Monday, 5 August 2013

Zero to Hero the UK's flexible economy

News this week that there may be as many as 1 million workers on ‘Zero Hours’ contracts in the UK has come as a bit of a shock to the liberal elite.  A Zero Hours contract is where the employee signs up to an employment contract, which has no guaranteed pay or hours of work, these contracts are used by retailers and hotel industry, which need a ready supply of unskilled workers without the risk of taking on more fixed costs. 
The reality is pretty harsh for these employees who have to work when and where employers choose for relatively low pay.  However, the market is showing us that there is demand for this type of work with large number of people opting for these contracts rather than unemployment benefits.  Many people taking up work under these contracts are either at the beginning or end of their working lives, some will be unskilled or under qualified but many will simply be in the wrong place at the wrong time.
Zero Hours Contracts - probably the most common employment contract in the world
In a parallel universe, the son of a friend of mine, who has recently joined a top London Law Firm has been sent off on a gap year on half pay while the firm waits for demand in legal work to increase.  In this case the law firm has decided that it’s better to keep Algernon even if there is no work at the moment, they are betting that demand will increase and Algernon’s undoubted talents will be useful / profitable in the near future.
What most commentators have ignored over the last few years is the way UK firms contract with their staff, which has allowed them to retain staff whilst paying them a lot less than they did in the good years.  In 2008 most middle class wage earners would have a been making good money through a mixture of fixed salary and variable bonuses and commissions, the variable element was paid on the basis of personal and company performance – this variable pay has gone.  In other industries where remuneration is linked to an hourly rate over time has be reduced.  The net effect of these tightening measures are that although UK growth has been very poor there has not been a big rise in unemployment, in Europe the slow-down in growth has been matched by a surge in unemployment. 
This flexible employment market has seen standards of living decline more sharply in the UK than in the rest of Europe.  Last year living standards reduced by 3% due to high inflation and flat wages.  More worryingly our GDP is 3.3% below its peak and GDP per head is 5-6% below where it was at the start of 2008. However, on unemployment we have never had more than 8.3% of the workforce out of work, in France today the number is nearly 11%!  Interestingly although there has been a sharp decline in living standards absolute levels of poverty have remained the same and those on government funded income (pensions and welfare benefits) have done pretty well in this recession.  So our economy has managed the shock created by the melt down in the global financial system by using our flexible labour market as a buffer.
So what of the future?  When the employment market is soft people stay put even when earning are down, preferring to weather the storm in a company where they have some track record and employment rights.  As the market picks-up employees will take a different view and it’s at this point that employers who have made the biggest commitment to their workforce will have their place in the sun; being able to retain good staff when they most need them.  But in the meantime flexible contracts are helping the UK to recover much more quickly than our European competitors who have been so keen to decry the Anglo-Saxon economic model.
Interestingly on the day the UK escaped form recession into sustainable growth this was the BBC home page for the UK!

Not a single mention - I can't say that I am surprised Stef Flanders is probably away on holiday with Ed Miliband.

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