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Brexit and the Temp Economy

The attempt by the United Kingdom to leave the European Union, or “Brexit” — a portmanteau of the words “British” and exit” — has been making headlines worldwide. A referendum back in June resulted in 51.9% of U.K. citizens voting to leave the European Union.

The turnout country-wide for the referendum was 72%, meaning that a significant portion of the country was not only paying attention to the issue, but wanted to make their voices heard. Although not legally binding, the referendum set into motion the process of the U.K. leaving the European Union, through the appealing of Article 50 of the Treaty of the European Union.

Article 50 is the biggest step in any country’s withdrawal from the European Union, as it lays out the process for departure. Primarily, it ensures that the party wishing to withdraw from the union notify the European Council of said decision, and that the union negotiate with the state in question the terms of departure.

Since the U.K. is the first country in the European Union’s 58-year history to withdraw, all parties are experiencing many firsts.

Not to understate the obvious, this secession by the U.K. is a very big deal. Among the many aspects of the UK’s economy that will be affected is the area of temporary workers.

Impact on U.K. Temporary Workers

The number of temporary workers in the U.K. has grown over the past decade, as around 744,000 people in the U.K. were employed on zero-hours contracts in 2015. This figure represents 2.4% of the U.K. workforce, and is a 0.4% increase of the same group from 2014.

Zero-hours contract workers are usually women, or in young or older age groups. While the hours of a full-time job are typically 40 hours or more per week, a zero-hours contract worker will likely work a maximum of 25 hours per week.

At least a third of those 744,000 part-time workers would like more hours.

However, some part-time workers, like mothers or elderly people, don’t have much of a choice in how much of a workload they can take. Because they can’t take on full-time work, they would often be denied certain benefits and rights that are afforded to full-time employees.

The European Union helps provide these benefits to zero-hours workers, such as better pay rates, more paid vacation time, and better working conditions in general. Without the support and advocacy of the union, it’s difficult to say whether or not these assistances would still be available to temporary workers in the U.K.

The average temporary employee makes minimum wage, which is 7.20 pounds per hour if they’re 25 or older, 6.95 pounds per hour if they’re 21 to 24 years old, and 5.55 pounds per hour if they’re 18 to 20 years old. This translates to $8.82 per hour for employees 25 years and older, $8.51 per hour for 21 to 24 year olds, and $6.80 for 18 to 20 year olds, respectively.

The lowest minimum wage rate of any state in the U.S. is $7.25 per hour, although in states like New York and California, the rates climb to $9.00 per hour and $10.00 per hour. It should be noted that the cost of living in these states is much higher, but temporary workers putting in 25 hours per week in the state of California would be making $1,000 per month — that’s $12,000 per year — before taxes.

In the U.K., an 18-year-old part-time employee would only be making $680 per month — or $8,160 per year — before taxes. Therefore, a part-time employee can’t afford to take any extra time off, even in the event of an injury, death in the family or even pregnancy.

This is where the benefits afforded by the U.K.’s membership in the European Union become crucial, as it makes the living situation for a part-time worker easier.

So the obvious concern for temporary and part-time workers is that the benefits and rights they received because of the U.K.’s membership in the European Union will be repealed. As these rights exist in the U.K. largely because of the union, it seems only natural that they would be subject to termination.

Should this happen, temporary workers already struggling to make ends meet will face even greater challenges paying their bills each month.

The Temporary Worker System in the U.S.

Compare the state of the temporary worker industry in the U.K. to that of the U.S. You already know that the average minimum wage earner in the U.S. pulls in more than the average minimum wage earner in the U.K.

As per the Fair Labor Standards Act, all employees — either part-time or full-time — are required to earn at least $7.25 per hour, even if they are “tipped employees” such as waiters and waitresses making a base of $2.13 per hour.

If their total income doesn’t equal $7.25 per hour, the employer is required to make up the difference. At minimum, even a part-time worker putting in only 25 hours per week should be making $725 per month before taxes. And this figure is not dependent on the age of an employee.

