The New World of Work: recovery driven by rise in temp jobs

They call it the “precariat”. In a continent known for strong employee protections, more than half of the eurozone’s young workers are in temporary jobs, churning from one shortlived contract to the next.

In France, permanent jobs account for just 16 per cent of new contracts, down from a quarter in 2000. In Spain, almost seven in 10 young workers are on temporary contracts. The share of the eurozone’s 15 to 24-year-old workers who are temps is the highest on record, at 52.4 per cent.

Now that the eurozone’s recovery is at last under way, the question facing policymakers and politicians is whether the painful reforms of the last few years will do anything to address this.

“The excess use of fixed-term contracts is basically suboptimal for everybody – it’s certainly suboptimal for the workers, it’s certainly suboptimal for the companies and it’s not the way to promote innovation and economic growth,” said Stefano Scarpetta, director for employment at the OECD.

Normally, temp work is not something that economists worry about. Employers often hire temps instead of permanent staff in the early stages of an economic recovery while confidence is still shaky. And temporary or contractor jobs, including the sort on offer through tech companies such as Uber and TaskRabbit, can be a toehold in the labour market for people who might otherwise fail to find a way in, such as the inexperienced or the long-term unemployed.

Denis Pennel, managing director of Ciett, the international lobbying organisation for private employment agencies, says attitudes are also changing as technology and globalisation start to reshape the world of work. He thinks we have reached “the tipping-point of the employer-employee relationship” as both employers and some employees — particularly those with valuable skills — seize the chance for more flexibility.

FT Series

New World of Work

As Europe’s post-crisis workers live through huge labour market upheaval, FT reporters look at what this means for young people, business and the economy

But in parts of Europe, where temporary and contract work is unusually pervasive, economists say there is a dark side to the trend.

A deep fracture has emerged in Spain, France, Italy and Portugal over the past 20 years, with an older generation of highly protected permanent employees on one side and a younger generation forced to settle for insecure jobs on the other. That is one reason why youth unemployment surged when the crisis hit.

“The rules for open-ended contracts in Europe are considered too stringent by employers and they sidestep those regulations by creating non-regular jobs,” said Marcel Jansen, professor of economics at the Universidad Autónoma de Madrid. “But those jobs . . . lead to a lot of adverse effects.”

The OECD warns this “excess” of temping is more of a “trap” than a “stepping stone” in Italy, France and Spain, where fewer than 30 per cent of temporary employees have moved on to permanent jobs three years later. It is hard to build a life on work like this: poverty rates for households that survive only on “non-standard” work are about 22 per cent in OECD countries, compared with just 3 per cent for households that have a mixture of standard and non-standard work.

It is not just a matter of intergenerational unfairness. The OECD warns these economies are also storing up future skills shortages and productivity problems, since employers are far less likely to provide training to young temps. “This is certainly not very good for the worker . . . but I think the point we’re making is that this is not even good for the firms themselves nor for the economy, because this reduces the build-up of human capital on the job,” said Mr Scarpetta of the OECD.

Since the financial crisis, some governments have intervened. One aim of the sweeping labour market reforms implemented in countries like Spain, Portugal and Italy was to make permanent workers easier and less costly to fire, in the hope that employers would be more willing to hire them.

As growth returns to the continent, these reforms will be put to the test. The early indications suggest employers in many countries are still reluctant to offer permanent contracts, although it is too soon to draw firm conclusions. The share of all workers who are temps, which fell in the crisis because they were the easiest jobs to cut, grew again last year in 13 of the eurozone’s 19 countries.

“In spite of reforms to make it more attractive to hire permanent workers, it seems as if temp use is on the rise again, and if anything it’s becoming more prevalent in higher skilled jobs and among young people,” said Bert Colijn, senior economist at ING. “But we don’t know for sure yet whether that’s structural or just a cyclical phenomenon.”

Some analysts believe the reforms did not go far enough to equalise the rights and redundancy costs for temporary and permanent workers. They also say that rules to limit temp use are not always properly enforced, and that employers fear some of the reforms will not last. One exception appears to be Italy, which this year introduced a new open-ended contract where workers accrue rights gradually over time. The share of new contracts that are permanent has climbed from 17 per cent in December to about 50 per cent. Still, Italy has also offered very generous social security discounts to companies that hire permanent workers, something the government is unlikely to be able to sustain indefinitely, since they cost about €5bn a year.

Professor Jansen believes the problem of two-tier labour markets will not go away without more action. But for now the priority for politicians should be to tackle the crisis’s “black legacy” of long-term unemployment — something temp work is helping to do.

“Introducing very strict restrictions on the use of temporary contracts in the current situation might . . . destroy the only bridge between the long-term unemployed and the labour market, if you don’t offer very flexible positions to employers,” he said. “But once the recovery is more solid, we should deal with this issue again.”

Read more

The series	Risk and opportunity	Spanish challenge
Read the rest of our series on changes facing Europe’s workforce	Gig economy signals end of lifetime career	Price of recovery is rise in number of temporary jobs