Zero hours contracts, mini-jobs, they’re both ways of solving the same problem

Outrage in all the usual quarters as the number of zero hours contracts is reported to have expanded again:

Nearly 700,000 people are on zero-hours contracts in their main job – a rise of more than 100,000 on a year ago – according to new official figures.

The rise is likely to trigger renewed debate over the widespread use of contracts that offer no guarantee of hours and only those benefits guaranteed by law, such as holiday pay.

Part of this increase is simply that ONS is getting better at counting these jobs, part is a genuine expansion. But there’s a terrible confusion in those same quarters about what this all means:

Let’s not be sour. The bounceback in jobs during the current recovery has been staggering – exceeding all predictions. During the depths of the slump too, although things were dreadful, the UK shed far fewer posts than any of the macroeconomic models suggested. Whereas in the past there had been something close to a one-for-one proportional relation between lost jobs and lost output, for every three percentage points of GDP that disappeared after 2008, only 1% of jobs went up in smoke.

But let’s not be blinkered either. If there is reason to be cheerful in the quantity of jobs in a famously flexible labour market, there is reason to be fearful when it comes to the quality. Underemployment, perma-temping and the recasting of low-grade staffers as “self-employed” hires shorn of all rights were striking features of working life in the recession, and all trends that have been stubbornly slow to reverse in the recovery. That much is reaffirmed every month when the official labour market statistics appear. Nothing, however, sums up the pall of insecurity that has befallen so much of the workforce like zero-hours contracts.

What’s missing in there is the word “because”. We did not have the usual rise in unemployment as GDP fell “because” we had more people on these zero hour contracts. The same is true of Germany, where they have “mini-jobs“. And the opposite is true of places like France where they don’t have this sort of labour market flexibility.

It should be obvious that the bottom end of the labour market is going to be pretty insecure and badly paid. That’s why it’s the bottom end of the labour market. And there’s two things we can do about it.

We can ban low pay and job insecurity. Other countries do do that and we could too. The result would be that we have more unemployment, as those places that do ban such things have.

We could simply accept that the bottom end of the labour market is going to be badly paid and insecure and have lower unemployment as a result.

It is, clearly, a choice. But those are the binary options. We cannot insist on better pay and more security and also have those 3 or 4% of the workforce working. That’s just not one of the options available to us. Those jobs that are being done simply aren’t worth very much. Therefore people won’t pay very much to get them done. Whether that cost is in the actual wages or in the overhead of having to provide security. Low paid and insecure employment or unemployment: which will you pick?

And we should note something else as well. When given the choice for themselves hundreds of thousands do choose those zero hours contracts, those mini-jobs, instead of unemployment. Meaning, to the people who are doing them, that they prefer that option. And we really shouldn’t go around banning something that people are, by the choice they themselves make, preferring, should we?

Economic Nonsense: 15. Protection of domestic industries will safeguard jobs

Sometimes when jobs are threatened by cheap imports there are calls for government to step in and safeguard those jobs by subsidies, tariffs or import quotas.  The aim is to make the domestic goods artificially cheaper by subsidy, or to make the imported goods more expensive by taxing them. Some domestic jobs can be retained, at least temporarily, by this tactic.  But the more expensive domestic goods will not be able to compete on world markets outside the country.  They will find their foreign market share diminishes as people opt for the cheaper ones.

Where subsidies are used, domestic taxpayers are made poorer; where tariffs are used domestic customers lose access to cheaper goods.  In both cases they are paying to support the industry concerned.

Some years ago in the UK the Lancashire textile industry was protected in this way.  It might have prolonged its decline, but it did not stop it.  Mass-produced low-cost textiles were being made more cheaply by foreign competitors.  Eventually the UK textile industry moved to high added value luxury and designer products that sold at a premium in both domestic and foreign markets.  Some UK textile products have become world-beaters, without the need for subsidies or tariffs to protect the jobs they sustain.

The advent of the World Trade Organisation (WTO), which succeeded the General Agreement on Tariffs and Trade (GATT), outlaws most of this kind of protection by multilateral agreement.  This means that calls to protect domestic jobs by such means now fall upon deaf ears.  The government has signed pledges not to engage in such practices, in return for the agreement of its trading partners to refrain similarly.

There are still grey areas, though, with Boeing and Airbus each alleging that the other receives indirect government support.  It is generally true that when governments all try to protect domestic jobs at the expense of foreign ones, everybody loses.  The world found this to its cost in the era of the Great Depression.

Why we shouldn’t clamp down on zero-hour contracts

The Office for National Statistics has revealed that 697,000 people (about 2.26% of employees) are on zero-hours contracts in their main job, up more than 100,000 on a year ago. Such contracts make life uncertain for the employees concerned, who may not know from week to week, or even from day to day, whether they have paying work. Some 33% of those on zero-hours contracts say they would like to work more.

So should we be clamping down on zero-hours contracts? No, we should not.

