18 March 2011

The article at a glance

Lifting the burden of regulation on business might make the UK more competitive, but further changes could have an adverse impact on …

Professor Simon DeakinLifting the burden of regulation on business might make the UK more competitive, but further changes could have an adverse impact on our knowledge economy

In a new podcast interview for Cambridge Judge Business School’s expert comment series, Simon Deakin, Professor of Law at Cambridge University, says eroding workers rights is not good for business in the UK or our knowledge economy.

Professor Deakin, an Fellow in Corporate Governance at Cambridge Judge Business School, says a consultation document from the UK coalition government on employment tribunals is not likely to have a major impact on business competitiveness or workers’ rights:

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“They want to simplify and streamline employment tribunal procedures so employers face fewer costs at a tribunal. They want to lengthen the qualifying period for unfair dismissal rights from one year to two years so fewer employees would qualify for unfair dismissal protection.

“In principle if you cut the indirect costs of employing someone, which this might do by reducing employment rights, you might raise demand for labour and you might make it a bit easier for small firms to take workers on, but these changes are really quite marginal; they don’t affect most workers’ rights, such as equal pay, working time or their equality rights.”

Professor Deakin said in general eroding workers’ rights is bad for the economy and business competitiveness:

“If the burden on business is lifted our firms will become more competitive, particularly in Europe where labour law is generally stronger, but others say these changes don’t make a vast amount of difference to competitiveness. Most firms are happy to comply with employment rights, even small firms, and eroding rights might even make things worse as what we want is knowledge-intensive, high skills, high wage firms including SMEs. In relation to our competitiveness as an economy these changes are irrelevant or they will make things worse.”

Professor Deakin said that real improvements to tribunal procedures could be beneficial, but that the strides made in workers’ rights over the past ten years would not be adversely affected:

“I think that although at the edges there may be some improvements in tribunal procedure which will benefit everybody; what’s being proposed won’t affect rights in terms of equality and family friendly rights, so the progress made in the last ten years won’t be affected – there is a broad political consensus in favour of these.

“On the one hand if we protect employment we are making it more difficult for employers to make workers redundant, and then it becomes more difficult to take workers on, so adding this layer of regulation lowers labour demand in theory. But, alternatively, if we regulate it and make it more difficult to make workers redundant in a recession, these measures cancel one another out at a macroeconomic level.”

The need, at this moment in time for the UK economy, says Professor Deakin, is for a highly skilled knowledge economy that pays its employees well:

“What we really need is to have a high skill, knowledge-intensive economy, and that doesn’t come from eroding away employment rights and encouraging people to employ people on a casual or insecure basis. It only comes if there is some sort of social contract underpinning the relationship between labour and management.

“The law can’t make employers follow a certain strategy, but it can nudge them towards the right direction, and that’s what employment rights do; they are nudging employers towards a situation in which we can be moving towards a high wage, high knowledge, high skill economy. The law does have a role to play rather than going towards a low skill, low wage low training, low competitiveness economy.”

Professor Deakin said rights gained through EU law couldn’t be easily dispensed with:

“We can’t tear up some rights on working time, equality, family friendly policy. These policies have lead to more tribunal claims, but we shouldn’t want to tear up these rights as they encourage social cohesion and the growth of the knowledge economy.

“There’s a growing degree of evidence that says that employment rights are good for innovation and the knowledge economy. These current changes won’t make much difference. But if we go further and seriously start cutting back within the framework of the EU rights that would be highly negative for competitiveness in my view.”