Peter Lyons: Casualised labour no production panacea

My last permanent position was in the mid-1990s. Since then my positions have all been temporary contracts of various tenure. To a large extent, my situation has been the outcome of personal decisions and circumstances. But it has given me an insight into the nature of the casual labour market.

The casualisation of employment has been a major feature of our labour market over the past 20 years. The education sector has been as subject to this trend as most other parts of the economy. Many positions in schools and tertiary institutions are now temporary contracts. In times of economic hardship, employers have the upper hand in most occupations and often prefer the flexibility of causalisation.

One of the key insights that I have observed is that often those who preach the need and benefits of greater flexibility in employment have never been subject to this flexibility themselves. I remember many years ago having a contract position at a large tertiary institution. We were addressed by the human resources director.

He announced that he preferred having staff on fixed-term contracts because this gave him greater flexibility in his hiring and firing. It also ensured that the institution had fresh blood and people were more accountable for their performance. It may have been the economist in me (more likely it was the Irish genetic influence) but I felt compelled to ask him whether he was permanent and how long he had been with the organisation. The question was not appreciated. My contract was terminated on completion.

The casualisation of employment has major implications for a society. I remember standing outside a lecture theatre nervously awaiting the arrival of a new intake of students. My employment depended on how many students turned up on the first day. The guy beside me was more nervous because he had a mortgage and family. Casualisation is particularly hard on those with commitments which has serious implications for the wellbeing of a society.

The economic ideal of a highly mobile, flexible workforce would have dire consequences for social cohesion. It would foster a nation of economic transients with few permanent social ties beyond immediate family.

One of the interesting aspects of the greater flexibility in our labour market over the past 20 years has been that labour productivity has not increased dramatically as a result. Despite the reduction in union power and increased ease of hiring and firing this does not appear to have led to major improvements in the efficiency of the average worker.

In 1914, Henry Ford introduced the $5 daily wage into his car factories. This wage was twice the going rate. Some commentators believed this move was to allow his workers to buy the cars they were producing. It is now recognised that it was designed to improve labour productivity in his factories.

It was to ensure that Ford would have the pick of candidates eager to work for such a high wage. The result was reduced absenteeism, low staff turnover and fewer resources needed for staff training. It led to major immediate improvements in productivity.

Ford had intuitively recognised a key feature of the labour market. People are not tradeable commodities like bananas or onions or cabbages. If you treat people like units of labour they will respond accordingly and productivity will suffer.

The relationship between an employer and employee is entirely different from the relationship between buyers and sellers in other markets. It is encapsulated in the saying, "You pay peanuts, you get monkeys." It could be extended to include "treat people like cabbages and they go rotten on you".

If people feel they are being treated fairly and as individuals they will respond accordingly. If people feel they are being treated as disposable units of labour then outcomes will suffer. This may help explain why the growth in labour productivity in New Zealand over the past few decades has been less than spectacular despite significant reforms aimed at increasing labour market flexibility.

This time each year, I have a short interview with my principal. He often starts with a discourse on the state of the New Zealand economy. He then asks what I think is likely to happen to the housing market as he owns several properties. I assure him that the market can only continue to climb. He smiles appreciatively and offers me another contract. As long as the housing market holds up this arrangement works well for both of us.

• Peter Lyons teaches economics at St Peters College in Epsom and has written several economics texts.