Looking ahead to an uncertain 2025, the forces driving change in the workplace, as well as society at large, promise that the pace and scale of disruption will only accelerate. In particular, technological developments are accelerating this upheaval, displacing many jobs, creating others and changing the needs of many more.
While evolving job requirements are expected to result in increased competition for people with the right skills and experience, there are also well-founded fears of a growing two-tier workforce, as demand for those with the skills for the ‘jobs of tomorrow’ increases while many lower skilled, routine and manufacturing jobs fall to automation.
Within a two-tier labour market, business strategies will differ, and the relative negotiating positions of workers and employers will vary markedly. The continuing cost-of-living crisis will mean that many need to prioritise pay and job security. But for many others, particularly (but not only) those in professional jobs, another way is emerging. For organisations relying on attracting and retaining skilled professionals, the competitive challenges will intensify, and the relative bargaining powers of employer and employee will tilt towards those workers with in-demand skills and experience. In this scenario, competing on pay is one strategy, but arguably not a credible one for many employers continuing to operate in a difficult economic climate, and is not necessarily the single best way to attract and retain the people with necessary skills.
Last November, I addressed a World Economic Forum event on growth strategies for medium-sized businesses, specifically speaking on the role of people strategies in driving growth. When discussing this with delegates from around the world, it was evident that similar workforce challenges are facing employers across the globe and there is widespread opportunity for businesses, wherever they are based, to build competitive advantage from adopting a people-centric growth strategy. A refreshed workplace social contract could better reflect the needs of both parties, delivering a highly skilled, loyal and collegiate workforce - something employers will become increasingly reliant on to drive growth in the future as the world of work continues to evolve.
What do people want from work?
A good starting point for employers developing a people-centric strategy to attract and retain the best people is understanding the priorities of their employees and prospective hires.
In the wake of the pandemic, we focussed extensively on how workforce expectations had shifted and explored what motivates people to work and the opportunities and challenges that present for employers when attracting and retaining the best people.
Generational factors are a key consideration in understanding what people are looking for in their working lives. Last year we explored how ageing populations, alongside shifting generational compositions, are driving change in the world of work. A diverse and inclusive workforce will comprise employees of all ages, but inevitably an increasing number of employees will come from today’s younger generations. Deloitte’s annual Gen Z and Millennial Survey considers the attitudes and priorities of Gen Z and Millennials (born between 1983 and 2005) and highlights the need for employers to think carefully about the values and priorities of their workforce when competing to recruit and retain individuals.
The Deloitte 2024 survey highlights four areas of particular importance at work to these cohorts: purpose, flexibility, environmental sustainability, and mental wellbeing.
It revealed that 86% of Gen Z and 89% of Millennials believe a sense of purpose in their job is important and that 44% of Gen Z and 40% of Millennials claim to have turned down an employer based on their ethics or beliefs (an increase on the numbers claiming this the year before). Additionally, while the numbers saying that they had changed job on account of environmental impact concerns declined over the last year, this still amounted to about one in five respondents across the two generations.
When asked why they chose their current organisation, respondents placed work/life balance first, followed by training and development opportunities. Pay was only ranked third, followed closely by a positive work culture, flexible hours, opportunities to progress their career and a sense of meaning.
We see similar results from Ranstad’s annual Workmonitor survey of 26,000 individuals of all ages across 35 countries. It suggests that, in many respects, these priorities are increasing in importance across all age groups and highlights how employees increasingly value: value alignment; career development opportunities; work-life balance; flexibility; and personalised skills development and belonging. The results show that work-life balance surpasses pay as top motivator for the first time, with job security now also ahead of pay.
The survey also revealed that 46% of employees say that they wouldn’t accept a job with non-aligned values (an increase of 8% from a year ago) and 27% claim to have quit because they disagreed with leadership’s views (an increase of 6% from the previous year). It showed that 29% claim to have quit a job due to lack of career progression opportunities (up from 26% a year ago) and 43% due to a toxic culture (up from 29%). Overall, 60% said they would quit if they didn’t feel they belonged (up from only 37% the previous year).
Interestingly, a 2022 report from the Resolution Foundation also covering workers of all ages, echoed these findings and concluded that the three most highly prized aspects of a job were: flexibility/work-life balance; variety/autonomy; and purpose/meaning.
Organisations often devote huge resources to attracting good people but then struggle to retain them. High attrition rates mean employers lose the investment they have made in an individual’s skills and knowledge, as well as incurring unnecessary recruitment costs. A high turnover of people can also impact a company’s culture and employee morale.
Delivering on workforce priorities can generate business benefits beyond the attraction and retention of good people. Poor management, toxic work cultures and associated workforce divisions and conflict, are an all too common yet avoidable reality and lead to wasted management time, cost and reduced commitment from workers.
A new social contract for employment
Kelly Monahan, Managing Director at Upwork’s Research Institute has previously argued that to avoid the collapse of our entire current systems with an imbalanced labour market, AI disruption and a fractured social contract, employers need to prioritise “dignity, learning, community and stability” in the workplace. Whether or not her apocalyptic fears of system collapse are well-founded, these principles reflect potential characteristics of a new social contract which would be advantageous to many in today’s competitive labour market and, potentially, be even more crucial in the labour market of tomorrow.
