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The story of the UK labor market over the past decade or so can be summed up as one of “quantity over quality”. Numerous jobs were created and unemployment remained low. At the same time, wage growth has been weak, productivity has declined and precarious work remains scarce.
It makes sense then that the new Labor government wants to focus on job quality. Some of his proposed reforms have a strong case, such as new rules to prevent employers from heaping too much insecurity on the shoulders of low-paid staff. According to a survey by the Living Wage Foundation, more than half of full-time low-wage workers are given less than a week’s notice of their schedule, and 15 percent are given less than 24 hours’ notice. . It is difficult to make a living on such a job. But while it’s easy to complain about Britain’s “quantity over quality” labor market, the real test for Labor will be whether it can improve the latter without destroying the former.
Ministers are fond of saying that what is good for workers is good for business. But let’s be real. It is perfectly reasonable to argue that doing something is the right thing to do, and may even benefit the economy in the long run, while recognizing that it will increase employers’ labor costs in the short term. In an ideal world, a government introducing many new rules (there are 28 reforms in the Employment Bill of Rights) would try to reduce the impact on employers, perhaps by reducing payroll taxes at the same time.
We are not in an ideal world. The government has chosen to increase employers’ National Insurance contributions from 13.8 to 15 per cent and reduce the income threshold at which they owe from £9,100 to just £5,000.
Of course, Labor didn’t have many good options – it needed to raise taxes and ruled out other options in its manifesto. And it has, at least, saved small business by increasing the employment allowance.
Yet, the result is that the government is making it more expensive to employ people, especially low-wage ones, at a time when its jobs reforms will move in exactly the same direction. Oh, and the minimum wage is also rising by 6.7 percent (16 percent for 18- to 20-year-olds). According to the Institute for Fiscal Studies, the cost of employing a full-time minimum wage worker will increase by 8 percent next year, based on their salary and the employer’s NIC. For part-timers, the increase will be 11 percent.
The question is how employers will react. On the bright side, if recent history of their response to rising minimum wages is any guide, they will absorb most of the cost into profits or pass it on to prices. But surveys are already pointing to some signs of tension with that approach: More employers this year said they’ve reached the price limit they can afford, and that number has increased. Those who say they have made layoffs or reduced recruitment, albeit at a low level.
Michael Stull, managing director of Manpower Group UK, one of Britain’s biggest recruitment agencies, told me that recruitment in low-paid sectors such as retail and hospitality is already “soft across the board”. “was Companies were “looking for ways to cut staff – be it fewer services, fewer hours, wherever they can cut some of those costs”.
Another possibility is that more employers will turn to independent contractors or supposedly self-employed workers in sectors such as hairdressing, construction and the arts. The tax system already incentivizes this business model, and these incentives will increase with higher employer NICs. Helen Ward, managing director of Richard Ward Hair & Metrospa, which has 90 employees, said since the pandemic there had been a “huge push towards chair hire and self-employment” – a trend she said she did not understand. The view will only increase.
It would be a shame if – by the time Labour’s new employment rights are in place – there are too few employees around to benefit from them. But will we even know where it’s going? Worryingly, official labor market statistics are currently so unreliable, due to small sample sizes, that we lack hard and timely information on what is happening, particularly with the self-employed. .
Of course, the UK job market has faced disappointments many times before. And major policy interventions are always, to some extent, leaps in the dark. But it has to be said that Labor is taking several leaps at once, and it is even darker than usual.
sarah.oconnor@ft.com
