Future of work: Aligning workstyles and policies to accommodate flexible employment

Future of work: Aligning workstyles and policies to accommodate flexible employment

Phuah Eng Chye (8 September 2018)

“If we were designing a labor market from scratch today, it’s unlikely we’d create one that rewards only full-time employees. It wouldn’t make sense given the many ways that people choose to – or must – work: independently, part-time, on the side, as a contractor or freelancer, or on-demand. An estimated 30-40% of today’s workforce are self-employed either part- or full-time, and the numbers are only expected to grow. If we were designing a labor market today, we’d create a system that supports everyone who works”Diane Mulcahy (2018) “How U.S. law needs to change to support the self-employed and gig economy”

Discussions on labour reforms often go astray due to the disorder sowed by information disruption. The challenge is to rise above the quagmire and to peer into the future; to visualise the kind of operating environment that could accommodate greater diversity in work forms.

Towards this end, Japan’s Council for the Realization of Work Style Reform proposed a broad program to “build a society where everyone can choose various work styles to build one’s own future…Our current labor institution and work styles in Japan have various challenges including those regarding labor participation, balancing work and childcare or nursing care, career change or reemployment opportunities and side jobs or multiple jobs done in conjunction…Irrational gaps in the treatment of two different work styles of regular workers and non-regular workers make non-regular workers feel that they are not receiving fair treatment and lose their motivation to do better”.

The council drafted guidelines to promote equal pay for equal work “to eliminate the irrational gap in the working conditions of regular versus nonregular workers (limited term workers, part-time workers, dispatched workers) in each firm or organization in order to enable non-regular worker to be fairly evaluated and to work with higher motivations.” “The draft government guidelines on equal pay for equal work was formulated…by ensuring balanced and fair treatment regardless of work styles…The draft guidelines cover not only basic pay, pay rises, bonuses, and various kinds of allowances, but also education, training, and welfare”.

The details for working conditions and wage were to be determined through discussions between labor and management. “Toward the realization of equal pay for equal work, each company is expected to clarify the contents of the essential jobs/skills, promote fair evaluation based on them and establish the entire system of working conditions including wage system based on that evaluation. In doing so, startup companies or SMEs are expected to devise the system of working conditions by holding dialogues between labor and management, taking into consideration the fact that the jobs contents are diverse and fluid in those companies.” Based on these discussions, the Council would prepare “legislative rules but also by collaborating with related policies such as supports for companies introducing the personnel system where workers are evaluated based not upon their seniority but upon their capacities, providing occupational information on knowledge, skills and technologies which are required for various jobs and preparing the system of evaluation of occupational skills by utilizing skill examinations and job cards”.

As part of its scope, initiatives were proposed to improve work-life balance by curbing work hours (e.g. restricting sending emails late at night or during holidays), promoting flexible work by ensuring firms do not unreasonably prevent their employees from taking side jobs and multiple jobs. It noted the need to improve legal protection for crowdworkers as there were problems arising from “the increase in simplified deals without contract documents and copyrighted works temporarily delivered, we will clarify rules, which should be preserved by intermediate agents, such as obligations of manifesting intermediate commissions and their treatment of copyrights”.

The Council also intended to explore “how to create fair institutions of employment insurance and social insurance, how to manage workers’ working hours and health, and how to issue workers’ accident compensation from the viewpoints of protecting workers working at multiple workplaces and promoting side jobs and multiple jobs”. In this regard, it expressed concern that “more than 400 thousand people graduated schools during the employment ice age, failed to become regular workers and had no choice but to keep on working as non-regular workers or remaining workless”. To prevent entrenching inequality, the Council advocated to offer ‘equal/balanced educational opportunities through enforcement of equal-pay-for-equal-work and provide intensive supports according to occupational experiences and capacities of different workers” to improve their opportunities to become regular workers.

This proposal complemented another Japanese study entitled “Future of work 2035: For everyone to shine” which builds its vision around how “the future generations of Japan will hopefully be able to fully utilize technological innovation in areas of preference and strength on an individual level to become unlike any other in the world by developing such new labor policies without delay”.

The study anticipates “further technological innovations will cut down restrictions in time, space and information-sharing to zero by 2035 to mark an age where individual work style options will be full of variety, in addition to large transitions in industrial and employment structures.” It views these innovations as an opportunity that “may considerably contribute to solving issues currently faced by the country, and its benefits will positively impact regions with declining and aging populations and urban areas alike” in Japan.