So, what could this new social contract for employment look like?
A new social contract and mutuality
A first step is to move away from the traditional concept of a master and servant employment relationship to a relationship based on mutuality. A successful employment relationship based on mutuality could be based on the following mutual expectations:
- act honestly and openly
- raise issues in a fair and timely way and respond to these without undue delay
- work together constructively, flexibly and positively
- contribute to a supportive, diverse, inclusive, sustainable and responsible organisation
- treat each other with trust and respect
- act in the best interests of our organisation
- support one’s own and each other’s personal and professional development.
Importantly, these relationship principles would represent a two-way commitment. So, for example, a principle of “raising issues in a fair and timely way and responding to these without undue delay” would include a commitment for the employer to raise issues about an employee’s contribution or conduct in a fair and timely way (a failing which is at the root of many examples of workplace conflict today) but also a commitment from the employee to respond to these concerns. It would encourage employees to raise issues of concern early including by way of a grievance or by “blowing the whistle” and would oblige employers to respond.
The mutual principle regarding personal and professional development would oblige employers to make available opportunities for employees to grow personally and professionally but would also require employees to take advantage of such opportunities.
New Zealand moved in this direction a quarter of a century ago. Under its Employment Rights Act 2000, both parties owe a statutory duty of good faith to the other. The relevant provision expressly states that this goes beyond the implied mutual obligations of trust and confidence, which are found in UK employment relationships, and that the duty of good faith:
“requires the parties to an employment relationship to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative”.
Today’s employment contract is also sometimes referred to as a “service agreement” – the contract under which you “serve” your employer. The employer’s obligation is to pay the worker a salary and provide other benefits such as holiday and pension, and the worker’s obligation is, effectively, to do what they are told and comply with the rules set by the employer. The employment contract or service agreement can be dozens of pages long with detailed obligations and duties giving the employer the maximum flexibility and control.
This anachronistic concept of a master servant relationship survives too in British employment law. UK employment law differentiates between, on the one hand, an employee employed under a contract of employment which is defined in the Employment Rights Act 1996 as a “contract of service” and, on the other hand, an agreement for services (self-employed) where the contractor provides services and generally exerts more control over their work.
Words matter and, on the basis there is much to be gained by pivoting from this hierarchical relationship to one of greater mutuality, a good starting point would be to move away from usage of “service agreement” and the reference in the legislation to a “contract of service”. This shift would not only reflect and validate the relationship sought by new generations entering the workplace but also potentially benefit the employer by signalling a strong focus on people-centric strategies and growth.
Arguably, another step in moving towards a new workplace social contract would be for employers to re-think the language they use around “talent”. The term “talent” focuses on an employee’s output rather than the employee as a holistic human being and suggests a more transactional approach to employment relationships. “Talent” is defined in the Cambridge Dictionary as “a natural skill or ability to be good at something, especially without being taught”. Using language which suggests a preference for inherent ability over learned ability risks giving the impression of undervaluing hard work.
A new social contract and pay
Reward will continue to remain an important factor in recruitment and retention strategies and for many struggling to make ends meet, pay and job security will trump all other factors. But for those with the skills required for the new tech-enabled world of work, neither pay nor job security appear to feature at the top of their list when looking for a job.
The 2024 Deloitte survey of Gen Z and Millennials placed salary, or other financial benefits, third overall amongst the key reasons for choosing an organisation. Perhaps more striking, however, is that around four in every five asked did not even list this as a key reason.
Interestingly, the number mentioning pay as an important factor increases when looking at the reasons given by these cohorts for leaving their previous organisation, where it is the top reason (26% of Gen Zs and 29% of Millennials). Although this suggests that pay is a more important factor in retaining people than attracting them, arguably attrition rates could be reduced by focussing on people-centric strategies as much as through maximising absolute pay levels.
In relation to variable pay, some organisations will also need to re-think their approach to remuneration to ensure it promotes the behaviours and contributions valued under a new social contract.
A new social contract and less highly paid workers
It is not only employers of more highly paid professionals for whom a focus on a new social contract would deliver important benefits.
More restrictive work migration rules mean organisations are facing challenges attracting and retaining people across a whole range of sectors. Recent studies exploring the reasons given by care and retail workers (generally less highly paid sectors) for having left or for considering leaving their jobs somewhat mirrored the reasons given by the younger workers more generally.
For retail workers, the most common reason for considering leaving their current positions was pay (28%) but flexibility featured nearly as highly (26%). The most popular reason given by adult care workers asked for their reasons for leaving their last jobs, was workplace culture/communication (30%), followed by burnout/stress (20%), with pay only ranking third (19%).
A new social contract and AI
Artificial Intelligence promises to overhaul many aspects of the world of work. Not only will it displace and create jobs, it will also change the skills and experience needed for many others. AI literacy will come to the fore as people and technology work together in many occupations and critical thinking, collegiality and communication skills will be prized. The underpinning principles of a new social contract will align with these increasingly valuable skills and competencies.
Guiding principles for a people strategy based on a new social contract
Below are eight suggested guiding principles for employers seeking to evolve a new workplace social contract to drive growth through a people-centric strategy: