Labour Market

The UK labour market performance does not deserve the opprobrium it gets

The UK labour market is not some “Wild West”, where ruthless employers are free to exploit defenceless workers. The last thirty years have seen a proliferation of government regulation of employment, with laws on discrimination, minimum wages, unfair dismissal, union recognition, paid holidays, parental leave, flexible working,  and a host of other interventions

However, although the UK is rather more tightly regulated than other Anglosphere countries such as the United States, Canada, New Zealand and Australia, it is still much less so than most European countries – particularly in relation to ‘employment protection’.

‘Employment protection’ legislation is something of a misnomer, as the ‘protection’ it offers is selective. It covers restrictions on dismissing workers. While Britain’s unfair dismissal and redundancy payments legislation places significant restrictions on organisations’ ability to fire established workers, and mandates compensation, it is still much easier to end contracts here than it is in most EU countries.

For example, in France a company has to be close to bankruptcy before it is allowed to make people redundant, and has to pay stonking amounts of compensation. In Germany, social considerations (such as family responsibilities) determine who is first in line for any redundancies. In Italy, worker incompetence is not grounds for dismissal, as it is regarded as the employer’s responsibility to skill up workers. If Italian labour courts find somebody has been wrongfully dismissed, he or she is automatically reinstated; in the UK such reinstatement is rare, with compensation paid instead.

So existing established workers (‘insiders’) are more ‘protected’ from dismissal in downturns on the continent than they are in the UK. But employers are consequently very wary of taking on new workers (‘outsiders’) in upturns. This means that youth unemployment is often very high as new labour market entrants find it difficult to get work, unemployment spells tend to last much longer, and there is a proliferation – in Spain for example – of ‘temporary’ contracts.

The performance of Britain’s labour market since the recession has, by contrast, been astonishingly good. The latest figures show that total employment continues to rise, being nearly 400,000 higher than the comparable period a year earlier. The proportion of people aged 16-64 who are in work is over 75%, the highest since comparable records began in 1971. Unemployment is down to 4.2%, the lowest since the 70s and below almost all EU countries bar Germany. Economic inactivity is also down significantly, by over 170,000 compared with the same period a year previously.

There are problems with the labour market, of course. One is the UK’s low productivity growth, which has a number of causes (one that the Resolution Foundation has recently highlighted is the reduced levels of geographical mobility within the UK) but to some extent is just the ‘flip side’ of high levels of employment growth. You can have higher average productivity (as in France) if you have a very high minimum wage and make it very costly to employ low-skilled workers. But this means higher unemployment.

I want to concentrate here on some often-marginalised groups. It is important to stress that many groups which are particularly vulnerable do relatively well in the UK compared with many other countries.

The long-term (12 months and over) unemployed in the UK constitute just 26% of total unemployment, in contrast to 58% in Italy, 44% in France and Spain, and 41% even in Germany.

The UK’s youth unemployment, at 12%, is below the EU average of 17%, and well below France’s 22%, Italy’s 35% and Spain’s 39%.

Another related statistic is that for NEETs (those not in employment, education and training), which also covers those who have completely dropped out of the picture. The NEET rate is expressed as a percentage of all in the 20-24 age group. For the UK the most recent figure is 15%, as against 22% in France, 25% in Spain and 32% in Italy.

An area where the UK has done particularly well compared with other countries is in the integration of migrants into the workforce. In the UK 75% of the foreign-born population aged 20-64 are in employment, little different from the native-born’s 78%. But across the EU the average employment rate for the foreign-born is only 66%. In France it is a seriously worrying 58%, and even in Germany it is only 70%. The UK has by far the best record of any EU economy with significant numbers of migrants.

The unemployment picture for migrants is similar. The UK’s foreign-born 20-64 year olds do have a slightly higher unemployment rate, at 5.3%, than the native-born’s 4.1%. However, across the EU as a whole the foreign-born’s 12.3% is markedly higher than the native-born’s 7.8%. This disparity is sharpest for females. In the UK foreign-born females have an unemployment rate of 6.4%, but this is low compared with 16.7% for France, 27.1% for Spain and 34% for Greece.

So the data show that the UK’s relatively flexible labour market has a pretty good employment record in relation to potentially marginalised groups such as young people, the long-term unemployed and migrants. There is no room for complacency, as some other groups of vulnerable workers – such as those with disabilities – have not done particularly well. But we should be wary of exaggerating problems, which may lead to ill-advised interventions which actually make problems worse rather than better.

The UK’s labour market performance does not deserve the obloquy it receives in some quarters. It has been successful in integrating some disadvantaged groups, albeit less so with others. In trying to address legitimate concerns, we need to be aware of the risks of well-meaning but poorly-designed interventions such as those placing excessive restrictions on firms’ abilities to shed labour.

This is taken from a presentation Professor Shackleton made to a workshop on ‘Dignity and Those on the Margins of the Workforce’  at the University of Notre Dame in London on June 7th.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

2 thoughts on “The UK labour market performance does not deserve the opprobrium it gets”

  1. Posted 10/06/2018 at 20:19 | Permalink

    A superb article by the leading labour markets expert. Huge respect for his knowledge of how it all works.

  2. Posted 09/07/2018 at 17:01 | Permalink

    Generally speaking unemployment represents the worst form of wested resources. while zero unemployment remains to be Infeasible to accomplish, Governments role in the economy should always remain focused on reducing fractional and structural unemployment. the statistics suggest UK believes in more regulation when it comes to the labor market yet, much less so than the rest of the European Union. The result of high regulation in the labor market causes higher minimum wages , wage rigidity, longer term unemployment insurances, and increases frictional unemployment in Europe. i agree with your view that caution is the best policy when it comes to government regulations. United Kingdom seems to be moving in the more favorable direction of laissez faire and soon will reap the fruits of the policy if it remans stedfast in its path to a less regulated market system.

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