In the U.S., 2.87 million people work temporary jobs — meaning 0.88% of the U.S. workforce is currently employed on a contract basis. This status would keep employers from having to hire workers in an official capacity.

It also would prevent employers from being held liable for inappropriate workplace actions or workplace injuries, injuries in Orange County need experience law representation to insure protection of legal rights . In short, businesses could hire temporary workers without having to treat them like full-time employees in any way.

Until August, anyway. A case known as Browning-Ferris saw the Obama administration give a positive ruling to the National Labor Relations Board that classifies contractors as employees. Basically, this ruling redefined what it means to be an employee, according to labor laws.

Under this new ruling, contract workers are now subject to the same benefits as full-time employees, as long as they are legally employed by a company. According to the Browning-Ferris ruling, an individual is legally employed if the hiring company agrees upon the contractor’s shifts, workload or expected production level and wage.

Under its own government and authority, the U.S. has established fair labor laws for its temporary employees, conditions that don’t depend on membership to an outside organization.

Naturally, there is risk that the same government that put these laws in place can just as easily take them away, but those risks aren’t absent from a massive organization such as the European Union, either.

What Happens Next?

If the U.K. follows through with its invocation of Article 50 and leaves the European Union in two years’ time, the effects on the economy as a whole will be widespread. Although experts predict that the U.K. economy will be largely unfazed by Brexit, these figures pertain to the entire country.

There are still the temporary workers who make up 2.4% of the U.K. workforce, who, quite frankly, will likely be losing many of their benefits without the backing of the European Union.

Yes, the unemployment rate in the U.K. is low, the housing market has remained steady and the forecast for the overall economy even points upward, but the question is whether Brexit will truly be a benefit to all parties involved.

Remember that the referendum vote showed 51.9% of voters in favor of the move. The other 48.1% must’ve had strong reasons to vote against it.

Comparing the current landscape of the British economy to that of the American economy could shed some light on the potential outcome of Brexit.

Because over 744,000 people — and counting — in the U.K. are working zero-hours contracts, many believe this proves low-paid and insecure work is “ingrained” in the British economy. The steady increase in zero-hours contracts in the U.K. runs contrary to the hope of many that the U.K.’s economy would recover, therefore reducing the need for temporary contractors.

However, the trend has been moving in the opposite direction, and the consequences of Brexit could be direr than most realize. Without the benefits afforded by the European Union, nursing mothers, the elderly and those with disabilities will be dealing with much more strenuous living situations.

Naturally, outside of the jurisdiction of the European Union and free to make its own economic decisions, the U.K. could enact laws that provide more stability to temporary workers, like the ones in place in the U.S. However, it’s difficult to know if the government will be willing to hand out such benefits if the number of zero-hours contract workers continues to rise.

The U.S. provides better benefits for its part-time workers, but also sports an economy with only 0.88% of its workforce being part-timers. This same group makes up 2.4% of the U.K.’s workforce.

From 2013 to 2014, the number of temporary workers rose by 110,000, and then by another 47,000 in 2015. At that same pace, the number of temporary workers in the U.K. could rise to an astounding 822,000 by the end of 2016.

Once Brexit is complete, only time will tell whether or not the temporary worker industry will sink or swim.

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Holly Whitman is a writer and journalist based in Washington DC. She loves to share her thoughts on the intersection of politics and culture, and writes on everything from feminism and human rights to climate change and technology.

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47 thoughts on “Brexit and the Temp Economy

  1. And interesting question would be, of those 744K contract employees in the UK, how many of them voted for/against Brexit, and of those voting to exit, how many were aware of this scenario.


  2. You’ve done a lot of research on this topic. I would suggest an equal amount of work studying the nature of how markets set wages based upon supply and demand, how markets work via both signals and incentives, how minimum wages effectively work by prohibiting employers and employees from making deals to mutual advantage, and how vacation and work conditions are part of the total package and forcing both parties to get more of one part means they get less of others (such as pay).

    In brief, you seem to operate under a top down view of the world where working conditions are set primarily from above rather than through the decentralized actions of millions of competing and cooperating people. Until you understand how markets work, I suggest you refrain from commenting on how they should/could be improved.


