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Non-standard working: The implications for future growth and jobs

Spencer Thompson

18 April 2012

One feature of recent changes in the labour market is a growth in involuntary part-time and temporary workers - those working on a temporary or part-time basis when they would rather find a permanent job or full-time work. In the year to February 2012 the involuntary temporary workforce grew by 10%, the involuntary part-time by 19%. This could be interpreted as a positive sign, with employers cautiously taking on workers under more flexible arrangements or with fewer hours in response to tentative indications of an economic recovery. But this trend is also worrying for a number of reasons in the short term, reflecting widespread underemployment and job insecurity, and if it continues it may also have a depressing effect on the UK’s ability to generate the future growth needed for a sustained jobs recovery.

In the nearer term, it implies the economy is either not using available labour resources to their full capacity, or that large numbers of workers lack the skills that are currently in demand from business. Most likely it is some combination of the two, with many workers’ skills under-utilised both in the type and quantity of work they are engaged in, and others finding their skills are not highly in demand by employers.

Potentially as worrying in the longer term, rises in non-standard ways of working may also have a profound negative influence on the ability of an economy to generate innovation and growth. It has been argued that the low-level of job security and high labour turnover associated with these forms of employment increases worker resistance to the introduction of new processes, and generate an unwillingness to engage in knowledge sharing with fellow employees. It also reduces the incentive to gain an in-depth understanding of a firm’s products and processes, which is key in helping workers make incremental improvements to the way they and their firm work. Further, it reduces the incentives both for employers to provide and for employees to engage in occupational and firm-specific training, both of which are associated with innovative workplaces. Training raises the skills of the workforce, increasing their ability to engage in and generate innovative new products and processes.

The UK has long been characterised as having some of the most flexible labour markets in the world and a large peripheral workforce engaged in non-standard forms of employment. But this trend has accelerated in recent years. How much this change reflects short-term fluctuations in the economy versus sustained structural change is up for debate, and the benefits of labour market flexibility in terms of efficiency and competitiveness should not be discounted. We should nonetheless monitor whether this trend becomes a permanent feature, with hysteresis effects limiting long-term temporary and part-time workers from gaining the skills needed to move into permanent, full-time employment. The worry is that this would imply a large pool of workers much less likely to engage with and generate innovation at work, or upgrade their skills to adapt to radical changes in the nature of work. These effects combined could hamper the essential, broad-based innovation needed for the UK to achieve sustained growth in output and jobs in the future.