IEA Blog

The coalition government is considering scrapping the fixed retirement age and Minister for Employment Relations, Ed Davey, is promoting the policy on the grounds of choice – You don’t have to work beyond your 65th birthday, but you can if you choose to. The stark reality of an ageing population and the clever spin of the new policy being about improving flexibility and ending arbitrary laws makes the announcement a public relations success.

Sadly though, the policy in isolation will be bad for employment and particularly for the elderly. I’m all in favour of the state extinguishing a vast number of employment statutes and regulations, but it’s a leap in the wrong direction to effectively extend employees’ rights whilst continuing to undermine the discretion exercised by the employer.

As far as practicable – and certainly a lot further than permitted in 2010 Britain – we should allow workers and businesses to negotiate their own contracts. So remove statutory provisions about retirement ages by all means, but replace them with the discretion to write into an employment contract that any retirement date can be agreed. This might be 65. Or it might be 35. It could be a ten or twenty year deal from the employee’s start date. Or, rather like some football managers, some employees might have a rolling contract renewed on a year-to-year basis. If the coalition’s proposals are going to remove the dead hand of Whitehall regulation and replace it with this sort of discretion, then that would be a welcome move.

Unfortunately, this doesn’t seem to be the case. From an employer’s perspective, offering a contract of employment could be seen as close to offering a deal for life. Assertions that people can be “performance managed” out of jobs towards the end of their careers are of little comfort. Workforce planning becomes very difficult and costs to the employer are certain to rise. Neither of these is conducive to boosting employment.

Indeed, recruitment decisions may start to go against the interests of those in their 50s and 60s. A young person at the start of their professional career, taking a role as a stepping stone on their long career journey, might stay in post for a few years before moving on elsewhere to a more senior position. But someone in their late 50s, possibly taking on their last employed role, is far less likely to depart willingly. And the employer’s commitment is open ended – how do they know whether the employee is planning on retiring at 60, 65, 70 or 75? Or maybe later still. If the employer has concerns that due to the onset of age or declining health, they might find themselves with a long-term staff appointment with diminishing productivity, they are likely to lean towards younger recruits.

 A flexible and dynamic labour market will tend to thrive as statutes and regulations are repealed, but only if combined with much greater discretion in terms of freedom of contract. Getting only half this equation right could prove to be a retrograde step.

I don’t apologise for returning once more to my hobby-horse, the seemingly unstoppable growth of employment tribunal claims and the pernicious effect of fear of tribunals on the workplace.

They’re in the news again this week with the hearing of the case of Emma Amelia Pearl Czikai (referred to in an earlier blog post) who is seeking the right to pursue £2.5 million compensation for disability discrimination against Simon Cowell, who was rude about her singing abilities on Britain’s Got Talent.

But, as usual, the tabloid coverage of this ridiculous case has not gone behind the headlines to look at the bigger picture of what is happening with tribunals. Figures published a couple of weeks ago show that a staggering 236,000 claims were accepted by the Employment Tribunals Service in 2009-10. This is a 56% increase on the previous year’s total of 151,000.

Much of this increase came from the rise in multiple claims, by which unions use their financial muscle to pursue what are in effect “class actions” by groups of workers, for instance over equal pay or Working Time Directive issues or Transfer of Undertakings (Protection of Employment) regulations. But single claims also rose sharply, by around 14%.

There were big proportional increases in the newer types of discrimination claim. Claims around Religion or Belief were up from 830 to 1000, Sexual Orientation claims from 600 to 710, and Age Discrimination applications rose from 3800 to 5200. And, as might be expected in a recession, claims associated with unfair dismissal, breach of contract and redundancy rose by 17% to 126,300.

The growing workload has led to the appointment of 35 new full-time employment judges and 340 new part-time panel members in the last year. This hasn’t prevented a significant case backlog building up.

Of course only a fraction – less than a fifth last year – of claims accepted by the ETS ever make it to a full tribunal hearing. Most are withdrawn, conciliated by ACAS or struck out without a hearing. Of those cases actually reaching a hearing, over a third fail. But this does not prevent employers spending substantial amounts of time and heavy legal fees defending against cases which have little substance. It was revealed this week, for example, that the University of St Andrews spent £200,000 to defend itself against an unsubstantiated accusation of bullying.

This week I was sharing a platform at the All-Party Parliamentary Group on Well-being Economics with Professor Cary Cooper of the University of Lancaster. Cary asserted that the HR problems of the workplace were simply the result of bad management. Well, this isn’t the view of people I talk to who are actually attempting to manage staff. One lady present pointed to the procedural nightmare involved in dismissing a nursery worker who had put a child at risk through negligence. Getting rid of incompetent teachers is a similar problem, both in schools and in HE. If you put a foot wrong in the long-drawn-out sequence of stages you have to go through, a claim of unfair dismissal will likely be upheld.