  3. I don’t want to be as jerky as Swami about it, but I find it unconvincing that a full blown nation-state (multi-nation state actually) of over 60 million people needs the EU to keep the UK in line.

    What you’re really protesting is that there’s not a living breathing Labour party right now in UK politics.


  4. Probably no one hates Brexit more than me, but I think this post fails to mention at least two important issues that go against your argument:

    1- You are using today’s F/X rate of 1.22 dollars per pound. Before Brexit the rata was 1.44. That’s an 18% difference, so your minimum salary numbers compared to similar numbers in the USA are skewed. A more correct comparison would be $ 10.36 per hour for the above 25 yo minimum salary, not 8.82, and your 18 year old worker would be making $ 9,630 per year AND would have full free medical coverage, compared to your $12,000 uninsured CA teenager (and probably would be much better than most non CA my nimum salary workers in the USA). Plus, the first 11,000 pounds of income in the UK are tax free, so this teenager is getting his income without any tax liability.

    This devaluation has not yet run through the British economy, so most everything costs 18% less in dollars than it did in June, but it costs the same in pounds. We don’t know what the steady state of the exchange rate will be after the market fully embeds the referendum impact AND the Article 50 notification, but there’s no reason to believe there would not be a minimum salary correction if the inflationary impact of Brexit is big (as it is expcted to be).

    2- Sort of the only thing we know about how the Brexit will be implemented is that an Omnibus Act of Parliament will incorporate every single EU law into British law, so that at Real Brexit time there will be no changes to the status quo, including labor protections. Then, each EU regulation that the government of the day wants to do without would be repealed by a specific act of Parliament. Thus, workers won’t lose in one day whatever security the EU is providing them today.


  5. Could you clarify your terminology for that 0.88% of the US workforce? You used both “temporary jobs” and “part-time workers”. Part-time workers is a formal classification used by the US Dept of Labor. As of last month, 16.3% of the US workforce were part-time workers, a good portion of whom were not looking for full-time work. I think the US classification you’re looking for is “independent contractor”. The DOL ruling you reference didn’t eliminate independent contractors, but did narrow the definition. I know a couple of skilled people (one blue collar, one white collar) who have been successful independent contractors for years who are hoping that the ruling doesn’t force them out of that classification.


  6. My only takeaway is to note how the UK economy, like the US economy, seems unable to create enough jobs to sustain its population.

    Tax rates and labor laws are very different, culture is different, relational position to the world economy is different, and yet the same conditions appear, that there just isn’t enough employment to keep everyone occupied.

    Is there any place in the world where labor is in such short supply that workers can negotiate from a position of strength?


    • Workers don’t negotiate from a position of strength because labor is in short supply. That is classic lump of labor fallacy. Italy meets allbthe criteria that Lee puts out above and doesn’t exactly have a booming labor market.

      Workers negotiate from a position of strength when they have a high marginal product of labor. That is, when they have skills that contribute to the firm’s output in excess of the amount of the wage being paid.


      • I have it on good authority that Econ 101 says that when something is in short supply and demand rises, the price rises.

        That when there is a excess supply and low demand, the market sends pricing signals to workers that their labor is worth very little.
        See, its right here


        • Yeah, I keep hearing about that Lump of Labor Fallacy, right alongside patient lectures on Econ 101.

          Funny thing is, I still never hear about increasing productivity resulting in higher wages.

          I mean, overall worker productivity has been climbing since forever, but wages somehow have remained stagnant.


            • Did you read the link?

              But, as NPR’s Pam Fessler notes, “the median household income was still lower than it was in 2007.”

              And have real wages increased commensurate with productivity?

              I mean, in Econ 101 the market for labor should show periodic variations, where sometimes the price of labor rises or falls, depending on market signals .
              And sometimes the seller or consumer has the upper hand, as the market adjusts.

              Is that actually what we are witnessing? Where?

              And in the Lump of Labor disputation, the amount of labor needed is not static, but rises sufficient to create more demand for labor.

