Who pays for flexible working?
Flexible working has enormous benefits for employees but it is not cost-free – and it’s businesses and workers who are paying the price, says Len Shackleton
It is clear that flexible working opportunities, particularly ‘working from home’ but also compressed hours, flexitime, job shares and more, can be highly valued by both individuals and companies. If not, we would have seen a sharp decrease in their use once we were allowed to return to the office post-Covid – but we haven’t. However, they are not cost-free. There are likely hidden knock-on effects and unintended consequences which may not be so welcome. A new paper for the Institute of Economic Affairs has examined those costs and who has to bear them when the government pressure es employers to offer flexible work. The answer is businesses and employees.
Where decisions are left to employers and employees to reach agreement, these consequences can be discussed and weighed up, and a mutually beneficial arrangement arrived at. This is how a free market works. If this leads to greater flexibility, that’s dandy. But if some forms of flexibility are inappropriate to a particular organisation, legal compulsion and concomitant tribunal penalties are not the answer.
There has been an increasing mission creep of the “right to request” flexible working. Initially intended to protect economically disadvantaged workers with health issues or caring responsibilities, it now covers a broader belief that all employees should be able to request a change to their working arrangements from day one on the new job.
The government’s new Employment Rights Act strengthens this right to request, and makes it very difficult for organisations to resist such requests. Flexible working will thus become de-facto mandatory for employers to allow, the new ‘default’. But even that is unlikely to stop the creep – there is already pressure for imposing a legal duty for employers to advertise flexible working options, for public procurement to be contingent on offering flexible work, and for a “right to disconnect” which would forbid employers from contacting workers outside normal working hours.
Labour market impacts
Each of these policies need to be assessed critically, for their partisans rarely look beyond the immediate appeal of the proposals to consider wider labour market impacts.
Accommodating flexible working can be equivalent to sizeable pay increases as employees get to save on considerable commuting costs, while a switch to a 4-day week on the same salary is an increase in hourly pay. But because some types of flexibility are not going to be available to all groups of workers – home working for bus drivers, compressed hours for surgeons – compensating wage adjustments will need to occur in order for labour supply and demand to be balanced. Any frictions that prevent the market adjusting in this way will likely damage productivity and growth, and make hiring for jobs which require presence at a workplace more difficult. Moreover a “pay increase” not clearly justified by a productivity increase is always problematic.
The private sector is often more able to mitigate these problems with the use of temporary contracts or agency workers or outsourcing tasks. But the public sector rarely does so, and it is customers and taxpayers who are left on the hook
This is a particular worry in relation to the public sector, which already has a shocking productivity track record. The private sector is often more able to mitigate these problems with the use of temporary contracts or agency workers or outsourcing tasks. But the public sector rarely does so, and it is customers and taxpayers who are left on the hook.
Policymakers are often tempted to use employment mandates to pursue social objectives because this has little visible cost to the taxpayer: it is an apparently cheap way for the government to appease voters and unions, which is particularly important as the Chancellor remains focussed on the ever-unstable fiscal headroom. But there can be real costs that will harm the government’s bottom line if they effectively impose changes to the form of the employment contract.
Professor Len Shackleton is editorial and research fellow at the Institute of Economic Affairs