The Observer view on employment policy

https://www.theguardian.com/commentisfree/2017/mar/19/observer-view-government-employment-policy

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The former prime minister David Cameron two years ago coined the phrase “jobs miracle” to describe Britain’s economic recovery: an expression that has stuck among defenders of Conservative economic policy. On the surface of it, last Wednesday’s employment figures were just the latest round of good news: unemployment is now at its lowest level since 1975.

But as welcome as falling unemployment is, it is just one indicator of labour market health. The reality is that Britain’s economic recovery will be feeling far from miraculous to millions of low-paid workers. Since the financial crisis, the growth in jobs has come at the price of little growth in average earnings, with many workers finding themselves materially worse off. The Institute for Fiscal Studies expects average real earnings will be no higher in 2022 than they were in 2007; a dire situation its director has described as “completely unprecedented”.

Moreover, there is a small but growing group of low-paid workers who face deepening insecurity as they are denied access to basic employment rights. There has been much focus on the new gig economy: digital platforms such as Uber and Deliveroo that allow supposedly self-employed workers to sell services. Their prevalence is likely to grow, but today the bulk of labour market exploitation is of a more analogue nature. Sports Direct is perhaps the most infamous example of modern exploitation: workers on zero-hours and agency contracts subjected to dreadful working conditions more akin to a Victorian factory than a modern workplace.

But Sports Direct is only the tip of the iceberg. The Trades Union Congress estimates that precarious low-paid work – low-paid self-employment, agency working and zero-hours contracts – affects one in 10 workers. This represents a huge increase of more than 80% in the last decade. Precarious employment accounts for a big chunk of jobs growth since the financial crisis: the growth in self-employment alone accounts for 45%.

These forms of employment can bring sometimes welcome flexibility. But for the low-paid, that flexibility can quickly tip into insecurity and exploitation. Millions who are self-employed, or working on agency or zero-hours contracts, do not enjoy sickness pay, parental leave, protection against unfair dismissal and pension entitlements. These types of work should therefore command a premium to compensate for the greater insecurity and costs they involve. But some businesses are using these practices to shift risk from the company to the individual, and even to pay less than the legal minimum. Rates of self-employment are two-and-a-half times greater for the lowest-paid workers compared with the highest-paid; and one in four low-paid workers is self-employed.

This insecurity means that many families are living an incredibly precarious existence: if economic growth were to dip, there are millions of workers who could effectively be laid off at a moment’s notice. This is playing out against a backdrop of declining living standards for low-income families, as sluggish earnings growth is being compounded by significant cuts to tax credits and benefits in the coming years. While work has never been a guaranteed route out of poverty, low-paid work is increasingly associated with living in poverty: new figures out last week show two thirds of children in poverty are living in working families: a shocking statistic in one of the world’s richest economies. Insecure employment also carries huge costs for the state. The TUC estimates the cost of low-paid self-employment and zero-hours contracts to be £4bn a year in foregone tax revenue and spending on tax credits and benefits.

The government has at least recognised there is a growing problem: Theresa May last year appointed Matthew Taylor to lead a review into modern employment practices. In terms of remedies, most attention thus far has focused on the chancellor’s ill-fated attempt to tackle the tax advantages of self-employment for the higher-paid. But far more important for those in exploitative, low-paid self employment would be ending the much bigger tax advantage that accrues to companies in using self-employed workers. The proceeds should be used to fund the expansion of rights such as paid parental leave for the self-employed.

Taylor’s review must also look beyond the tax system. Employment rights need a radical overhaul to reflect modern working practices. It should explore the options recommended by the TUC that include putting the onus on employers rather than employees to prove someone is legitimately self-employed; ensuring that those working flexibly on low-hours contracts get properly remunerated, as happens in Australia and New Zealand; and giving agency workers the right to get paid the same as permanent employees.

But employment rights are only useful to workers to the extent that they get enforced. Enforcement currently relies too heavily on individuals taking exploitative employers to tribunal. Yet since fees were introduced in 2013, the cost of doing this is prohibitive for many low-paid workers, denying them access to justice. There has been far too little proactive enforcement of minimum wage legislation in social care, retail, logistics and low-value manufacturing, where there are large numbers employed on rates below the minimum wage.

Unions also need to do much more to represent workers in insecure work. It is true that organising in these kinds of workplaces is more challenging; and last year’s Trade Union Act made this more difficult still. But unions have done too little to address declining membership: fewer than one in 10 of the low paid are members, and membership rates among young workers are at existence-threatening levels. They need to be far more innovative, for example deploying smart technology to help organise workers in insecure jobs or spinning off not-for-profit employment agencies that can be used by scrupulous employers.

Yes, the British economy has more jobs than ever before. But for too many workers, conditions are moving backwards, not forwards. The prime minister has made positive noises about tackling exploitation. But they run at odds to hints from her chancellor that a post-Brexit Britain may go for a Singapore-style economy, with even lower corporate tax rates and a scaled-back welfare state that would create even greater insecurity for low-paid workers. The government faces a choice between siding with low-paid workers or exploitative employers. It must choose workers.