WIREDGOV

A new analysis of the economics of employment regulation yesterday concludes that the knee-jerk opposition of much of the business lobby to many employment rights – for example their opposition to last week’s (Monday 16 May) government consultation paper on Modern Workplaces, which proposed changes to parental leave entitlements and extension of the right to flexible working to all employees – betrays an underlying bias against employment regulation which at times flies in the face of economic evidence.

The analysis comes in The economic rights and wrongs of employment regulation, a new Work Horizons report published today by the Chartered Institute of Personnel and Development (CIPD).

While the report supports the coalition government’s mostly sensible better regulation agenda, it questions the case for the kind of wholesale ‘drive to deregulate’ advocated by sections of the business lobby.

It highlights evidence showing:
• The UK still has the third least regulated labour market in the world according to the OECD, despite the introduction of new employment rights emanating from Europe in the last few years
• The de-regulation lobby is sometimes very selective in the use of Regulatory Impact Assessment statistics estimating the likely cost of new regulation, for example the removal of the Default Retirement Age will, according to the Impact Assessment impose a one-off cost of £51.3 but a recurring annual cost reduction of £47.8 million
• Rising numbers of employment tribunal claims are to a significant degree the result of an increase in multiple claims (where many employees are claiming in relation to what is in effect a single dispute with one employer) and the impact of the recession, which has seen more employees complain about being unfairly treated as employers downsized.

The report finds that job creation potential is strong, merely requiring more buoyant demand conditions in the economy to be fulfilled. And there is little convincing economic evidence that employment regulation accounts for the long standing productivity gap between the UK and major competitor economies.

Consequently, the report concludes that the prime focus of regulatory reform should be on streamlining the red tape that accompanies regulation rather than on watering down the substance of existing employee rights and entitlements. It recommends that proposals for deregulation should be subject to equally robust analysis as those for new regulation and not be driven by ideological assertion or in response to policy lobbying by influential vested interests.

Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) comments:

“A balanced assessment shows that underlying problems of structural unemployment and productivity shortfalls in the UK economy cannot be attributed to any negative impact of employment regulation, but are due instead to relatively low rates of capital investment, long-standing deficiencies in the supply and quality of work related skills, poor management of available skills in the workplace, and work disincentives stemming from the operation of the welfare benefit system. Further de-regulation of an already relatively de-regulated labour market will do nothing to help solve these structural problems and might well exacerbate them.

“The fact that business organisations seem content to accept official economic assessments that conclude regulations impose costs, while questioning those that conclude there will be net benefits, implies a deregulatory mindset that owes more to ideology than evidence. It is time UK business stopped seeing red whenever employment regulation is mentioned and instead adopted a more balanced, evidence-based perspective.”

View the report The economic rights and wrongs of employment regulation