FactCheck: Is regulation to blame for unemployment?
“Many regulations, conceived in an era of full employment, are designed to make employment more attractive to potential employees…in today’s era of a lack of jobs those regulations simply exacerbate the national problem of high unemployment.”
- Adrian Beecroft, Report on Employment Law, October 2011
Venture capitalist Adrian Beecroft is proposing that employment regulations are blocking Britain’s economic growth, which, with times as tough as they are, can only be a bad thing.
Since the report was leaked by the Daily Telegraph this morning, hackles have been rising.
First Business Secretary Vince Cable wrote a piece in the Sun describing as “complete nonsense” the idea that “if labour rights were stripped down to the most basic minimum, employers would start hiring and the economy would soar again”.
Hours later, Business Minister Mark Prisk was forced to answer an urgent question in the House of Commons, where Number 10 was asked whether it knew Mr Beecroft, chair of Dawn Capital which includes Wonga in its portfolio, was “making wonga out of Wonga”.
By the end of the day, the Department for Business, Innovation and Skills, said they would officially release a report which hadn’t initially been intended for publication.
The proposal attracting the greatest controversy relates to plans to “remove the concept of unfair dismissal” from the statute books – it was put into the Industrial Relations Act of 1971 – and replace it with Compensated No Fault Dismissal.
This would “allow an employer to dismiss anyone without giving a reason provided they make an enhanced leaving payment”, on a level of redundancy payments.
The Confederation of British Industry said that “employment regulation is a significant burden on most employers. Alleviating that burden will help generate jobs”. The British Chambers of Commerce said “the fear of not being able to dismiss a troublesome employee prevents many businesses from recruiting”, but neither knew how that affected employment overall.
The Trades Union Congress has carried out significant volumes of work looking at employment protection, based on OECD figures for a selection of countries.
By 2008, workers in the UK were third least protected, with Canada coming second and the US top.
In the US, unemployment in December 2011 was at 8.5 per cent; in Canada, 7.5 per cent, and in the UK, 8.3 per cent.
Germany, meanwhile, which has above average levels of worker protection, had unemployment rates of 5.6 per cent in December 2011.
Yet in Spain, where workers were fourth most protected, according to the figures, unemployment was at 23.2, suggesting that perhaps there isn’t much correlation at all.
As Jonathan Portes, director of the National Institute of Economic and Social Research, said: “It’s common sense. Have we had big changes in regulation compared to five years ago? No, but unemployment is far higher. Labour market regulation has not changed much at all.”
Mr Beecroft’s claim that “those regulations simply exacerbate the national problem of high unemployment” just doesn’t stack up, according to those who have researched the matter.
Even the OECD says: “There appears to be little or no association between employment protection legislation strictness and overall unemployment”.
Labour market analysts say that macroeconomic policies, such as planning, or education, are far more important to growth.
Of his “no fault dismissal” plan, Mr Beecroft writes: “The downside of the proposal is that some people would be dismissed simply because their employer did not like them. While this is sad I believe it is a price worth paying for all the benefits that would result from the change.”
It certainly would be sad, especially if “all the benefits” failed to materialise.
by Fariha Karim