Making it easier to sack won’t boost productivity – yet the Tories imagine salvation lies in making Britain a low-wage economy
As of next year, the government will make it much easier for you to be sacked. From April 2013, employers will only need a 45-day consultation period before embarking on mass redundancies, as opposed to 90 days. Workers will be charged a fee for bringing unfair dismissal claims to employment tribunals and the compensation for unfair dismissal is to be cut.
This follows George Osborne’s bizarre “shares-for-rights” scheme, derived from proposals made by the venture capitalist Adrian Beecroft. Beecroft’s rationale for proposing a whole series of changes weakening employment protection was the assertion, offered without evidence, that workers use their exiguous protections to get away with working below capacity. Taking these protections away would supposedly boost productivity.
On the face of it, any proposal to squeeze workers harder is unlikely to be popular. But Osborne’s scheme took the measures a step further, attempting to articulate them as part of a wider hegemonic Tory agenda. By offering cash, in the form of shares in exchange for rights, he hoped to conscript popular support for an attack on the remnants of social democracy. The idea was that hordes of workers, anxious about their low income and accepting the new realism of depression Britain, would happily see their rights turned into commodities. After all, if desperate people will take prized possessions to the pawnbrokers, or borrow from payday loan sharks, who wouldn’t exchange flexible working or redundancy pay for a few grand worth of shares? Why shouldn’t everything be for sale? At length, why not allow workers to sell all of their rights for a determinate period? Indentured labour could be an idea whose time has come again.
This prospectus for popular neoliberalism floundered for a number of reasons. Businesses were sceptical (paywalled link), and of those surveyed by the government only a very small number of companies were considering taking it up. The idea divided the coalition, and the Liberal Democrats, desperate to give the impression of being something other than a faction of the Tory party, insisted that such policies as were implemented would be far removed from Beecroft’s proposals. Beyond the Tory right, moreover, the move appeared to have little resonance, and even aroused some controversy due to the increased opportunities for tax avoidance it presents.
Nonetheless, the assault on employment rights and labour costs is proceeding apace (paywalled link). The Tories would prefer it if the plebs saw things their way, but they don’t seriously believe they have an alternative. Moreover, while businesses may raise an eyebrow at straw-clutching schemes that pander to the right, they are in favour of anything that makes it easier for them to shed staff.
Part of the justification for this is that Britain’s global competitiveness depends on reducing the cost of labour relative to output, or “unit labour costs”. The Bank of England notes that unit labour costs have been rising during this recession. One should not confuse this with rising wages. Hourly labour costs, while rising in Europe as a whole, have fallen in the UK. What rising unit labour costs show is that private sector productivity has been falling sharply throughout the crisis.
This is in contrast to the effects of previous recessions, during which fewer workers doing more work led to a dramatic increase in productivity. The reason for the slump in productivity this time is that private sector firms have actually retained large numbers of staff. And despite a million jobs being lost in the first years of the recession, most were quickly recovered. Employers are responding to this recession differently than in previous recessions. They are anxious not to lose skilled workers, as training new ones will be an added cost when the recovery begins. So rather than fire people outright, they prefer to under-employ them or hold their pay down. This is why hourly labour costs decline while unit labour costs increase.
Falling productivity has nothing to do with workers skiving, and everything to do with the parlous state of the economy: it would increase as growth resumes. Attacking employment conditions will not boost productivity, but it will probably reduce labour’s bargaining strength and help suppress wages. Yet through the optic of “competitiveness”, a great many self-interested dogmas can appear to be rational. Everywhere, the experts and IMF officials say the same thing, from Greece to Portugal to France – cut labour costs in order to be competitive. Preposterously, advanced EU economies are expected to compete with India and China on wages.
The government and the Bank of England are betting on the idea that as Britain cuts workers’ consumption, increased exports will make up the loss of purchasing power. The reality is that Britain has no future as a major exporter. Among EU member states, it performs badly.
The truth increasingly appears that those in charge don’t have a coherent remedy for the system’s failings. They are just determined to ensure that workers bear the cost.