Making the ‘New Deal’ a good deal for low-paid workers

The Government has come into office promising major workplace reforms that could amount to the biggest shake-up of the workplace in a generation. The ‘New Deal for Working People’ pledged a number of reforms, including to unfair dismissal, sick pay, employment status, zero hours contracts, the minimum wage, as well as changes to how employment rights are enforced. And while many of these reforms affect all workers, low earners will be most affected as they are disproportionately likely to have insecure work contracts, receive statutory rather than occupational sick pay, and not receive basic legal entitlements such as paid holiday leave.

But, although the Government has set a clear direction of travel, there are many questions still unanswered. How will probationary periods be used – will protection against unfair dismissal really be a ‘day one’ right? Does announcing a cautious one-year minimum wage policy mean there are bigger changes still to come? How should possible trade-offs with employment be handled? What would be the impact of giving zero-hours contract workers a right to regular hours?

1. September 24 @resfoundation Making the ‘New Deal’ a good deal for low-paid workers How should the Government deliver its planned changes to employment law? Delphine Strauss, Economics Correspondent at the Financial Times Kate Shoesmith, Deputy CEO at the Recruitment and Employment Confederation Michael Ford KC, Barrister at Old Square Chambers Nye Cominetti, Principal Economist at the Resolution Foundation Chair: Gavin Kelly, Executive Chair of the Resolution Foundation

2. The big picture on insecurity and employment policy in the UK A closer look at four policy areas: Unfair dismissal Hours insecurity Statutory sick pay The minimum wage Risks and trade-offs 2 Today @resfoundation

3. 3 The big picture @resfoundation

4. 4 Ease of dismissing workers, and unemployment benefits replacement rate: OECD countries UK employment policy offers workers relatively little protection against insecurity Bad news: other important dimensions of insecurity also prominent in UK – hours insecurity, solo self-employment Good news: risk of job loss (and anxiety over job loss) trending down in UK Source: RF analysis of OECD, Employment protection index (version 4) – ease of dismissing individual workers, 2019; OECD, unemployment benefits replacement rate after six months unemployed (refers to a single person earning two-thirds of median pay when in work), 2022. @resfoundation Tackling insecurity would make the UK a more normal country

5. 5 Ease of dismissing workers, and unemployment benefits replacement rate: OECD countries Source: RF analysis of OECD, Employment protection index (version 4) – ease of dismissing individual workers, 2019; OECD, unemployment benefits replacement rate after six months unemployed (refers to a single person earning two-thirds of median pay when in work), 2022. @resfoundation Tackling insecurity would make the UK a more normal country UK employment policy offers workers relatively little protection against insecurity Bad news: other important dimensions of insecurity also prominent in UK – hours insecurity, solo self-employment Good news: risk of job loss (and anxiety over job loss) trending down in UK

6. 6 Ease of dismissing workers, and unemployment benefits replacement rate: OECD countries Source: RF analysis of OECD, Employment protection index (version 4) – ease of dismissing individual workers, 2019; OECD, unemployment benefits replacement rate after six months unemployed (refers to a single person earning two-thirds of median pay when in work), 2022. @resfoundation Tackling insecurity would make the UK a more normal country UK employment policy offers workers relatively little protection against insecurity Bad news: other important dimensions of insecurity also prominent in UK – hours insecurity, solo self-employment Good news: risk of job loss (and anxiety over job loss) trending down in UK

7. 7 Ease of dismissing workers, and unemployment benefits replacement rate: OECD countries Source: RF analysis of OECD, Employment protection index (version 4) – ease of dismissing individual workers, 2019; OECD, unemployment benefits replacement rate after six months unemployed (refers to a single person earning two-thirds of median pay when in work), 2022. @resfoundation Tackling insecurity would make the UK a more normal country UK employment policy offers workers relatively little protection against insecurity Bad news: other important dimensions of insecurity also prominent in UK – hours insecurity, solo self-employment Good news: risk of job loss (and anxiety over job loss) trending down in UK

8. 8 Workers expecting SSP or no pay if off sick for a week (2023), on zero-hours contracts (2021-2023), and quarterly involuntary job exits (during Covid and Financial Crisis), by hourly pay quintile: UK NOTES: Sick pay arrangement: sample is private sector workers only,. Involuntary job exit: measure is share of those employed in last quarter who have left a paid job within last three months where reason given was redundancy or dismissal. ‘Downturn’ periods covered include Financial Crisis (Q1 2008-Q1 2009) and Covid (Q1 2020-Q4 2020). SOURCE: RF analysis of YouGov survey commissioned by RF, 2023; Zero-hours contracts ONS, Labour Force Survey; Involuntary job exits, ONS, Two-quarter Longitudinal Labour Force Survey @resfoundation Low-paid workers bear the brunt of insecurity

9. 9 A closer look at four areas @resfoundation

10. 10 Length of qualifying period (months) until workers are entitled to protection against unfair dismissal: OECD countries Should not be controversial to massively reduce qualifying period Question is how to implement ‘probation periods’ – not currently part of employment law Hiring sensitive to qualifying period: process for probation dismissals should be straightforward A 6 month probation period would bring UK in line with Denmark, Germany, Sweden Notes: Length of qualifying period in months estimated based on the relevant domain score in the OECD’s Employment Protection indices. Countries other than the UK and Ireland shown with a ‘jitter’ so that it is possible to see that there are a number of countries with qualifying periods at those levels Source: RF analysis of OECD, Employment protection database. UK series is based on the history set out in: Darren Newman, Qualifying for Unfair Dismissal, September 2023. @resfoundation Unfair dismissal : questions around probation periods