The proposal envisages “by 2035, society will also encompass working as a behavior taken with diverse purposes not limited to earning money, including social contribution, mutual support in neighborhoods, coexistence with communities, and sense of accomplishment. Instead of making someone work or having to work for someone, society will be developed into a place where everyone mutually supports one another, can each exhibit what they are good at, work with liveliness and have places to participate in. This would mean working will be expected in autonomous and diverse styles by independent individuals. The definition and meaning of working will thus change substantially”. The study offers several useful insights:

  • In the past, “companies acted as a state or community during times when it was important to physically share space and time”. But companies have “no option but to quickly change, because the speed of change will become faster”. Innovation will cause “more work styles to become independent and free, companies will also be required to become flexible organizations that leniently allow such work styles”. At the extreme, “companies in 2035 will be a cluster of projects with clear missions and objectives. Many workers will be a part of that company during the project, but adopt a work style in which they will flexibly move within and outside companies according to changes in business content so that they will move to a different company after the project ends.
  • “As a result, the border between corporate organizations will become ambivalent, and full-time employee systems that are used to keep personnel will be forced to undergo changes”. “Categorizations of full-time employees and temporary workers by the length of employment and employment guarantee eligibility will hold no meaning. As such, there will be considerably more workers who freely move between companies by 2035. It is essential to develop a structure that easily allows such transfers until then, and society should become a place in which information on capability and assessment of individuals will be shared more extensively.”
  • “The line between sole proprietors and employees will further become ambiguous as a result. As the meaning of belonging to an organization will change, some workers may belong to multiple organizations in multiple levels. Furthermore, they may be non-profit projects, projects working for social contribution and projects centered on self-fulfillment. Although there are workers who belong to both commercial and non-profit organizations even today, this work style may become popular by 2035. It may become natural for workers to be a part of projects for multiple commercial and non-profit organizations, and change over time”.
  • “Second jobs, side businesses and even multiple jobs will become normal. Many workers will probably possess multiple jobs to generate income. But having multiple jobs does not necessarily mean they are for monetary compensation, and may be mainly for purposes such as social contribution. As such, people can achieve more diverse work purposes by working multiple jobs”.
  • “Some major companies may continue management that involves loyalty amid diversification. However, worker needs will not be satisfied by working for a large company like before, and companies will be perceived based on how many opportunities and self-fulfillment chances are provided. Company owners will likely be required to brush up on their company’s personality rather than expanding its size to be chosen by workers”.
  • “Corporate transformations following the significant changes in individual work styles will also cause a great shift in how communities work. Companies have previously acted as a state, community or family instead of merely providing a place to work…In a society where independent individuals work with freedom based on diverse values, however, a sense of belonging for workers will fade, and it will become challenging for companies to function as mock communities. The role of community that companies have played will certainly be substituted by something else”.
  • “The roles of local communities may gain importance again if people focus more on lifestyle. Mutual aid in local communities may support workers. On the other hand, it is without doubt that virtual communities created through social media have gained a stronger position. Therefore, a shared awareness of working in the same occupation or field of expertise will become stronger compared to a sense of belonging from working at the same company, and result in creating mock communities on social media. Collaboration through such mock communities shall contribute to a fairer power relationship when individual workers agree to contracts with companies. To respond to these changes, labor unions should also evolve into an organization that is suitable for a future that utilizes social media, AI, VR and various technological innovations by additionally focusing on collaborations by occupation and region in addition to management by company and industry.”
  • “Cities and rural areas are both expected to be very different from now in 2035. In particular, residents in rural areas are likely to be able to work on creative jobs as if they are living in cities, while enjoying the great nature after constraints in working locations vanish following IT technology development. Living a local-based yet satisfying lifestyle will also be made possible upon utilizing skills acquired through practical higher education while balancing childcare, work, nursing and hobbies…Industries will no longer be divided into primary, secondary and tertiary sectors as they lose meaning, and with diverse resources flowing into rural areas, more young people, women and seniors will earn money through agricultural diversification. Moreover, regional cities, small towns and villages will find it easier to directly connect to the world, and predicted to provide local values internationally.”
  • Personnel shortages will worsen by 2035 due to aging. “Amid such circumstances, automation and robotization through AI and other advancements in science and technology are anticipated to liberate workers from the burden of nursing, childcare and household chores. It is important that diverse and high-quality services and businesses that enable outsourcing of nursing, childcare and household chores will be more readily available, and that nursing and childcare will not constrain working”. In relation to this, work style changes are required to provide greater flexibility while it is important to enhance the infrastructure for childcare and nursing for all income groups.
  • “Jobs and services will easily go beyond borders if communication barriers between languages are lowered by AI development…will definitely become the norm in many more types of jobs by 2035. If customary work styles, systems and regulations continue to be Japan-specific, however, workers in Japan will become Galapagos-ized and many jobs will cross borders to be dispersed around the globe. A structure that accepts everyone, including international resources, should be developed in addition to working style systems and structures to prevent this. Or even more importantly, Japan needs to establish a structure with the top level of freedom in the world so that people will proactively choose the country to physically live and work in, like its goal to become the world’s most comfortable place to work. Society and systems should be developed so that sex, race, nationality, age, sexual orientation and disabilities would never become barriers in working and living. The latest technology such as AI and IT need to be fully leveraged to achieve this”.
  • Facilitating diverse work styles requires changes in the legislative-tax-social security system and the safety net. There will be a need to redesign “the legislative system from a much broader perspective, apart from conventional labor policies and legislation.” In addition, “both men and women are working more in general, tax systems and social security systems based on families with the assumption that the head of the household support his spouse should be replaced with individual-based systems in which working family members would not become disadvantaged…The level of people that can work with fulfillment depends significantly on tax revenue, and financial expenditures will become necessary for these policies to materialize.” “Tax and social security systems should be developed in a neutral form as much as possible in terms of workplace and time. Otherwise, the freedom in work style for place and time cannot be fully utilized. Tax and social security should be discussed in a way that will not hinder changes and diversity of work styles”. “Allowances in some form would be necessary for life-threatening, harsh work environments that cannot be left only to the worker’s responsibility…Insurance functions will also be necessary such as having workers acquire enough income for humane lifestyles as a member of Japanese society, or to prepare for various types of risks…The establishment of an appropriate safety net for unemployment…Livelihood security during career changes for better compatible jobs and during educational training sessions for career enhancement should also be interpreted as a safety net, in addition to one-sided revocation of contracts. In other words, systems that proactively support temporary leave and absences to achieve better work in the future…appropriate development of safety nets to support people with difficulty in working due to illness is also essential…The social security system should therefore be developed in a neutral form as much as possible in terms of working location and time. Otherwise, freedom in work style for place and time cannot be fully utilized”.
  • “Economic activities with insufficient and incomplete information will be a primary factor of disrupting people’s productive activities…it will be extremely important for companies and parties providing workplaces to accurately present expected work styles so that workers can see this and choose…Workplace conditions will improve through this form of competition…for example, a statement of “basic stance” on work styles in addition to labor conditions may be required by company or occupation. Or, accurate information disclosure on how management perceives the career paths of workers, and actual career paths of the majority of its workers may be prescribed as a requisite”. In addition, “a one-stop system in which workers can obtain necessary information will thus serve as important infrastructure…to promote the aforementioned information disclose and demand and supply matching of jobs, systems that enable smoother contract changes and renewals, and systems that cancel contracts that have become difficult to maintain based on the agreement made at the time of contract”.
  • “Skills development and educational training that have been conducted by companies become an issue when the existence of companies changes significantly as explained the previous chapter”. “Legal allowances and measures in some form will thus become necessary to create skills development and educational training in order to expand possibilities, not skills that are only valid within a company, more accessible.” “Retraining systems to do over need more development, and more financial assistance should be made available for individuals to receive necessary occupational education and training. In addition to financial aid, enriched education content is also essential for all people to work according to their situations.”

