There seems to be a perpetual debate on the correct level of employment regulation. Do working people need more protection to redress the power imbalance? Or are British businesses over-burdened by excessive levels of ‘red tape’. Recent research commissioned by the CIPD finds that the level of employment regulation in the UK is just about right, and there are unlikely to be significant benefits from either introducing more, or from cutting it back. Here, Ben Willmott, Head of Public Policy at CIPD argues that instead of fixating on employment regulation, we should focus instead on improving workplace practices and raising awareness of existing rights.

As we approach the next election one of the perennial battlegrounds will be over the UK employment rights framework and the extent to which it provides the right balance in providing flexibility for employers and job and economic security for individuals.

Those on one side of the argument believe that the UK employment market remains over-regulated and is an obstacle to economic growth, while those to on the other, claim that there is an increasing trend towards the casualisation of jobs, characterised, for example, by an increase in zero hours contracts, which is undermining people’s economic security and wellbeing.

The reality, according to new research commissioned by the CIPD and conducted by Ian Brinkley, chief economist at the Work Foundation, lies somewhere in between. Employment Regulation and the Labour Market is based on an analysis of OECD and EU data looking at:

• economic and labour market statistical measures across the OECD and the EU, including productivity, employment rates, working hours, the extent of low pay and unemployment measures
• composite indicators developed by the OECD to measure job quality, job strain and labour market insecurity
• European employee surveys covering worker perceptions of job quality and job security.

 

A useful starting point when assessing the UK’s employment rights framework is the issue of employment protection. Overall the UK scores low on the protection of individuals, along with other Anglo Saxon economies such as Canada and the US. In contrast, protection is significantly higher in Germany, Italy and France. The same contrast is also true for temporary work, with very strict regulation in Spain, France and Italy and very light regulation in the US, Canada and the UK.

Protection against collective dismissal in the UK is comparatively stronger but still below the OECD average.

However despite the comparatively low level of employment protection in the UK, workers don’t seem much more fearful of losing their jobs than workers in countries with stricter employment protections (12-14% across UK, Germany, France and Italy) and 43% of UK workers agreed they would be able to find another job at a similar wage compared to 40% in France, 30% in Italy and 24% in Germany.

The quality of employment overall in the UK also compares more favourably with other countries than is often thought to be the case.  For example, in comparison to other OECD countries, the UK has a high share of permanent employment – 79% of UK workers in 2013 were on a permanent contract, compared to 77% in Germany and 65% in Italy. In addition, compared with the European average, the UK has a larger proportion of ‘good’ jobs and a smaller proportion of ‘low quality’ jobs. Overall 65% of jobs in the UK are rated as good jobs, compared to just 54% in Italy, 50% in France and 49% in Germany.

Workers in the UK are also on average no more likely than elsewhere in the OECD to work long hours. The average weekly hours worked by employees in the UK in 2013 was 36, which was in line with the OECD average, although the UK does have a comparatively high proportion of long hours jobs (those involving 50 hours or more a week) with 12% falling into this category. Nonetheless, 84% of UK workers say they are satisfied with their working hours (EU 28 average 80%) and 77% report they are satisfied with their work-life balance (EU 28 average 74%).

Another perhaps unexpected finding is that UK workers are more likely than the EU average to agree they are consulted before targets are set at work and that they are able to influence important decisions for their work. However some caution about interpretation is needed given the very different workplace context and consultation structures.

While the research suggests the UK performs well overall, it performs comparatively poorly in three important areas – productivity, low pay and the integration of young people into the labour market.

The issue of productivity is under the spotlight in the UK because productivity levels have stagnated and compare poorly to our main competitors. Of course this is a hugely complex issue but our research suggests that the level of employment regulation is likely to have little relationship to productivity levels. It is not obvious that being a lightly regulated labour market is associated with faster productivity growth relative to the United States. Comparing 1985 and 2013, relative productivity compared with the US fell in New Zealand, Canada and the UK and remained about the same in Australia. Among the more highly regulated economies, relative productivity fell in Italy and increased slightly in Germany and France.

Low pay is another area where the UK scores badly on international comparisons. While the UK doesn’t have the highest share of low-paid jobs in the OECD, it does sit uncomfortably in the top quarter. The UK, US and Canada all have 20-25% of employment in low-paid work compared with 18% in Germany and 10% in Italy. There does seem to be a link between low pay and employment regulation with more regulated economies such as Spain, Greece and Spain having relatively few low-paid jobs typically 10-15% of total employment. However at the same time there seems to be an association between more restrictive labour markets and lower employment rates.

Finally, the UK also sits in the lower half among OECD countries in terms of its youth unemployment rate and in the bottom quartile among EU 28 countries on the youth unemployment ratio. Again, there seems little relationship between the level of employment regulation and youth employment levels.

The overall finding from the research is that the UK is highly unlikely to get much benefit from more employment regulation or from significant deregulation of the labour market, as it already performs well in comparison to many of its OECD counterparts on a number of measures. It’s clear that the UK struggles on productivity, low-pay and unemployment among young people, but the wider picture is much more positive. The link between the stringency of regulation and labour market outcomes such as productivity or job quality is in many areas either weak or complex and thus difficult to predict.

Instead, the CIPD is urging policymakers to focus efforts on improving productivity through a much stronger focus on improving workplace practices while increasing awareness of existing rights and enforcing them more effectively.

 The CIPD has suggested the creation of a Workplace Commission to help support a more strategic approach across government to developing policy on the workplace with the objective of improving productivity and enhancing job quality where poor practice exists. More broadly, there also needs to be a fundamental review of skills policy with a stronger focus on improving links between education and business, improving employer demand for investment in skills and improving how skills are utilised in the workplace, particularly among small and medium sized enterprises.

Ben Willmott is Head of Public Policy at CIPD