New employment law continues to pour out of our legislature. The “family-friendly” legislation embodied in the Equality Act, and coming into force in October, is worrying HR managers at the moment, according to the Annual HR Survey from HReSource. The extended right to request flexible working is particularly problematic, for turning down such a request is fraught with danger for organisations: compensation for discrimination is uncapped.

These things make managers reluctant to attack poor performance at the workplace, and deter them from taking on staff at all where consumer demand is uncertain and staff are expensive to dismiss.

Sooner or later steps are going to have to be taken to turn back the tide of employment regulation, and to make the use of tribunals – where claimants face no real penalties for unfounded claims – the last, rather than the first, resort of people disappointed at work.

The 19th Annual IEA Hayek Memorial Lecture, given by Professor Gary Becker on 17 June 2010:

 

Over the next year or so the question of which countries best survived the bust is likely to be a major source of argument. Supporters of high taxes are already pointing to predictions that low-tax countries such as Ireland are going to suffer badly, with larger than average falls in GDP and increasing unemployment.

But to look just at the bust misses most of the picture. We need to take a long-term view, ten years or more, and see how economies performed in the boom and how much they managed to hang onto in the bust.

One of the most important practical measures of an economy’s success is jobs – how many people are able to find work. And on that basis the low-tax countries did very well in the boom. Looking at the EU, and comparing the growth in employment to the percentage of GDP that the government spends (the true long-term measure of the tax rate), we see (as expected) a clear trend that lower taxes lead to more jobs:

Source: Eurostat, pre-2007 EU Member States

The trend is clear – lower levels of government spending (and hence taxation) resulted in stronger employment growth.

There is also a clear cut-off at 42%:

• All the countries whose government spent less than 42% of GDP increased the number of people in employment by 10% or more (and usually a lot more).
• None of the countries whose governments spent 42% or more of GDP managed to grow their employment by more than about 10% over that period, with just one exception (see below).

The sole exception was Italy, with the government apparently spending 48% of GDP but still managing 12% jobs growth. However Italy’s massive shadow economy (estimated at 27% of the observed economy) makes its GDP figures particularly unreliable. If Italy’s true GDP (including the shadow economy) is just 15% higher than the recorded amount, then its government spending is actually less than 42% of GDP, putting it on the left hand side of the graph.

Overall the lower taxed countries increased their employment by almost 27% between 2000 and 2008, while the higher taxed countries increased theirs by barely 6%.

And this is not just a matter of growth in the “new Europe” countries outstripping the long established EU members. If we separate the countries into “old” and “new” EU members, the same relationship between low taxes and high job creation is clear in each group.

We shall see over the next couple of years how the various countries weather the storm of the recession. But even if the lower taxed countries lose more jobs in the downturn, their strong performance from 2000 to 2008 makes it very likely that they will still overall have created more sustained jobs than their higher taxed fellows.

In the 15 years to 2007, the British economy had on average faster growth (by about 0.5% to 0.75% a year) than its large European neighbours. A similarly benign context of rising trend output and tax revenues would be very helpful for a new government seeking to reduce government borrowing. There are, however, a number of reasons to be negative about the UK’s prospects for growth.

Firstly, labour force growth will slow from 2011, partly because that is the year the baby boomers start to retire, and partly because the heavy net immigration of the Labour years has become politically unacceptable and seems certain to be checked. In the years leading up to the recession UK employment typically rose by about ¾ per cent a year. From 2011 labour force growth is expected to be only ¼ per cent a year.

Secondly, while the rate of growth of productivity growth in the private sector was very satisfactory in the first decade of the New Labour government, the level of productivity in the public sector actually fell. Under Labour the public sector has also expanded relative to the private sector, with public sector employment up about 15 per cent since 1997.

Thirdly, associated with the expansion of the public sector has been a rise in taxation, particularly taxation on high earners and income from capital. This has started to cause the emigration of high-productivity, high-income people in international business services, the area in which the UK had been a leader after the Thatcher supply-side reforms and tax cuts of the 1980s. The City of London has been knocked off its perch, which may please the high proportion of the British population who are jealous of its success. The fact remains that the boom in international financial services accounted for about a fifth of the UK’s GDP growth in the 1997 – 2008 period.

Fourthly, in contrast with the reforms to energy supply under the last Conservative government, the environmental movement has led to a long pause in power station investment, and now an apparent rush for high-cost and wasteful renewable energy sources. The heavy resources required for, for example, offshore wind will not available for other more productive uses.

Fifthly, regulatory pressure on the banking industry will increase the cost of bank finance, with adverse effects on the financial viability of a wide range of projects, including investment projects in the utilities sector. A degree of leverage has been helpful in the past, because the return on capital has usually been higher than the rate of interest on borrowing. But with the banks widening margins and increasing fees, the utilities cannot borrow or invest as much as before.