In addition to the changes in workstyle, there is also a need to align other government policies to accommodate the new work forms. In the US, Diane Mulcahy highlights that there are incongruities as “tax and labor policies reward full-time employees in full-time jobs, and penalize everyone else. We have created a labor market that funnels workers to a singular destination…a full-time job. Those who deviate from this path, whether by choice or circumstance, are taxed additionally, then stripped of the benefits, rights, and protections that are only available to employees in traditional jobs with a single employer”.

In this context, “the emergence and rapid growth of the Gig Economy – made up of independent contractors, consultants, freelancers, and on-demand workers – is exposing the glaring disconnect between the entrepreneurial work our country says it values and the full-time jobs with a single employer that our tax and labor policies actually support. Independent workers who take the risk to start their own business quickly realize that the consequences of doing so are higher taxes, and fewer benefits and protections. Creating a labor market that supports everyone who works requires extending the benefits and protections awarded to full-time employees to all workers… if we want to walk the talk of supporting entrepreneurs and if we want to maximize the potential of our increasingly self-employed and independent workforce”.

For the US, she suggests “three meaningful policy changes that will get us closer to creating a labor market that supports everyone who works”. The first is to eliminate the “Self-Employment Tax, self-employed individuals have to pay not only the employee side of Medicare, and Social Security taxes, as employees do, but also the employer side. The tax of 15.3% is levied on everyone who works independently, whether by choice or circumstance, whether full-time, or through a side gig…The end result is that all independent workers pay double the Medicare and Social Security taxes that full-time employees do.”

