Some praise our gig economy flexibility. I call it exploitation
For 'record employment', read low wages, low productivity, low investment. The idea of happy zero-hours workers is for the birds
Thu 26 Apr 2018 01.00 EDT Last modified on Thu 26 Apr 2018 04.15 EDT
Deliveroo riders in Brighton protest for a living wage. 'The past 10 years have seen the weakest real wage growth since just after the Napoleonic war.' Photograph: Julia Claxton/Barcroft Images
Getting on for one million people in Britain wait each day for a text or a phone call to let them know whether an employer has work for them. Twenty years ago few had heard of zero-hour contracts, but the number of workers covered by them has increased more than fourfold since the recession of a decade ago.
More than 900,000 UK workers now on zero-hours contracts
During the same period underemployment – people who would work longer hours if they were available – has also increased. So has self-employment, often because someone previously employed is now scratching a living as best they can. In the 1990s, poverty was associated with workless households. Today 60% of those living below the breadline live in a household where at least one person is in work.
Language matters. There was a time when these trends would have been described as casualisation or exploitation. They would have been seen as symbolic of a one-sided labour market in which the deck was stacked in favour of employers. These days, though, it is evidence of "flexibility", and who could object to that?
The narrative goes as follows. Britain has record levels of employment and the lowest jobless rate since the mid-1970s, and that's because there are few impediments to the free market in labour. There is a reason the UK has an unemployment rate half that of France: our labour market is "flexible", the one on the other side of the Channel is "sclerotic".Employers have the confidence to hire workers because they know they can get rid of them without too much trouble. Many of the people employed on zero-hour contracts like the freedom they provide. Banning them, as the TUC is demanding, would be illiberal and economically harmful.
This argument doesn't really stack up. Britain certainly has a low unemployment rate, but so does Germany, where, despite the reforms of the early 2000s, workers have greater labour market protection. France has a higher unemployment rate, particularly for young people, but has much higher levels of productivity: GDP per head – one measure of living standards – has risen almost identically in Britain and France since 1970, a period in which the UK has deregulated its labour market, and its neighbour has not.
Britain's flexible labour market has resulted in the development of a particular sort of economy over the past decade: low productivity, low investment and low wage. Since the turn of the millennium, business investment has grown by about 1% a year on average because companies have substituted cheap workers for capital. Labour has become a commodity to be bought as cheaply as possible, which might be good for individual firms, but means people have less money to buy goods and services – a shortfall in demand only partly filled by rising levels of debt. The idea that everyone is happy with a zero-hour contract is for the birds.
Workers are cowed to an extent that has surprised the Bank of England. For years, the members of Threadneedle Street's monetary policy committee (MPC) have been expecting falling unemployment to lead to rising wage pressure, but it hasn't happened. When the financial crisis erupted in August 2007, the unemployment rate was 5.3% and annual wage growth was running at 4.7%. Today unemployment is 4.2% and earnings are growing at 2.8%.
The reason for weak consumer spending and the flat housing market is wages not keeping pace with inflation
The Bank would like to be in a position to raise interest rates, which at 0.5% are no higher today than when the economy was crashing in early 2009. For the past few months, financial markets have been softened up for a rate increase next month on the grounds that wage pressure is bubbling up. The Bank's problem is that as things stand there is a stronger case for a rate cut than a rate rise. Figures out later this week are likely to show the economy grew by just 0.2-0.3% in the first three months of the year.
The reason consumer spending is weak and the housing market is flat is that wages have not been keeping pace with inflation. In decades past, rising prices caused by a drop in the value of the pound – of the sort that the UK experienced after the EU referendum – would have been met with demands for higher wages to compensate. It didn't happen this time. Instead, the public simply accepted a period of falling living standards.
David Blanchflower, a former MPC member, says that almost a decade after the recession people remain fearful. "In the gig economy they fear that they are going to lose their jobs. Other groups of workers fear that if they ask for higher wages, the employer will bring in workers from Poland or farm everything out overseas."
This all sounds entirely plausible and fits much better with the post-recession performance of the economy than the Bank's ever-present belief that a surge in wage growth is imminent. Blanchflower says that involuntary part-time employment rose in every developed country during the financial crisis and remains above pre-recession levels. Wage inflation won't start to build until unemployment comes down a lot further, to about 3%, he suspects.
Record 60% of Britons in poverty are in working families – study
Curbs on the activities of trade unions, along with globalisation, meant the balance of power in the labour market was swinging in favour of employers long before the banks almost went bust in 2008. In previous economic cycles, a steady fall in the level of unemployment would have tilted things in the opposite direction because a shortage of available labour would have forced employers to offer higher wages.
Instead, this time the unchecked growth of the gig economy, weak enforcement of labour market regulations, a tax treatment that provides incentives for employers to hire self-employed workers, and pay restraint in the public sector explain why the past 10 years have seen the weakest real wage growth since just after the Napoleonic war. For workers life is not sweet. It was sweeter when labour markets were less flexible.
• Larry Elliott is a Guardian columnist