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The Future of Work

Neville White
By Neville White Head of SRI Policy and Research July 2017
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The Future of Work

Context: the UK labour market

The UK labour market, outwardly successful and buoyant, masks some significant structural challenges. Enjoying effective ‘full employment’, with unemployment at a historic 42 year low, the UK’s resilient employment rate now stands at an impressive 74.6%. However, the types of job created have been most markedly in the low-pay service sector, with the result that real wages in the economy are expected to be no higher in 2022 than they were before the financial crisis in 2008.

A low-pay sector economy exacerbates the growing productivity crisis in UK employment, with 10% now subject to precarious, insecure work. New types of employment, as we shall show, has led to a disproportionate transfer of risk from employer to employee, in terms of rights, benefits and security. The new ‘gig’ economy avoids the payment of employer national insurance by claiming that ‘contracted’ individuals are ‘self-employed’. This is the context for the UK Government’s review into the future of work and the rights of workers, and for our examination of social justice in work.

The rise of precarious work

More than one in five workers in the UK, some 7.1m people face ‘precarious employment’ in that they could lose work suddenly and without protection. The types of precarious work include temporary and casual work, zero-hours contracts and agency work. So called ‘self-employment’ and zero-hours contracts have increased significantly over the last decade.

905,000 workers in the UK are now on zero-hours contracts, with around 10% of employers having at least some employees on these types of flexible contracts. 40% of employers with at least 250 employees made some use of zero-hours contracts, compared with small and start-up companies.

The service sector has become particularly vulnerable to precarious work, with nearly 30% of workers in hospitality (accommodation and food) on a zero-hours contract, and 25% in social care.

The benefits to these types of arrangements are variously defined as providing flexibility for the worker (there is evidence zero-hours contracts are popular with students), the ability to manage peaks (and troughs) in demand efficiently for the business; cost benefits of not paying for minimum hours worked and reducing agency costs. Downsides have been shown to include anxiety, stress and uncertainty over income sustainability; the absence of earnings visibility over time; inability of the worker being able to plan working needs; the use of exclusivity clauses by companies which demand availability without compensation, and unequal benefits between permanent and zero-hours staff.

The downsides overall have been articulated as a disproportionate transfer of risk from the employer to the individual via precarious contracts that have limited rights and benefits attached.

TUC analysis has shown that an average worker earns 50% more an hour than an individual on a zero-hours contract; surveys show that nearly 40% of zero-hours workers would like to work more hours, with 75% recording that their hours worked vary each week. The overwhelming reason for the rise of precarious forms of employment is difficulty in finding permanent work, rather than through choice – 61% of men and 63.2% of women working zero-hours put this as the main reason – only 11.5% claimed choice as a reason.

The gig economy

The gig economy What has come to be called the ‘gig economy’ is best defined as a labour market characterised by short-term contracts or freelance work in which participants are
paid per ‘gig’ worked. In these situations workers are typically classed as independent
contractors with no labour rights protection against unfair dismissal, redundancy or the right to the minimum wage. The gig economy has been facilitated by ‘app’ technology in which the company matches the demand for something (a driver, a delivery) with a freelance provider. At the high end, gig contractors can earn substantially owing to the demand for their expertise (scientific, technological or creative). However, at the low-skilled end, the sector is defined by the likes of ride-hailing drivers (Uber), takeaway couriers (Deliveroo) and freelance DIY labour
(Task Rabbit).

As a supplement to other earned income, the gig economy can boost income for many of the 1.3m workers engaged in the sector; however it does not provide secure employment, and alone can exacerbate poverty in work, stress, ill health and anxiety.

Income has been found to be hugely variable; whilst median income per hour for a delivery courier might be £6 per hour, a significant proportion of the survey earned £3 or less. Nearly 70% of jobs in the hospitality sector, by way of example, pay below the living wage, and represent 20% of all low paid jobs in the UK. As ‘freelance’ contractors, statutory minimum wage rates do not apply, again emphasising the ‘transfer of risk’ from employer to job-holder.

Automation: threat or opportunity?

Automation: threat or opportunity? The digital revolution that has already seen whole industries transformed is gathering pace. The harnessing of ever faster data processing speeds has enabled the globalisation of capital, goods and services, as well as the fluid movement of people, all in order to pursue lower input costs and enhance competitiveness.

As automation escalates, some commentators are suggesting that the future of work itself is at risk from next generation technologies including artificial intelligence.

A recent PwC survey suggested that 10m jobs are now under threat from intelligent automation, and that this could happen within 15 years. In aggregate 30% of jobs were put at risk, but in some sectors as many as half could disappear. Clearly technology breeds new opportunities in work and enables new skills to emerge; however, there could in all reality be a large surfeit of excess labour across the workforce. Men in particular are disproportionately affected by automation – 35% compared to 26% for women.

As companies begin to automate, some organisations have suggested there may be a need for a ‘made by humans’ label or human production quotas mandated by law; others more prophetically link growing automation with a breakdown in social cohesion as societal norms built around long-term paid employment break down.

The retail sector is particularly vulnerable to these pressures. As costs from implementing the National Living Wage increase, companies are rapidly reducing their overall number of frontline staff through automation. British retail employs around 1.7m people close to the National Minimum Wage; even modest increases are therefore likely to distress margins and profitability still further. Online retail has led to new areas of work in warehouses and delivery services – all largely unregulated in the zero-hours contract world.

Sectors where skills are difficult to automate such as education and health may be the more secure areas of work that have been staples of employment for over a hundred years, such as train drivers, may completely disappear. One example is the art and skill of the cinema projectionist, which has become almost wholly obsolete with the advent of digital media. Much of the way the future will look will be down to government to prepare for a future without work – but the way jobs are dissolved or translated to machines, is also a corporate responsibility for
business. Ultimately, automation may be as significant a disrupter as the shift from agricultural to industrial and from rural to urban was in the 19th century.

The view from the top

The view from the top In this insight we have addressed some of the challenges in a labour market where an unequal transfer of risk in some sectors is resulting in insecure and unpredictable work and the potential for ‘in work’ poverty.

Companies often say that employees are their most valuable asset; we concur with this view. People inspire and deliver, and in return are entitled to respect and progressive labour practices. Qualitative information on human capital, particularly as regards contract and agency working, remains scarce however with much room for improvement.

Talent recruitment, development and retention are key in building long term business success and competitive advantage. Increasingly, exploitative contracts, high employee turnover and the erosion of benefits are signals about a business’ wider health and its ability to create value over the long term. There is a role here for investors to engage with business to encourage better disclosure and practice in this area. Whilst the ‘E & G’ in ESG (environment, social and governance) are well articulated among responsible investors, the ‘S’ (social) still has some way to go; this Insight is our contribution as part of a wider debate on social justice and the future of work.

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