Mini-jobs: Will they help?

A new legal category of work might help people into unemployment.

The creation of "mini-jobs", which allow people to take on work without paying tax or national insurance, is being considered by the Treasury as one of a package of measures to make it easier to create employment.

The idea – being promoted by some influential Conservative MPs – is modelled on a scheme in Germany, in which employees can earn up to €400 a month (about £314) without giving up any of their salary, and employers pay only a flat rate to cover pensions, social insurance and wage taxes, making administration simpler.

People can hold several mini-jobs up to the €400 a month tax-free limit, with the only impact on their income being the reduction of unemployment benefit over a certain threshold. Between €400 and €800, workers pay tax on a sliding scale.

As discussed in an ex-ante appraisal of Germany’s 2003 mini-jobs reform by the DIW Berlin, the plan is essentially a subsidy on low earnings so as to increase employment in low wage markets and to ease the long-term unemployed into the labour market.

Firstly, on the supply side, it is argued that welfare recipients are unlikely to enter the labour force when the already low wages they have access to are further depressed by social security contributions. Secondly, on the demand side, DIW argue that:

Given limited downward wage flexibility in the low wage sector due to binding minimum wages, SSC have to be borne at least partially by the employer of low-skilled workers, thus reducing their employment.

The Free Enterprise Institute, which has spearheaded the appeal for "mini-jobs" in the UK, has praised the German reform for lowering youth unemployment, increasing turnover in the jobs market, and increasing temporary work by two per cent in ten years. The report goes on to lament the fact that temporary workers account for just six per cent of the UK labour force, in contrast to Germany’s 15 per cent.

While the merits of increasing temporary employment are at best contentious, German commentators have criticised the mini-jobs model for creating "a massive disincentive for the unemployed".

Rather than bridging the gap between the labour market and the marginalised, they argue, mini-jobs have further ostracised the peripheries of the labour force by trapping them in low-wage jobs that offer no margin for progression. It is held that the subsidies, by inflating the value of low-wage jobs (as is intended) will lead people to substitute longer-term, more stable sources of income with mini-jobs. This, one can argue, while soothing unemployment in the short run, can have hazardous effects for income inequality, as well as stifle the development of a skilled labour force. Similarly, employers will be encouraged to fragment existing full-time jobs into series of mini jobs, thus extending the potential evils of the reform beyond those that are currently excluded from the labour market.

Consequently, the subsidy (as predicted by the aforementioned DIW paper) may reduce tax revenue without actually reducing welfare subsidies. This is confirmed by Johannes Jakob of the Federation of German Unions, who contends that the most viable option consists in combining welfare with a tax-free mini-job.

While the initiative may induce some people to temporarily seek employment, it is likely that mini-jobs will prove an expensive and structurally venomous distortion of the labour market.

John Lennon in a Mini Cooper. Well how would you illustrate mini jobs? Photograph: Getty Images
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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.