              Is that actually what we are witnessing, a global rise in consumption fueling a rise in the demand for labor, driving wages up?

              Why not?


          • Yeah, I keep hearing about that Lump of Labor Fallacy… Funny thing is, I still never hear about increasing productivity resulting in higher wages.

            I mean, overall worker productivity has been climbing since forever, but wages somehow have remained stagnant.

            It’s because you still refuse to digest the key implication: the country is not one big labor market.

            Wages have been rising in highly profitable industries like finance and tech that employ highly skilled (ie high marginal product) labor. If Goldman Sachs or Google can bring in a million dollars a year in revenues for your services, then they will hire you and pay you half a million.

            Wages and employment levels have been falling in industries that are using less labor and more automation. A factory that used to hire 100 people and pay them $50k a year to run stamping machines now buys a bunch of robot stamping machines and pays 10 people $100k a year to keep the robots running.

            Wages remain low in low margin industries like food service and grocery and home health care. In those industries, employers need people who can show up on time and do the job, but beyond that it doesn’t make sense to hire the world’s best fry cook or shelf stocker at McDonald’s or Walmart (ie they are low marginal product workers).

            Different labor markets have different dynamics. What exactly is the big mystery?


            • The mystery is, what do we need to do in public policy to improve the wages for the median worker?

              You are asserting the same thing I am- that there is less and less need for the labor that we have. The industries that pay well are a tiny part of the labor force.

              So for the vast majority of the nation’s workers, what policy suggestion would improve their lot?


              • So for the vast majority of the nation’s workers, what policy suggestion would improve their lot?

                What field is the vast majority of the nation’s workers in? If the answer is some variant of “vaguely unskilled labor”, maybe slow down on importing vaguely unskilled labor.

                Which is not to say “cease immigration!”

                Start importing skilled labor in rates that will cause the services that skilled labor charges for to have to go down because of a glut in the market.


                • There is a problem with the phrase “importing vaguely unskilled labor.” It is out of line with what immigration channels look like. Immigrants move to where the jobs are, to areas of low unemployment.

                  A lot of folks hold some form of the belief that, if there were less immigrants willing to work low wage jobs, employers would be forced to raise wages and that would bring more native-born workers into the job market. It’s a nice story, but it isn’t true.


                    • Count for what? What do you think that example demonstrates? Is it proof that restricting immigration can lower unemployment? Maybe, but we should point out that over the same time period to total U.S. unemployment rate dropped from 9.1 to 8.2, so maybe something else is going on.

                      Does it show us something about what happens to low wage workers when you chase illegal immigrants out of town. Again, maybe, but I’m not sure that what it shows us is supportive of what you’re saying:

                      A massive factory that processes 130,000 chickens a day… For years, most poultry workers here were Mexican immigrants, including some who were in the country illegally. But last fall, after a tough state law against illegal immigrants took effect, many vanished overnight… leaving the poultry business scrambling to find workers willing to stand for hours in a wet, chilly room, cutting up dead chickens… The firm held a job fair that attracted about 250 local residents, but few were hired, and some soon quit, daunted by the demanding work. Since the law took effect, he said, “our turnover rate has gone through the roof.”


                      Nevertheless, a variety of employers in Alabama said they have not been able to find enough legal residents to replace the seasoned Hispanic field pickers, drywall hangers, landscapers and poultry workers who fled the state. There was an initial rush of job applications, they said, but many new employees quit or were let go.

                      And that doesn’t even get us to a discussion about how that law affected economic growth.


                      • From the story: from 9.8 percent to 7.2 percent

                        From your comment: over the same time period to total U.S. unemployment rate dropped from 9.1 to 8.2

                        There’s a game in IT called “bring me a rock”.

                        The security guy says “bring me a rock” and you bring him a rock.

                        “I don’t want that rock. I want a red rock.”

                        So you find a red rock for the security guy.

                        “That rock is too small. I want a bigger red rock.”

                        So on and so forth.

                        I found evidence that demonstrated a case where “there were less immigrants willing to work low wage jobs” and, in response “employers would be forced to raise wages and that would bring more native-born workers into the job market.”