The above is rather ad hoc, but the overall message has to be that the trend growth rate has fallen. No one can know how much. The drop in labour force growth might take about ½ per cent off the trend growth rate and the other factors may altogether have a similar effect. That implies a future trend growth rate of 1½ per cent a year, markedly less than the 2½ per cent a year which has been “normal” in the post-war period. The new government faces an economic challenge every bit as daunting as that which confronted Margaret Thatcher and her colleagues when they took office in 1979.

After a long and tedious winter, Spring is in the air and the daffodils are coming out. So, unfortunately, are union members.

There’s strike activity in the Civil Service over pensions, on the railways over possible job cuts, British Gas over changes to jobs, and of course the BA strike about staffing levels on flights.

Back to the 1970s? Not quite. Back then, most disputes were over pay – there is at least a degree of realism about that these days. There’s no doubt that many union members feel strongly about the issues, but there is also a fair amount of political game playing by union leadership which thinks it can put the screws on the Government as an election draws ever closer.

The wider public, faced with difficult personal decisions and the fear of job loss in many areas of the private sector, has a different perspective. Bear in mind that unionism is now very much a public sector phenomenon. Union density is 57% in the public sector as against 15% in the private sector. Moreover, if you strip out ex-public sector (and still highly regulated) areas such as utilities, BA and the railways, the unionisation rate in the “real” private sector is little more than 10%. Those with torn-up travel plans this Easter must be wondering why we still persist in allowing a minority to engage in disruptive union activity. And anyway, why should public and quasi-public sector workers be immune from the necessary restructuring which the recession has entailed?

It’s not as if we were still in some red-in-tooth-and-claw employment jungle. We are now in a highly regulated labour market where employment protection, anti-discrimination legislation, the minimum wage and so on have undermined much of the traditional justification for union activity. Economic change is still painful for many, but we are cushioned far more than in the past.

Today’s trade unionists are also very different from the miners, dockers and carworkers of yesteryear. They are mainly in white collar, technical and professional jobs; they are more highly educated than the workforce as a whole; they are paid on average 12.5% more than non-union members. They are in fact a relatively privileged group.

After the long period of union reform under Mrs Thatcher and Mr Major, New Labour appeared to acquiesce in a “new industrial settlement” which saw a greatly reduced role for unions, while the Conservatives felt that they had achieved all that was necessary and that the unions could be left in peace.

This may not be the case much longer if this new wave of militancy turns out to be more than a nine-day wonder. Old questions such as compulsory recognition, the right to strike in certain areas of the public sector, the form of strike ballots, union immunity from tort actions and so on could be back on the agenda. Unions need to be very careful that they do not overplay their hand in a febrile political environment.

The Gordon Brown bullying row has entertained the media and the public for a few days, but the circus is already packing up and leaving town.

However it is worth taking this opportunity to comment on the wider issues, for workplace bullying is deemed by many HR practitioners, unions and lobbying groups to be a major and growing problem. A recent survey conducted for UNISON, for example, claimed that the incidence of bullying has doubled since 1997 – and no less than a third of respondents said that they had been bullied in the last six months. In my own area, the University and College Union has claimed that bullying in higher education is rife. Nationally it is argued that 19 million days are lost to sickness absence annually through stress caused by bullying.

Strange that this takes place in workplaces which are ever more tightly constrained by employment law and where most large organisations, in both the public and private sectors, have comprehensive policies on respect and dignity at work.

There is no doubt that incidents of bullying can arise in the best-run of organisations: many of us will have been victims of occasional bad or thoughtless behaviour by managers and colleagues. But is it really the case that the modern workplace is increasingly plagued by such behaviour?

Anti-bullying lobbyists often see bullying as being the product of increasing financial pressures in a cut-throat corporate environment. However most evidence seems to suggest that perceived bullying is much more common in the public sector.

ACAS defines bullying as “offensive, intimidating, malicious or insulting behaviour, an abuse or misuse of power through means intended to undermine, humiliate, denigrate or injure the recipient”. Amen to that: but its practical correlates are very much in the eye of the beholder. Examples are said to include “spreading rumours” (surely a human universal?), “overbearing supervision” (i.e. being told what work to do?), “overloading” competent workers (who judges this?) and “blocking promotion” (have we ever met colleagues who think that their talents are fully recognised?).

Like most managers I have met, I don’t approve of bullying. But vague and subjective definitions can be used – especially amongst the “protected” groups recognised in the new Equality Bill – to foment grievances which are exploited by unionists, lawyers, and HR consultancies like that run by the husband of the unfortunate Ms Christine Pratt.

Fear of ending up in a tribunal case can make many managers hold back in cases where firm and fair performance management would benefit the organisation, and in the long run its employees as well.