11. 11 Level of anxiety relating to ‘unexpected changes to my hours of work’, 20-65-year olds, by hourly pay quintile: UK, 2017 Hours insecurity goes beyond workers on ‘zero-hours contracts’ To address insecurity: new entitlement must set minimum hours per week all workers should be eligible (not just those already on regular hours) Policy design hardest for businesses facing genuine intermittency. Spirit of Govt. reforms points against offering carve-outs Source: RF analysis of UK Skills and Employment Survey. @resfoundation Hours insecurity : questions around hours guarantee

12. 12 Earnings replacement rate and number of ‘waiting days’ before payments start, in countries’ sick pay systems: OECD countries Removing low earnings threshold for SSP eligibility will benefit 1.1m part-time workers Removing waiting days means some protection for the majority who only take short sickness absences But not raising SSP level means earnings protection still very low. This should be addressed. Downside: would impose greater costs on businesses. Notes: Earnings replacement relates to four weeks’ absence for a worker on average private sector pay. Includes mandatory payments. ‘Waiting days’ are the initial number of days of a sickness absence during which the worker is not entitled to statutory sick pay. Data refers to 2019. Source: OECD, Disability, Work and Inclusion in Korea, May 2023. @resfoundation Sick pay : full eligibility welcome, but only half-solves problem

13. 13 Earnings replacement rate and number of ‘waiting days’ before payments start, in countries’ sick pay systems: OECD countries Removing low earnings threshold for SSP eligibility will benefit 1.1m part-time workers Removing waiting days means some protection for the majority who only take short sickness absences But not raising SSP level means earnings protection still very low. This should be addressed. Downside: would impose greater costs on businesses. Notes: Earnings replacement relates to four weeks’ absence for a worker on average private sector pay. Includes mandatory payments. ‘Waiting days’ are the initial number of days of a sickness absence during which the worker is not entitled to statutory sick pay. Data refers to 2019. Source: OECD, Disability, Work and Inclusion in Korea, May 2023. @resfoundation Sick pay : full eligibility welcome, but only half-solves problem

14. 14 Earnings replacement rate and number of ‘waiting days’ before payments start, in countries’ sick pay systems: OECD countries Removing low earnings threshold for SSP eligibility will benefit 1.1m part-time workers Removing waiting days means some protection for the majority who only take short sickness absences But not raising SSP level means earnings protection still very low. This should be addressed. Downside: would impose greater costs on businesses. Notes: Earnings replacement relates to four weeks’ absence for a worker on average private sector pay. Includes mandatory payments. ‘Waiting days’ are the initial number of days of a sickness absence during which the worker is not entitled to statutory sick pay. Data refers to 2019. Source: OECD, Disability, Work and Inclusion in Korea, May 2023. @resfoundation Sick pay : full eligibility welcome, but only half-solves problem

15. 15 ‘Bite’ of the adult rate minimum wage, level compared to median hourly wages among workers aged 21 and above: UK Commitment to making minimum wage a “genuine living wage” does not mean raising to level of real Living Wage Instead: one-year policy, where LPC asked to take inflation rate into account Likely result: 2025 NLW not different vs previous Govt’s policy Ambition reserved for young workers – “discriminatory” age rates to be phased out Govt. should set new min. wage framework for post-2025: ambition, with clarity on how to approach risks Note: Estimated value for 2025 is our interpretation of how the Low Pay Commission is likely to implement its remit, not explicitly Government policy. Source: RF analysis of LPC data on minimum wage bite. @resfoundation Minimum wage : a cautious, holding policy

16. 16 Risks and trade-offs @resfoundation

17. 17 Workers on zero-hours contract; in job three months or less, earning at or below minimum wage, and share who would expect to receive SSP or no pay if off sick for a week, by age group: UK/GB Risk greatest for young workers given high impact of multiple reforms Approach to minimum wage policy tells us how to handle these risks: move cautiously, follow the evidence Notes: Sample for sick pay arrangement is private sector employees only. Source: ZHCs and job tenure: RF analysis of ONS, Labour Force Survey, 2021-2024 (UK); Sick pay arrangement: RF analysis of YouGov, 2023 (UK); Earning minimum wage or less: RF analysis of ONS, Annual Survey of Hours and Earnings, 2023 (GB). @resfoundation Raising terms and conditions creates an employment risk

18. 18 Strictness of employment regulation relating to dismissing individual workers (2019), versus annual hiring rate (2019), and share of workers on temporary contracts (2022): OECD countries Points to need to design policy carefully and implement cautiously, and perhaps need for mitigating policy (e.g. restrictions on use of temporary contracts) These are NOT an outright argument against reform given a) UK starts with low regulation and b) effects on productivity not clear-cut Source: RF analysis of OECD, Employment Protection Legislation Database, 2020 edition; OECD, Labour Market Statistics; OECD, Labour market transitions across OECD countries: Stylised facts, December 2021. @resfoundation Stronger job protection associated with lower hiring and use of temporary contracts

19. September 24 @resfoundation Making the ‘New Deal’ a good deal for low-paid workers How should the Government deliver its planned changes to employment law? Delphine Strauss, Economics Correspondent at the Financial Times Kate Shoesmith, Deputy CEO at the Recruitment and Employment Confederation Michael Ford KC, Barrister at Old Square Chambers Nye Cominetti, Principal Economist at the Resolution Foundation Chair: Gavin Kelly, Executive Chair of the Resolution Foundation