                        You don’t want this rock.
                        You want a red rock.


                        • No. You didn’t bring evidence of any of that. You brought one data point: a rise in the unemployment rate that happened the same year that Alabama passed that law. For data to be evidence, we need to investigate the relationship between the two occurrences and see what the correlation is and then see what role one plays in driving the other.

                          Also, this is from the Wikipedia page on the law:

                          On December 18, 2011, it was reported that Alabama’s unemployment rate had fallen from 9.2 percent to 8.7 percent. Supporters credited the immigration law for the decrease.[21] However, Ahmad Ijaz, Director of Economic Forecasting at the University of Alabama, found that the majority of job growth in 2011 was in the automotive sector – an area of the economy where undocumented workers were uncommon. Ijaz attributed a rise in employment to the retail growth during holiday sales. Contrary to expectation, there was no job growth in sectors where Latinos typically work – construction, agriculture, and poultry processing.

                          I’m not ready to say one way or the other what role the law played in the change in the employment rate, but let’s not pretend that I’m moving goal posts.


                • And then what happens?

                  I’m still waiting for something that ends with “and then the median worker sees real wage gains.”

                  Because since around 1970, that hasn’t been happening.


                  • Well, when was the Immigration and Naturalization Act of 1965 passed?

                    Maybe we’re looking at this incorrectly: Let’s say we started weighing the benefit that the people working here instead of, say, Guatemala are seeing.

                    How much are median workers helped then?


                    • Without looking at statistical analysis, because I’m a lazy sod, as my British better half says frequently:

                      Median workers are helped by increasing aggregate demand (the immigrants’ demand is added) and by access to cheaper services, increasing their disposable income to allow for further demand (and, believe it or not, illegal immigrants pay taxes, not only sales taxes, but payroll and income taxes withheld to fake social security numbers)

                      Now, low end workers, that might be a different story, and we had a sub thread not a week ago comparing different studies about the impact of unskilled immigration on high-school-graduates-and-below native workers. Let’s say that the studies are inconclusive, so as not to rehash the debate, but definitely they do not invariably point in the direction you seem to be hinting at.


                      • Let’s say that the studies are inconclusive, so as not to rehash the debate, but definitely they do not invariably point in the direction you seem to be hinting at.

                        Yeah, whenever this thread comes up, I always point to the same reports, then other people point to articles that don’t mention the reports that they’re citing, and then we say that studies are inconclusive.


                        • In the last debate, I brought (and linked) the Peri paper from the Federal Reserve Bank of San Francisco, and was rebutted with an article from David Frum quoting the Borjas paper that had itself being rebutted by the time Frum wrote his article.

                          So I am in team published paper, not in team opinion article.

                          I am unwilling to rehash a debate that is not one week old (look for it but n the Merkel thread), so I was willing to be generous by saying we ended the debate without settling the matter. We don’t need to repeat the ad-hominems.


                    • When did intermodal freight make global shipping cheaper?
                      When did the rules in international tariffs and finance change to make global finance easier?
                      When did the New Deal coalition break apart?
                      All around 1970.

                      The current landscape never has a magic silver bullet of causality.


      • When labor is scarce, wages go up because there’s more producer surplus. When labor is plentiful, wages go down because there’s more consumer surplus. Of course, these aren’t completely static situations: when times are good, more businesses get created, which makes labor more sought after, which raises wages. (If you don’t believe that, look into what programmers, even bad ones, were making in 1999.) When times are bad, businesses fold, which means people will take whatever they can get. (If you don’t believe that, look into what programmers, even good ones, were making in 2001.)

        It’s not like any of this is controversial.


    • “Is there any place in the world where labor is in such short supply that workers can negotiate from a position of strength?”

      Position of strength would need to be unpacked a bit there. As far as location versus strength, if it holds that labor is in the realm of individual agency, then the locations where labor holds the most strength is in those areas that have the least amount of distortion from social constructs. Straight up slavery is an extreme example of where individual agency of labor has been completely defeated by a social construct.

      (gees howd this comment end up down here)


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