2 thoughts on “The Beecroft Report should not be ignored”

  1. Posted 25/05/2012 at 14:36 | Permalink

    Len has put his finger on the key point about the Beecroft proposal for ‘no fault’ dismissal. The aim is to benefit ‘outsiders’ who are not in the ‘workforce’, though seeking work — even if it may mean reducing somewhat the protections for ‘insiders’. The aim is to encourage potential (small) employers to take the risk of hiring new workers, without having to worry too much about possibly huge legal expenses and penalties if things go wrong. Is there hard evidence that it will ‘work’? Probably not; but since the intention is to encourage growth, perhaps this is a risk that is worth taking. In recent days we have heard boasts from politicians (including the Business Secretary) that our labour regulations are already the most flexible anywhere (one can almost hear the refrain ‘the envy of the world’ echoing down the corridors of bureaucracy). That is unforgiveable complacency. Governments have allowed our economy to become grossly over-burdened and, in our present emergency — for it is nothing less — they really do need to consider radical steps to allow the porivate sector to improve matters.

  2. Posted 08/06/2012 at 00:18 | Permalink

    Well, I must say that the Beecroft report strikes me as rather modest by IEA standards! Far too timid for you all, surely? Lord Harris would not approve.

    On a more serious note, the Beecroft report really should be ignored, as the report is based around ideology and assertion rather than any substantial empirical evidence.

    Let us start with the laughable assertion that if the Beecroft reforms are adopted, we can expect 5% increase in GDP growth. I haven’t seen any evidence to support this, nor any explaination of the methodology/mathematics used to arrive at this growth rate. If the proposals and methodology for this report were presented to NIESR for a funding grant they’d honestly be laughed right out of the door.

    If I remember correctly the OECD scores the UK 3rd out of all major economies for having the weakest employment protection laws (USA and Canada are first and second respectively). I strongly suspect that marginal employment-growth would hardly increase if Beecroft’s proposals were adopted, and that there are far more effective ways of chasing higher employment than fiddling with employment law. Other components of the labour market such as the effectiveness of the government’s ‘job centres’ and the payment of unemployment benefits, offer far more potential for meaningful reform and decreasing unemployment (see Prof Nickell: Unemployment in the OECD Since the 1960s. What Do We Know?).

    The ‘gains’ to be had from liberalising employment law are simply nonsensical when the gravest problem facing the UK economy at the moment is on the demand-side of the economy, not the supply side. Focus on raising the final outlook for demand, and hey presto: firms will start having an incentive to invest that £750 billion cash which they possess. If this means government using a fiscal stimulus package then so be it. I think Paul Krugman and Joe Stiglitz have demolished the false preaching of Prof Robert Barro that the medium term fiscal multiplier is negative and somehow manages to destroy jobs!

    Finally, I suspect that employment protection laws actually have a counter-cyclical effect insofar as they act as a layoff-tax and could well prevent firms from engaging in what the IMF’s Olivier Blanchard dubs ‘inefficiently high’ level of layoffs. Remember: it’s the state (and ultimately the tax payer) who coughs up for unemployment benefits, managers don’t have to worry about this social cost when bringing the axe down on people’s jobs. The greatest factor inefficiency is always unemployment!

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