would have to be drawn from a different age group and demographic than the current zero-hours workforce.

The gig economy

Much of the debate about zero hours is tied into another sector the Government may have its eye on – the gig economy.

A recent Supreme Court judgment held that Uber drivers are not self-employed but ‘workers’, entitled to various employment rights such as minimum wages when the app is switched on, sick pay and pension auto-enrolment.  The Business Secretary hailed the judgment as “absolutely to be welcomed”, suggesting there may be a move to tidy up the rules and extend the principle to all app-based gig work. Noises coming from the Treasury suggest that this would be welcome, as self-employed people pay less tax and national insurance and a general reclassification of gig work would boost government revenue, at least initially.

The welcome given to the Uber judgment ignores the evidence that for many Uber drivers the work is simply an adjunct to other jobs, and that drivers have valued control over working hours and the ability to refuse work. Such relative autonomy seems in many cases to have been valued more highly than the rights associated with ‘worker’ status.

As with zero-hours workers, it seems likely that a general change in gig work’s legal status would lead to businesses concentrating on employing fewer people working longer hours, changing the composition of the workforce and cutting off opportunities for some workers. It will also significantly increase prices to consumers, reducing demand and further limiting employment possibilities.

Home working

The third area is flexible working. The Government is reported to be  drawing up plans for a ‘default option’ for employees to be able to set their own hours and to choose to work from home at least part of the time.

The appeal of this is obvious enough: many employees who have worked at home during the pandemic wish to continue to do so, while many businesses see a way of saving money by reducing the need for expensive inner-city office space.

Of course, there can be no objection at all to firms and employees seeking new, mutually agreeable, forms of working. However there are dangers in imposing a one-size-fits-all policy.

Although home working has some benefits, we should not go overboard with enthusiasm for it. The Government’s Business Insights and Conditions Survey reported in February that only 9% of businesses thought productivity had increased, while 33% thought that it had decreased. Creating an expectation amongst employees that they can choose to work at home and forcing employers to have to justify refusals to allow this will inevitably create conflicts and (as with other existing ‘rights to request’) employment tribunal cases.

The issue comes down again to whether it is appropriate for government to impose more and more conditions on businesses that want to employ people. This is both an issue of principle and a pragmatic concern. The burden of employment mandates of any kind is not ultimately borne by companies or their shareholders; it is passed on in higher prices – which in turn reduce demand for goods and services, and thus for employment – or in reduced wages or other benefits.

At a time of extreme uncertainty in the labour market, the government should think very carefully before imposing more restrictions.

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Professor Len Shackleton is an Editorial and Research Fellow at the Institute of Economic Affairs.

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