A number of developed economies worldwide have seen a marked rise in atypical work arrangements. Take the UK. The proportion of self-employed workers without their own employees — encompassing freelancers, contractors and gig workers — has increased by 25% since the turn of the millennium.
Similarly, the number of workers on zero-hour contracts (ZHCs) — who have employment contracts but are not guaranteed a minimum number of hours and are only paid for work carried out — has increased from 200,000 to almost a million over the same period.
Such significant changes in the composition of an economy’s workforce have important welfare implications. Atypical work arrangements generally offer less worker security and, in the case of self-employment, workers lose access to benefits such as holiday and sickness pay, and coverage from minimum wage legislation.
On the other hand, atypical work arrangements can afford workers benefits like flexibility and tax benefits.
• Want to write for us? Take a look at Apolitical’s guide for contributors
In February 2018, we ran the LSE-CEP Survey of Alternative Work Arrangements, a large online survey of 20,000 people representative of the UK population. It allowed us to document a number of characteristics of workers engaged in both ZHCs and self-employed in the gig economy.
We found that ZHCs were predominant in low pay sectors and many workers were paid on, or close to, the minimum wage. For ZHC workers, the survey revealed a stark dichotomy between those who enjoyed their flexible working arrangements and those who desired greater security. Approximately half of those surveyed on ZHCs were satisfied with their jobs, while 45% wanted greater regularity in both number of hours and work pattern.
The picture for gig workers — who are contracted typically through online platforms to perform temporary, small tasks and paid only for the “gig” that they do — is similar in some respects, but with notable differences.
More than half of gig workers wanted to work more hours
Gig workers generally face significantly more income insecurity. We found that when faced with an unexpected expense, more would have to use credit cards or bank loans to pay it off in comparison to all self-employed workers who would be more likely able to use savings. More than half of gig workers wanted to work more hours, and of these almost 60% said the reason for this was a lack of work.
This gives a very similar picture to the United States, where academics have noted that weak labour markets are likely strong contributors to the growth of the gig economy. On the other hand, the main reason that workers engaged in gig work was due to the flexibility it afforded — like being able to work from home.
In addition to the main LSE-CEP Survey, we also ran the CEP Survey of Labour Choices, specifically aimed at understanding worker preferences over different job attributes like flexibility, security and autonomy.
Workers valued security and benefits far more than autonomy and flexibility
On average, workers valued typical job attributes such as security through contract length and employment-related benefits (e.g. holiday and sick pay) far more than autonomy and flexibility (e.g. choosing hours and working from home). These preferences held for the majority of individuals in atypical forms of employment.
The results suggest that the changing nature of work is likely to be having important welfare impacts for some workers — though workers do have different preferences. With these differences in mind, any policy recommendations must take into account the nuances of the workforce engaged in such roles, as well as some of the drivers of the growth of alternative work arrangements.
A number of factors have been posited as possible causes for the changing nature of work, including technological change and weak demand conditions. Our research at the Centre for Economic Performance has established that a further factor has also played a role in expanding the number of atypical jobs: domestic legislation.
The introduction of the National Living Wage in the UK resulted in a 7.5% increase in pay for workers paid the minimum wage, but it also increased the probability of being on a ZHC by 4.3%. A domestic policy, which benefitted low paid workers but resulted in increased labour costs to firms, was actually responsible for part of the increase in ZHCs in low-pay sectors.
These developments matter for the design and implementation of labour market policy.
Minimum wages may be affecting the use of atypical contracts
Evidence that minimum wages may be affecting the use of atypical contracts, such as ZHCs, suggests a need to carefully appraise — and possibly redesign — wage floors to keep up with the pace of change in the nature of work. ZHCs very clearly shift risk from employers to workers. At the very least, the proposition that there should be a higher minimum wage for ZHC workers to compensate for such risk, as put forward in the Taylor Review, merits greater consideration.
Tax and benefit polices may also need re-evaluation. Uncertainty around tax credits when hours are not guaranteed means that the way in which Universal Credit functions for ZHC workers needs attention. And, finally, the increasingly hazy distinction between employment and self-employment means that the current differences between tax and benefit policies for the two groups ought to be equalised.
Re-evaluation across these policy dimensions will be necessary to generate equity for those doing jobs with the independent contractor status that has come to epitomise the increased ambiguity of the meaning of being an “employee”. — Nikhil Datta, Giulia Giupponi & Stephen Machin
(Picture credit: Flickr/LawHoiKi)