First, it is absolutely correct that zero-hours contracts have become far more common in the last two or three years. They hovered at about 0.5% for most of the period since 2000. They rose in use quite slowly between 2005 and 2012, then shot up to just under 2% in 2013 and to that 2.26% figure in 2014.

However, the unemployment rate has also come down in the last two or three years as well. In 2011 it stood at over 8%. Now it is less than 6%, and seemingly headed steadily down. Even though zero-hours contracts represent only a very small part of the labour force, it seems reasonable to argue that the two trends are related. The economic outlook is brighter, but is still uncertain; businesses remain unsure about the future, unsure about their markets, unsure of how much they should invest, unsure of how many workers they can justify taking on. A bust-up in the eurozone, for example, or a general election that delivers an unfavourable or unworkable government. might change the outlook completely for many UK businesses. So the only way that they can rationally expand their production, and be ready if things really do boom, it so cut their employment risk. Hence zero-hours contracts.

Remember too that even though the ONS talks about people’s ‘main’ job, they might not be the only income earners in a household. The same is true of those on the minimum wage: many of them will be secondary earners. In fact, 34% of those on zero-hours contracts are aged 16-24 and half of those are in full time education. To them, a minimum wage job or a zero-hours contract, while frustrating, is not a disaster, and the extra income, however low or intermittent, is welcome.

Critics – you know who – say that the government has allowed a ‘low-pay culture’ to go ‘unchecked’. So what would be their solution? Ban zero-hours contracts? Raise the minimum wage yet further? The inevitable result would be that employers would no longer be willing to take the risk of employing so many people. And first to go would be young people, with fewer skills and less understanding of workplace culture than more experienced employees, and secondary earners, often women. There would be fewer ‘starter’ jobs through which young and unskilled people could gain experience, more young people trapped in benefits, and a rise in unemployment more generally.

What will do in zero-hours contracts, of course, is continuing economic growth. As unemployment falls, businesses will find it harder to attract employees, and workers and potential workers can become more choosy about the jobs they take. Zero-hours contracts will once again become a very small part of the employment market. Growth, employment, greater security. Job done, and not a politician in sight.

Economic Nonsense: 14. Government can create jobs by spending

Government can certainly create the appearance of new jobs by spending.  The minister can be televised proudly cutting the tape to open a government-funded business employing 100 people.  The problem is that government has to take that money from the private sector in order to do so.  It can do so by taxation, inflation or borrowing, and the effect is to give the private sector less money to spend.  That, in turn, means lower demand for its goods and services, less economic activity and fewer transactions.  The net result is that jobs are lost in the private sector as a result.

Part of the political problem is that the government-funded jobs can be seen, with ministers taking credit.  The private job losses take place quietly, without people realizing that they are the result of government activity.

There has been much discussion in academic circles as to whether the publicly-funded jobs gained are more or fewer than the private sector jobs lost, but there is a respectable literature to suggest that they are fewer, and that 100 jobs created with public money will result in more than 100 jobs disappearing or not happening in the private sector.

Another part of the problem is that government-funded jobs are created in accord with political rather than economic priorities.  The projects sanctioned are those that find favour with ministers, rather than those created to meet demand.  They can be done to court electoral popularity rather than to satisfy economic needs.  Jobs funded by public money often need public money to sustain them afterwards, and risk disappearing if public subsidy is withdrawn at some stage in the future.  Governments are notoriously bad at “picking winners” to support with public funds; it is not their own money they are putting at risk, so they are less likely to do cautious and full accounting.  Private investors tend to be more hard-headed since they stand to incur any losses that come about.

Economic Nonsense: 13. Development and growth harm the environment and cause pollution

This is misleading.  The early stages of economic development can certainly adversely affect the environment and cause pollution.  When a nation is lifting itself out of abject poverty and subsistence-level life for its citizens, it values the wealth being generated more than it minds the environmental degradation that accompanies it.

The early stages of Britain’s Industrial Revolution saw factories going up, chimneys belching smoke, and land degraded by mining.  For people at the time these factors were less important than the improved standard of living it brought, a standard that lifted most of them out of precarious subsistence and the ever-present threat of starvation.

When Britain grew rich enough, they were able to afford a cleaner environment.  Money was available to spend on adequate sanitation and sewage treatment, on cleaning up land damaged by development, and by controlling emissions with legislation such as the Clear Air Act.  Other developing economies went through similar stages.  Today it is the rich countries that can afford to produce more cleanly.

Newly developing countries pollute more because clean production is more expensive.  Wood burning and coal burning pollute heavily; gas burning and electricity production can be done more cleanly.  Today China, which depends heavily on coal as an energy source, faces major air pollution problems in its cities and contamination of its rivers.  But development has lifted most Chinese out of malnourishment, and now they are at the stage where they have enough wealth to start redressing their environmental problems.

Development and growth need not cause pollution and environmental damage once countries become wealthy enough to use cleaner technology.  Wealth and technological progress can solve this problem; living more simply cannot.