The second is to ensure everyone who works benefit from health insurance tax breaks. In this regard, “only full-time employees in a full-time job with one employer benefit from the lavish set of tax breaks the federal government bestows on employer-provided health insurance…The tax breaks that benefit full-time employees total about $300 billion annually compared to the $7 billion in breaks awarded to independent workers”.

Diane Mulcahy notes “the list of tax breaks awarded to employer-provided health insurance is long. Employers don’t have to pay payroll taxes on the value of the health insurance they provide, and they can deduct the cost of premiums as a business expense. Employees don’t pay income or payroll taxes on the value of the insurance coverage they receive from their employer…Anyone who isn’t an employee is excluded…The insurance premiums independent workers pay are not deductible as a business expense and are paid with after-tax dollars…The one small break independent workers are awarded is the ability to deduct the cost of their health insurance premiums from their personal taxable incomes”.

The third is, where applicable, to extend labour law protections to all workers. Diane Mulcahy highlights unemployment insurance does not apply gig workers. “Entrepreneurs who work for themselves can also experience significant or persistent declines in income through no fault of their own, but there is no financial protection available to them.” This could be addressed by income protection which “could provide self-employed and independent workers with a percentage of their former income for a defined period of time, just like unemployment insurance does for employees. One approach to creating income protection is to require companies to pay pro-rata income protection payments for all their workers, not just employees. Employers in many states already pay unemployment insurance on a pro rata basis for part-time employees. Under this option, they would be required to extend their pro-rata payments to cover all their workers, regardless of employment status”. Another area to address is the extension of labour law protections against harassment and discrimination to all workers as well.

In France, Enzo Weber notes multiple employment relationships can make it “extremely difficult for social security systems or even lending criteria to continue to be completely based on employment, and these systems would need to change…calls for taxation systems to improve for the solo self-employed to facilitate transitions between different forms of work”.

Enzo Weber notes the French National Council for Digitalisation also “sees the need to adapt employment agencies, which should adjust to companies’ changing forms of employment and contract. The council recommends promoting contracts for so-called travail en temps partagé, which have existed in France since 2005, in order to increase flexibilisation within companies. These allow a worker to work simultaneously for several companies or institutions through a contract with a group of employers – and to be paid through the group”.

In addition, “the French National Council for Digitalisation also wants to see a focus on the human factor by including criteria such as average employee health in the assessment of the performance of management. Workers should further be granted extended leave or part-time working arrangements in certain situations, for example to undertake research, to participate in continuing education, to attend to social commitments, to form a business, or to allow for professional advancement and adjustment to new challenges”. He noted the union Force Ouvrière had suggested new regulations “to limit availability and to set boundaries between work and family time” such as through the creation of “safe zones without digital availability”, “the right to digital disconnection” and for the calculation of workloads to be added to working hours in contractual relationships.

Overall, technological innovation should not be viewed as a threat but rather as a tool that “will not only bring significant benefit to all workers, but also change the way companies, organizations and labor policies are today.”[1] The problem at the moment may be that corporations want, and are taking advantage of, flexible work arrangements but yet have not amended their labour contracts to allow their workers to enjoy the benefits of greater flexibility. Similarly, though government policies may have facilitated greater work form diversity, yet they have not aligned labour and tax laws to support these landscape changes. The inconsistent government and corporate policies may inadvertently be the impediments to fully tapping the benefits from information disruption.

References

Diane Mulcahy (23 July 2018) “How U.S. law needs to change to support the self-employed and gig economy”. Harvard Business Review. https://hbr.org/2018/07/how-u-s-law-needs-to-change-to-support-the-self-employed-and-gig-economy

Council for the Realization of Work Style Reform (28 March 2017) “The action plan for the realization of Work Style Reform”. Provisional Report. Japan. http://www.kantei.go.jp/jp/singi/hatarakikata/pdf/The_Action_Plan_for_the_Realization_of_Work_Style_Reform.pdf

Enzo Weber (2018) “France: Moving up the digital ranks?” From Work in the digital age: Challenges of the fourth industrial revolution edited by Max Neufeind, Jacqueline O’Reilly, Florian Ranft. Policy Network, Das Progressive Zentrum. Published by Rowman & Littlefield International Ltd. http://bruegel.org/wp-content/uploads/2018/07/Work-in-the-Digital-Age.pdf

Japanese Ministry of Health, Labour and Welfare (August 2016) “Future of work 2035: For everyone to shine” Panel Report. http://www.mhlw.go.jp/file/06-Seisakujouhou-12600000-Seisakutoukatsukan/0000152705.pdf

[1] Japanese Ministry of Health, Labour and Welfare.

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