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by Stijn Broecke, Senior Economist, OECD

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Is the end really nigh for the standard employment relationship?

Despite the rise in “new” forms of work, full-time, permanent employment is likely to remain the most prevalent form of employment.

 

Standard, full-time, open-ended employment still accounts for the majority of work across OECD member states. There are several reasons for the continuing appeal of more stable, permanent employment arrangements. From the point of view of workers, such contracts provide more certainty and allow them to plan ahead in both their private and professional lives. From the perspective of employers, permanent contracts allow them to attract and retain talent (which reduces hiring and training costs) and increases the pay-off from investing in staff (which raises productivity).

 

That being said, new forms of work have emerged due to changes in preferences, innovations in business models and work organisation, as well as technological developments. These new forms of work include the platform economy, in which workers provide services through online platforms. Many countries have also experienced an expansion of other non-standard forms of work, such as on-call or zero-hours contracts, as well as various forms of self-employment. Sometimes these trends have been driven by changes in policy.

 

These more flexible working arrangements are often a response to the real needs of both employers and workers. Companies need some leeway to adjust workforces and working hours to take account of fluctuating and unpredictable demand. Workers may want greater freedom to achieve a better work-life balance. More flexible forms of employment can also offer new opportunities and a stepping-stone to full-time, open-ended employment for some, including young people and many low-skilled workers.

 

However, these new forms of work have also raised some concerns among policy makers.

The first reason is that some firms use non-standard forms of work to transfer costs, risks and responsibilities onto the shoulders of workers. In some cases, workers are hired as “own-account” workers rather than employees in order to avoid taxes, labour market regulation and unionisation. Such deliberate misclassification needs to be stopped. Similarly, workers’ misclassification of themselves as self-employed to avoid taxes should be addressed. Misclassification harms both individuals (who are not covered by most labour market and social protections) and firms that stick to the rules (who are put at a disadvantage). It also risks creating a hole in public finances that everyone will eventually have to fill.

 

A second reason why policy makers are concerned is that, on average, job quality in non-standard forms of work remains lower than in standard, full-time, permanent employment. Non-standard workers tend to have lower wages, less employment protection, reduced (or no) access to employer and social benefits, greater exposure to occupational safety and health risks, lower investments in lifelong learning, and low bargaining power. While this may save firms costs in the short term, it comes at the expense of lower productivity and economic growth in the long run.

 

Some of these trends are related to the question of concentration in labour markets. A growing number of studies show that many workers have few outside options. There is a strong imbalance in bargaining power between certain employers on the one hand, and workers on the other. The evidence also shows that in such cases overall wages, working conditions and even employment are depressed. This is particularly problematic when workers aren’t able to have collective bargaining or be a member of a union.

 

A diversity in employment contracts can be beneficial to both firms and employers. However, efforts should be made to ensure that all jobs are quality jobs, regardless of contract type. This means ensuring that all workers have access to adequate social and employment protections, as well as to training programmes and a collective voice. The OECD  is calling on governments to ensure that choices about employment contracts are not driven simply by differences in fiscal and labour market regulations across employment forms.

 

The abuse of employer power in the labour market and its sources should also be addressed by better regulation and more effective enforcement, including by addressing agreements between employers not to steal each other’s workers and contract clauses preventing workers from working for a competitor after they separate from the employer, both of which reduce the competitiveness of labour markets.


For our latest data and analysis on the future of work, click here.

 

We are also gathering people’s perspectives and ideas about work across sectors and countries. Through its “I am the Future of Work” campaign, the OECD is seeking to contribute to a positive future of work for all. To join the conversation, visit oe.cd/fow.

 

Stijn Broecke is a Senior Economist at the OECD, where he leads the organisation’s initiative on the Future of Work.

 


Image credit: © Agence MYOP for OECD

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