The next time you’re struggling to find the right birthday present for a friend or family member, why don’t you just give the New Economics Foundation a call? Remarkably, these people seem to know the tastes and preferences of 60 million UK inhabitants. Not our old-fashioned “revealed preferences”, the preferences we express through the choices we make every day, but our true preferences, which we are apparently so often confused about ourselves. They know, for example, that deep down inside, we are all unhappy:

“In high-income countries we are consuming … in ways that ultimately fail to satisfy us. … Those who can afford to participate are never truly satisfied, however much they consume.”

But the good news is the NEF also knows how to fix this: reduce the length of the working week to 21 Hours. Their report, 21 Hours, makes the case for a reduction in working time over the course of about a decade, in order to achieve three related goals: 

1. higher levels of happiness
2. greater equality (between rich and poor, men and women, workless and overworked)
3. lower carbon emissions.

My greatest problem with 21 Hours is that it mixes lifestyle issues with policy issues throughout. Parts of the report read like a lifestyle guidebook, explaining the benefits of a leisure-centred, non-consumerist lifestyle over a work and consumption centred one. The NEF is, of course, perfectly entitled to make that case. Just as they would be perfectly entitled to try persuading us that rock music is better than hip-hop music, that Italian cuisine is better than Greek cuisine, or that Belgian beer is better than Irish beer.

But does 21 Hours stop there? In a radio debate with Mark Littlewood, co-author Anna Coote was eager to emphasise that the aim was not to force this proposal on everybody. The report itself makes a similar point:

“Anyone can disagree and many will do things differently. … Let’s be clear: there’ll be no time police roaming the call centres and coffee bars.”

But the report also reads:

“At government level, regulations will be required to standardise working hours. The EU Working Time Directive is a step in the right direction but a long way from where we want to go. Current standards will have to be reduced steadily over the coming years. They must be designed to exert a strong influence over the actual hours that people work”,

and explains that there must be

“clear limits to the number of hours worked”.

On a related blog post, Anna Coote also makes clear that

“A lot of people will have to adjust to earning a lot less.”

Call it a time police or not – voluntary persuasion is definitely not what the NEF has in mind.

Before you get too excited about the prospect of a four-day weekend, read the small print. The NEF proposal is not about reducing work. It is about reducing the division of work. 

“We could grow, prepare, preserve, and cook more of our own food, repair things more often rather than replace them, travel more by foot and bicycle, learn practical skills and make clothes and furnishings. … We could do things with and for each other that we might otherwise have to buy.”

Maybe it’s just the parochialism of somebody whose thinking is constricted by Old Economics, but to me, this sounds a good deal like my grandmother’s anecdotes about the post-war years. Replace the word “could” with “would have no other choice but”, add a few less pleasant tasks like washing clothes by hand, and you’ll see what I mean.

You couldn’t make this one up. A spectacularly unsuccessful contestant in Britain’s Got Talent, Emma Amelia Pearl Czikai, has lodged an Employment Tribunal case against the ITV programme makers, claiming disability discrimination. Her argument seems to be that, as a result of cervical spine neuritis, she gets head and shoulder pain which affects her ability to hear properly in amplified arenas and causes her to sing out of key. Thus the derisive comments made about her singing by Simon Cowell were unfair and discriminatory.

Although many people may not be displeased to see Mr Cowell himself on the spot for a change, this case (which may or not be accepted, of course) is significant – not for its own sake, but for what it tells us about the seemingly endless expansion of the scope of employment law.

Readers may not be fully aware that you don’t have to be employed to be covered by employment law on discrimination. Any unfairness in recruitment processes can make an employer liable. In this case Ms Czikai seems to be arguing that the BGT auditions are part of an elaborate recruitment process for a contract of employment – to wit, a recording contract. It is a well-established principle that an employer who doesn’t make reasonable adjustments for a candidate’s disability, and makes disparaging remarks about him or her in the “interview” process will be liable for unlimited compensation. On these lines, it is quite possible Ms Czikai will succeed in her claim.

The possibility of large amounts of compensation, coupled with the fact that legal cost orders are very, very rarely imposed on unsuccessful claimants, must surely be a factor in the ever-wider expansion of the scope of discrimination claims (see previous post on climate-change belief). Last year disability discrimination claims rose by 19%.

Fear of tribunal claims is in turn a major cause of the expansion of the personnel/HR function in larger businesses and the public sector (where a disproportionate number of claimants, unlike Ms Czikai, are to be found). The Chartered Institute of Personnel and Development now has 135,000 members busily trying to anticipate problems and creating hugely complicated “best practice” procedures : twenty years ago it had just 40,000. In smaller companies and charities, where a specialist HR function is unknown, a wrong call can lead to an organisation being put at peril.