Reducing employment rights will not boost employment
Today’s Telegraph reports that:
David Cameron hopes that relaxed employment laws will help to boost the private sector and encourage firms to take on thousands of new workers.
The theory appears to be that if it’s easier to sack and mistreat workers then employers will be more likely to create jobs. But, as last year’s comprehensive TUC research (undertaken by Landman Economics) showed, this assumption is false.
Macro and micro evidence from across the globe shows that there is no significant relationship between employment levels and employment protection legislation and that countries with very different levels of regulation have equal levels of success in generating employment. As a recent literature review concluded: “our results suggest a yawning gap between the confidence with which the case for labour market deregulation has been asseted and the evidence that the regulating institutions are the culprits. It is even less evident that further weakening of social and collective protections for workers will have significant positive impacts on employment prospects. The effect of various kinds of deregulations on unemployment are very hard to determine and may be quite negligible”.
Recent evidence from the UK also shows the limits of the orthodox thesis on regulation. During its last period in office the Labour Government introduced a number of measures which improved rights at work – for example providing employees with protection from unfair dismissal after a year of employment, introducing the minimum wage and introducing entitlements to more generous maternity leave. The empirical evidence demonstrates that these measures did not have negative impacts on employment levels – indeed prior to the global recession employment rates were at their highest for decades.
The reality is that there is no ‘one size fits all’ set of policies which achieve successful employment outcomes. Relatively highly regulated Scandinavian countries have achieved success and countries with low regulation show, over comparable time periods, vastly different outcomes. Strong employment rates are the concequence of a country’s overall economic strength, not its level of employment protection. So while we do know that, at best, cutting workers’ rights will have no overall economic impacts (although there will undoubtedly be significant social costs) it is also true that in the absence of factors including strong export markets, strengthened consumer demand, smart public sector investment, improved business access to capital and ongoing improvements in workplace innovation and productivity economic growth in the UK is highly likely to continue to stagnate. There is also a risk that cutting regulation could act to further dampen growth, as reduced investment in skills and less careful recruitment leads to productivity falls and social security costs increase from rising unemployment and reduced obligations on employers to pay sickness benefits (more on this here).
The credit crunch provided a stark illustration of the damage that unbridled markets can cause – and if neo-liberal economists were wrong about the impacts of de-regulation in the finance markets they can also be wrong about its impact in the field of employment rights. As our General Secretary Brendan Barber said at our recent debate with the British Chamber of Commerce on this issue “de-regulating now would be a disaster – the UK needs a new sustainable strategy for growth, and a fairer economy that is less vulnerable to the economic volatility of recent times. Good regulation will be essential to a strong economic future.”
Instead of making life worse for working people and their families the Government should be focusing on a real strategy to support and strengthen growth now and in the future. Employment rights in the UK are already weak compared to nearly all other developed countries. There is no moral or economic case for making them worse.