Plans to make it easier to sack workers at will are not only wrong in principle but won’t actually reduce unemployment and kickstart the economy.
The Bill, claim the government, will reform the employment tribunal system “by providing more options for the early resolution of disputes” – i.e. making it easier for bosses to sack workers at will, which, as Left Foot Forward has long pointed out, is not only wrong in principle but won’t actually reduce unemployment and kickstart the economy:
• Osborne’s dogmatic return to Thatcher-era employment law 10 Apr 2012
• Reducing job security won’t decrease unemployment 4 Oct 2011
As Declan Gaffney showed on these pages last year, there are two big problems with the assumption deregulation will reduce unemployment:
The first is that the UK labour market is already one of the least regulated among comparable nations. This immediately makes predictions of any significant employment effects from further deregulation implausible.
The second is that nations with much higher levels of regulation have been at least matching and in some respects exceeding employment performance in the UK and other low regulation countries for some time.
Meanwhile the exemplary low regulation economy, the United States, has registered an abysmal employment performance at least since the turn of this century. The idea of lower regulation as a route to employment growth is therefore a particularly hard sell these days.
Taking these points in turn, the UK has the third lowest level of employment protection of all OECD nations. It is ranked 7th in the world for labour market flexibility by the World Economic Forum. Chart 1 below shows where the UK fits in a sample of comparable wealthy nations. (Tories try to argue, absurdly, that the UK has a particularly high level of labour market regulation.)
In the chart, these countries are colour-coded into three ‘families of nations’ using a standard classification based on geography and welfare state institutions. The point of grouping countries in this way is that we can compare employment performance with levels of employment protection.
The red columns, which generally show the highest levels of protection are continental Western European (CWE) nations; the blue countries with very low levels of protection are the English-speaking (Anglo) nations while the green Nordic countries are in an intermediate position, but closer to the CWE nations.
Because the United States has the lowest levels of protection, it is worth looking at how it compares with countries in the much more regulated CWE and Nordic groups. We show results for people of prime age (25 to 54) from 1991 to 2009. (The reason for concentrating on this age band is that its employment is less affected by educational participation and pensions policies.)
For men, prime age employment in the U.S. peaked at the end of the last century and then fell sharply. Although there was some recovery in mid-decade, employment remained far lower than in the late 1990s, before plummeting with the last recession. The CWE countries overtook the US at the turn of the century and the Nordic countries in 2005.
Points echoed by David Marsh and Robert Bischof in The Guardian recently:
These days we tend to talk about the divisions in Europe as one between net creditors and debtors. In reality this is just a sideshow.
There is a much more fundamental gulf, hinted at by Angela Merkel in her Davos speech: between countries with organised industrial training systems such as Germany, the Netherlands, Belgium, Scandinavia, Austria and Switzerland – all currently with jobless rates of between 3% and 7% – and those with much higher rates of unemployment, often in double digits, in peripheral Europe.
The issue pits Anglo-Saxon precepts of free market regulation against the Germanic “Rhineland” system of managed capitalism, with modern apprenticeship systems built on a long-term compact between labour and employers.
In the years before and immediately after the euro’s birth in 1999, the peripheral countries of the European monetary union (Emu) often followed Anglo-Saxon principles by liberalising parts of notoriously inflexible labour markets. “Hire and fire” became the motto.
Initially this seemed to work. But as debt market conditions worsened and growth stalled after the 2007-08 financial crisis, Emu’s periphery has been left seriously exposed by the failure to replace unproductive regulations with new mechanisms to generate jobs.
In the battle between rival systems, “Rhineland capitalism” appears to be winning hands down. In the two years since the global economic downturn in 2009, Germany has expanded employment by 1.8m, while the UK, US, France, Italy and Spain have shed 7m jobs.
In 2007, when most other countries were nearing the end of a boom driven by excess credit, Germany had the highest unemployment rate (8.7% of the workforce on a harmonised basis) of the group of seven leading industrialised countries. Yet in late 2011, according to OECD figures, German unemployment, at 5.2%, was the lowest in the G7 apart from Japan.
While the UK struggles with record youth unemployment, Germany’s youth unemployment rate is one third of the OECD average and one eighth of the rate in Spain.
The evidence is clear – but as it runs contrary to the Tory-led government’s laissez-faire ideology they’ll just ignore it, and it’s the rest of us who’ll pay the price.