Ed Miliband's latest
attempt to screw up a part of the economy is his desire to legislate on zero
hour contracts:
"If you work regular
hours for three months, Labour will give you a legal right to a regular
contract, not a zero-hours contract."
I have no doubt Ed
Miliband isn't ignorant of the fact that such a policy will harm lots of people
and help only a tiny few, yet he doesn't seem to care two hoots - he supports the
popularity-engendering policy because he knows most people will endorse it
based on the help for the tiny few while at the same time being wholly
oblivious to the wider harm it will do. If you happen to be one of those few to
whom that applies, you'll be happy. But for the vast majority, the labour
market of supply and demand involves a mutual allocation of resources (work and
wages) far beyond the scope of any top-down management, and with far more
efficiency than arbitrarily introduced state-meddling can achieve. Telling
employers they must offer a regular contact after three months (a figure
seemingly plucked out of the air) can only harm the qualities of mutually
allocated resources. This isn't anything more than standard first year
economics - something politicians seem to be happy to ignore to buy votes.
What Ed Miliband is
missing is the most important point. Yes, some people struggle on zero hours -
the part of the labour market that contains much of this kind of work is often
insecure, unstable and volatile anyway - but the notion that this law will make
things better is moonshine. Here's the key point. The labour market of supply
and demand is dictated by the numerous price signals that generate all kinds of
information about the value of labour, the supply of services, length of
contracts, and so forth. A dentist can work in the same place for 15 years
doing a similar number of hours each day. A sub-contracted painter and decorator
can work at dozens of places in that time, with varying lengths of contract. Selling
labour is not homogenous, it is heterogeneous - and you're just not going to be
able enforce better pay or more stability without damaging a whole sub-section
of people in that labour market.
So it's not that I'm
repudiating Ed Miliband's proposal because I've suddenly developed amnesia
about the struggles of people's ability to live or the volatility of the market
- I'm repudiating it because its implementation will simply alter the behaviour
of employees and employers in the supply and demand market because the vital
price signals of information on which the economy runs will be distorted.
It's easy to think of zero
hour contracts only in terms of employees, and to imagine most employers to be
cold, uncaring exploiters. But it distorts the true reality. Economic policies affect
employers as well as employees - and employers are the essential providers in
this equation. Make a law that helps low earners and you hinder another group (usually
low-skilled employers but also other low earners). Make a law that helps tenants
and you hurt another group (usually landlords). Make a law that helps Brits and
you hurt another group (usually anyone who isn't a Brit). Nothing comes without
a cost.
Employers have lots to
consider when they take on people. They have to make forecasts about the
future; they have to consider market fluctuations; they have to consider what
they should invest; and they have to consider which future state-interference
will hamstring them. Zero hour contracts are sometimes opportunities to exploit,
but they are mostly opportunities to reduce risk in a frequently unstable
market, and create lots of short-term employment.
Think who the beneficiaries
of zero hour contracts might be - students, single parents, retirees, those looking for additional employment to
top up their main job, and those with multiple part time jobs. The ability to
work flexibly as and when they want is a very beneficial thing for them. Ed
Miliband's proposal to ruin theirs and their employers' flexibility is narrow
and short-sighted.
What Ed Miliband also
doesn't understand is that the kind of economic growth enjoyed when his party
was not in government is the main vehicle that will reduce zero hour contracts
for those not happy with them. The reason being, job growth increases the necessity
for employee stability, which will only diminish the allure of zero hour contracts
for both employers and employees, because employers are going to want stability
in their personnel. Moreover, as unemployment rates fall and job creation continues
to take place, greater power is transferred to jobseekers, which places
selection pressure on firms offering less desirable contracts. Ironically, Ed
Miliband's proposal will uproot some of the stability in the market, which will
more than likely go on to have a cobra effect type scenario
whereby he contributes to an increase in zero hour contracts - the very
opposite of what he's trying to do.
The state's best role is
to reduce the tax burden for people on low incomes or in a volatile part of the
market, and give them the supplementary financial help they require, leaving
those vital price signals untouched.
