In his Autumn Statement to Parliament on 2 December , British chancellor George Osborne had to admit that the United Kingdom is not able to reduce its budget deficit to below £90bn in 2014, as forecast. One of the main reasons is that tax revenues for 2014 are far lower than the government had expected. At the same time the British economy is doing well, with GDP growth at 3% this year, far higher than most other European economies. And it is forecast to stay high, though a little lower, in the coming years.
It is interesting that the GDP growth rate for 2014 is actually higher than forecast, while tax revenues are lower. So why is the economy doing well, yet tax revenues are falling? Most commentators refer to the jobs that have been created in the last years, which are mainly low-paid and insecure. People find work with zero-hour contracts, register themselves as self-employed but earn lower than the minimum wage, or work for employment agencies but rarely full-time and for low pay. Most jobs are low-skilled and in the non-tradable part of the service sector, giving them low expectations of any opportunity for improvement in the short term.
Last week I referred to the British situation in my presentation at the FNV Mondiaal conference on precarious work in Amsterdam. The political debate in the United Kingdom, less than six month before the general elections, is all about job creation and in particular about the kind of jobs that have been created. The other main debate is on migration, which is partly related to people’s fear of losing their jobs or being pushed into insecure and low-paid jobs because of ‘unfair’ foreign competition on the labour market.
Last week, The Broker published a discussion paper on precarious work for the FNV Mondiaal conference. Precarious work is all about the changing legal relationship between employers and employees. Workers have no secure income or legal rights to improve their working conditions, and struggle to acquire access to loans to invest in their future and the education of their children. They face insecure employment conditions because employers are lowering costs by shedding their legal responsibilities to their workers.
The paper was not only an introduction on the trends surrounding precarious work, it also tried to determine how economic globalization is undermining economic development by driving many workers into low-paid, insecure jobs. And this is why the British case is important. If low-paid, insecure jobs are here to stay, this will affect economic development in the long term, as governments will face lower tax revenues and continue to struggle to balance the budget. The prediction is that a further rise in precarious work will harm economic development by driving up the costs of health care and social security. More cuts aimed at balancing the budget will hit precarious workers the hardest.
Precarious work is also linked to income inequality. Precarious jobs pay much less than working on a permanent contract, for example. In Spain, Portugal, Greece and Germany, wages for doing the same job in the industrial sector but without a permanent contract are about 25% lower. In the service sector the difference is even greater, rising sometimes to 40%. Combined with low job mobility, this is creating a growing group of working poor who work in precarious conditions. The result is a widening income gap between the rich and the poor.
As the discussion paper shows, flexibilization, economic globalization and financialization of the economy are the main causes of precarious work. But interestingly, linking precarious work to the debate on income inequality shows that precarious work not only affects the ‘losers’ of globalization, but also the ‘winners’. Nowadays, economists tend to agree that a high rate of income inequality slows down economic growth in the long term. Combined with governments that continue to struggle with their budgets due to low tax revenues, this will eventually also be a concern for those who are better off.
Photo credit main picture: Equilibristas by Kênia Castro via Flickr