Labour Market

From zero hours contracts to living wages, who will speak for the union ‘outsiders’?

Over the past week, there have been trade union protests about both low hourly pay and zero hours contracts. On Wednesday, the GMB Union protested outside the retailer Next’s AGM in order to push for the company’s employees to be granted a ‘living wage’. Later that day, there were protests in both Sheffield and the US against McDonalds, denouncing the use of zero hour contracts.

To the extent that these protests are trying to change company behaviour, rather than legislation, they represent part of the natural tapestry of institutions determining wages and conditions in a free society. Yet the way the unions and often the media portray these issues – as unscrupulous employers versus dogged yet underpaid employees – is unfair and misleading. In presenting these debates as capital versus labour, we forget the interests of both the currently unemployed and those employed who are happy with their conditions.

Many seem to forget that the trade unions have their own self-interest to consider on both issues. Very few, if any, of the 583,000 people on zero hours contracts are actually trade union members. A contract without a fixed number of hours makes it very difficult to see the point of joining a union at all. It is much easier to imagine unions would have a powerful role where employees are all on similar fixed term contracts, giving worker representatives substantial bargaining power with employers.

Likewise, demands for employers to increase hourly pay for their employees to £8.80 in London and £7.65 elsewhere are good for existing union members, the interests of whom the trade unions represent.

Yet we mustn’t forget the plight of the many individuals who might lose out if the trade unions are successful in these two campaigns. The Office for National Statistics figures clearly show, for example, that the majority of those on zero hours contracts are students, very young workers or very old workers. Many of these groups benefit from the flexibility that zero hours contracts provide. For students in particular and those with caring responsibilities, zero hours contracts offer a route into the labour market that might otherwise not exist.

Survey data from the CIPD also suggests that the vast majority of people using zero hours contracts are happy with their hours and terms of employment. Whilst of course they are not for everyone, and there are no doubt many people on them who would prefer more secure terms and longer hours, simply opposing their use per se risks undermining opportunities for groups which otherwise might not occur. This is particularly the case in industries, such as tourism and retail, with highly uncertain demand, where businesses cannot afford substantial fixed costs.

Likewise, whilst pressuring employers to pay a ‘living wage’ would of course benefit the insiders who maintain their job, we should also consider the plight of the outsiders – particularly young unskilled workers and the unemployed. Estimates by NIESR have suggested that 300,000 fewer young people would be in work if the living wage was rolled out across the country. That’s because a higher cost of labour would likely mean fewer jobs or hours available, particularly in retail where it has been estimated that implementing a living wage would increase costs by about 5 per cent. The people who would be most hurt by this would be the unemployed and the young – who could benefit most from that opportunity to get a foot on the jobs ladder and acquire the on-the-job skills of punctuality, working with colleagues and dealing with customers.

Unfortunately, very few people speak for the groups who get left behind by well-intentioned campaigns. In our current anti-business environment, this lack of representation makes political intervention to tighten labour market regulation and raise minimum wages much more likely – to the detriment of those who we purport to most want to help.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.