Labour Market

The unseen costs of flexible working rights

Last week, the Labour Party proposed making flexible working the ‘new normal’ by forcing employers to offer it to all workers unless they can clearly show that is unworkable. Angela Rayner asserted that this would be ‘a force for good so that everyone is able to enjoy the benefits of flexible working, from a better work-life balance to less time commuting and more time with their family’.

Labour’s proposals go further than the Conservatives’ currently plan, although there is a government-sponsored group made up of business associations, charities and trade unions – many of which tend to favour increased employment regulation – working on providing advice on flexible working.

The idea of a ‘right’ to flexible working, including regular home working, seems popular with the public following the experience of lockdown and furlough. So it is quite possible that our polling-led government will end up legislating on the lines Labour proposes.

In thinking about this, we should remind ourselves that UK employers already offer a wide range of flexible working options. Over 4 million jobs involve ‘flexi-time’ arrangements. There are more than 2 million people on annualised contracts, one and a half million on term-time only arrangements. Around 150,000 people currently job-share. In total, over 30% of jobs involve flexible working arrangements of one type or another. So it is certainly not the case that everybody is chained to a rigid 9-5, 5-day week.

Such arrangements are mutually agreed by workers and employers, and usually work well. However not all jobs easily fit into this framework. And, despite claims of ‘win-win’, imposing a flexibility mandate would have definite costs.

For instance, a four-day week with compressed hours may be possible without loss of productivity and pay for some administrative workers. But it will not work for surgeons or police officers; if they do not work on Fridays, somebody else has to be employed in addition.

Job shares or part-time work involve extra payroll, training, appraisal, coordination and other costs when two or more people take on work which one person could do full-time.

Home working may suit some employees, but can involve managers spending increasing amounts of time recruiting, training and monitoring staff. Customers and business contacts report finding it more difficult to get in touch with employees working at home. With the exception of the information and communication sector, a substantially greater proportion of firms reported in February that the productivity of their workers decreased while home working than reported it had increased.

If we had the rules Labour advocates, refusal to allow flexible working requests would often be challenged, with cases inevitably going through to tribunals. Many businesses, despite facing increased costs from mandatory flexibility, would acquiesce simply to avoid long-drawn out disputes and possible reputational damage.

But increased costs damage profitability, and firms inevitably try to reduce these costs by passing them on to employees in terms of lower pay – if not immediately, then over time by offering pay increases which are lower than might have been offered in the absence of the flexibility mandate.

This is one reason, incidentally, why full-time hours are paid more than part-time hours in similar jobs. As more women than men work part-time, it is therefore one of the factors influencing the gender pay gap.

Gender differences in the take-up of flexible working are well known, and have recently been highlighted by polls suggesting women are more likely than men to want to continue working from home after the pandemic. This can have consequences not only for women’s pay, but also for job opportunities.

This is illustrated by an interesting new paper which examines the introduction in Spain of a law offering employment protection to workers with young children who opt for a shorter work week because of family responsibilities.

The authors show that this well-intentioned policy aggravated labour market inequalities. There was a highly gendered take-up, with only women typically requesting part-time work. After the law was brought in, employers were 49% less likely to hire women of childbearing age and 37% less likely to promote them to permanent contracts, increasing female non-employment by 4-8% relative to men of the same age.

This was some time ago, and the Spanish labour market with its dual system of temporary and permanent workers is different from our own. It is also possible that employment law may be less rigorously policed in Spain than here.

But even in the UK, many employers may wish to avoid taking on women who may, by taking advantage of flexible working, cost them more. While discrimination law forbids this, such law tends mainly to impact the public sector and large private sector employers. But a quarter of all employees work in organisations with fewer than twenty people on the payroll. Job vacancies come up relatively rarely, are frequently not advertised and are often filled by personal contacts – particularly in the growing numbers of ethnic minority businesses. In such a set-up, discrimination is impossible to prove or even to be aware of.

Flexible working is increasingly valued by employees, and if it suits both parties should be applauded. But mandated flexibility has a downside which politicians and voters need to recognise.


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

Leave a Reply

Your email address will not be published. Required fields are marked *