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19 April 2017

Introduction of more flexible working arrangements impairs productivity, claim two French economists

Economists Philippe Askenazy and Christine Erhel believe that the measures introduced to increase flexibility in the labour market are not unconnected with the drop in labour productivity recorded since 2008 in the OECD countries, and specifically in the major European economies.

In a four-page paper published in April 2017, the two French economists present figures highlighting a considerable slowdown in labour productivity in the majority of OECD countries since the 2008 banking and financial crisis. The big economies of Europe (Germany, France, the United Kingdom and Italy) experienced a sharp drop in their hourly productivity between 2008 and 2010 and are slow to return to the pre-crisis growth levels. The researchers pinpoint the employment policies pursued for over 10 years by many governments as one of the possible explanations for this phenomenon. These policies have resulted in deregulation of the permanent employment contract and the rise of flexible forms of employment (such as fixed-term contracts, temporary work, part-time work and self-employment).

Accordingly, the number of part-time employees rose by some 5% to exceed 25% in Germany between 2002 and 2015. In France, the number of people working part-time also increased, although the greatest increase in the past 15 years has been in the number of workers on temporary employment contracts. They now make up just over 15% of total employment. Still in France, the introduction of a new regime for ‘auto-entrepreneurs’ (unincorporated, freelance entrepreneurs) in 2009 triggered a rise in self-employed activity. As the paper’s authors explain, ‘[t]he revenue of auto‑entrepreneurs is very low, averaging less than one third [of] the annual income of individuals having a “classic” self‑employed status’, further pointing out that the emergence of this form of employment results in reduced productivity from self-employed work. As a consequence, hourly productivity for self-employed work has dropped by some 20%.

The researchers have also found the rise in atypical forms of employment to be accompanied by transformation of the very nature of temporary employment contracts. The duration of such contracts is becoming increasingly shorter, in particular in the United Kingdom which has seen the rise of the infamous ‘zero hours’ contract, and in France where cases of recruitment not exceeding one month have surged.

In the light of the negative impact on productivity of these measures for enhancing labour market flexibility, the authors recommend focusing instead on policies aimed at creating good jobs and boosting training for the low skilled.

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