Angela Rayner’s plans to overhaul workers’ rights risk creating a “two-tier” jobs market, condemning younger employees to years of temporary contracts, economists have warned.

Proposals by the Deputy Prime Minister that will make it harder for employers to sack workers are also likely to make bosses reluctant to hire staff in the first place, the Resolution Foundation said.

As a result there’s a risk employers will increasingly turn to temporary contracts instead, reducing the risk of being permanently stuck with unsatisfactory employees or with workers who they cannot get rid of in a downturn.

It means the increase in “day one” rights promised by Labour risks harming the very workers who are supposed to be the beneficiaries, the think tank warned.

The report said: “Countries with stronger employment protection tend to see greater use of temporary workers.

“This suggests that if the UK is to significantly strengthen employment protection for regular workers , it might either have to accept greater use of temporary contracts, or consider limiting their use.

“The former scenario might end up looking much like today’s labour market in terms of overall hiring and security, but it would arguably be less desirable, as there is evidence that in ‘two-tier’ labour markets workers struggle to bridge the gap between insecure temporary jobs and secure permanent jobs, posing a threat to progression and social mobility.”

Currently only around one worker in every 20 in Britain is employed on a temporary contract.

By contrast in the Netherlands, more than one in four are in temporary positions.

“The Netherlands has very strong employment protection for regular workers but places few limitations on the use of temporary contracts and, unsurprisingly, they are widespread,” said the Resolution Foundation.

As a result the Government might have to follow one set of new regulations with another to try to restrict the use of temporary contracts as well, it added.

The study also found that countries with more restrictive workers’ rights have lower hiring rates, as companies take on fewer staff.

This harms individual workers’ prospects and the strength of the economy overall.

“A negative relationship between employment protection and hiring is to be expected – stronger employment protection raises the cost of dismissals, which raises the cost to a firm of making a bad hire, and so makes them a little more reluctant to take on new people – and has been confirmed in many studies,” the Resolution Foundation said.

“This is potentially a concern because lower rates of dismissal and hiring can slow down the ‘reallocation’ of workers from less to more productive parts of the economy.”

Britain has a relatively low rate of unemployment, at 4.2pc, as well as low levels of temporary work.

Nye Cominetti, the economist behind the report, said that the insecurity which comes with zero-hours contracts, relatively low sick pay provision and the lack of full employment rights in the first two years of a new job means that more can be done to help low-paid workers in particular.

However, he warned that it must be done in a way which does not make the situation worse.

“Low-paid workers are the most likely to lose their jobs, not know how much work they’ve got from one week to the next and miss out on sick pay if they fall ill. They’ve got the most to gain from the Government giving UK workplaces a security upgrade,” he said.

“But it’s crucial the Government gets the detail of their reforms right. Better protection against unfair dismissal must be balanced against the risk of putting firms off hiring, while action against zero-hours contracts must focus on the pernicious problem of volatile and insecure working hours from one week to the next.”

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