Academic journal article National Institute Economic Review

Annualised Hours Contracts: The Way Forward in Labour Market Flexibility?

Academic journal article National Institute Economic Review

Annualised Hours Contracts: The Way Forward in Labour Market Flexibility?

Article excerpt

Under annualised hours' contracts (AHCs), workers and management agree to the length and scheduling of working hours over a 12-month period. Such contracts have been widely seen as a potentially important way of achieving greater labour market flexibility and enhanced efficiency in work organisation. There exists very little empirical work on these contracts and this study is intended to provide insights into their British labour market role and potential. Especially for workers who are not in management or a profession, the costs of switching to AHCs are substantial. The enterprises that are likely to gain from the switch are those that (a) experience significant fluctuations in output/service demand and (b) desire to utilise plant and space more intensively over the calendar year. In this latter respect, plants incorporating complex shift operations are particularly associated with AHCs.

Introduction

The standard contract of employment of most full-time workers (excluding managers and professionals) in Britain and Europe stipulates a common pattern of weekly working hours. Individuals are required to work a five-day week and each working day is comprised of a specified number of basic hours. Where hours are insufficient to meet work requirements, additional labour service is usually provided through the mechanism of paid-for overtime working. Contracts often cover explicitly the terms and conditions of overtime working. Of course, the standard contract is not all pervading. There exists a spectrum of hours' contracts that range from relatively small variations on the standard contract to quite radical work arrangements designed significantly to increase work flexibility. One of the biggest departures--and the one highlighted in this paper--is the so-called annualised hours' contract (henceforward, AHC). Here, workers and management agree to the length and scheduling of working hours with respect to a 12-month period. In recent years, several well-known British firms have switched from standard weekly/monthly hours contracts to AHCs. There is strong evidence that a significant reason for these contract changes is that AHCs offer a higher degree of hours' flexibility both with respect to inter-temporal demand changes and the achievement of greater annual plant utilisation. But is this the start of an important trend in working time arrangements? We attempt to assess the costs and benefits of AHC arrangements and hence their prospects for growth.

The British history of AHC agreements is relatively short. They were not established until the late 1980s, following much earlier developments among several French, German and Scandinavian companies (Gall, 1996). By 2001, AHCs covered about 4 per cent of both full-time female and full-time male British workers. One of the key reasons for recent interest in AHCs derives from the fact that a number of well-known manufacturing, service and public sector organisations have adopted them, at least in respect of parts of their workforces (Incomes Data Services 1996 and 1999). BP Chemicals, Britvic Soft Drinks, Blue Circle Cement, ICI Chlor Chemicals, Grampian University Hospitals NHS Trust, Manchester Airport, United Distillers, Samsung Electronics, Tesco Stores and Zeneca are among the companies that have negotiated AHCs. Most are in the private sector, although local government also has strong representation. Between 1997 and 2001, over 65 per cent of AHCs covering male workers were in the private sector and 15 per cent were in local government. The respective figures for females are 42 and 33 per cent.

The advent of AHCs can be viewed in the context of the debate on labour market flexibility. Vickery and Wurzburg (1996) argue that in response to competitive forces, many large firms have adopted new forms of working that emphasise more efficient workplace organisation, individualisation of rewards and greater skills. This has resulted in a blurring of the distinction between functional and numerical labour market flexibility. …

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