Memorandum from Institute of Directors
1. In response to your call for evidence the
Institute of Directors (IoD) would like to make the following
broad points on ways in which the Government can assist and encourage
employers to fill their vacancies by recruiting unemployed people.
2. The IoD's position concerning Government
policies to encourage businesses to recruit any employee (whether
unemployed or not) is, at its most basic, as follows:
a stable, low inflation macroeconomic
environment should be maintained; no more "booms and busts";
the regulatory (especially concerning
labour market regulations) and tax burdens should be minimal and
imposed in a business friendly way.
3. Over the past seven to eight years, there
has been an impressive improvement in British macroeconomic policy
with regard to low inflation stability. We welcomed the current
Government's handing over the day-to-day monetary policy to the
Bank of England. Partly as a result of the improved economic performance
many sectors of the business community have thrived and jobs have
been created. A regional problem does, however, persist and without
more vigorous growth in the less prosperous areas it is difficult
to see a solution to the problem of regional imbalance in the
4. We are, however, very concerned about
the dramatic increase in the regulatory burden since the current
Government came to office. The list of extra regulation is, without
doubt, extensive including the Working Families Tax Credit, the
Working Time Directive (which has proved to be particularly onerous),
the National Minimum Wage and the comprehensive Employment Relations
Act. The latter extends employees' rights in three areas: (1)
an extension of collective rights, (2) an extension of individual
rights (not least of all the increase in the cap for unfair dismissal
cases from £12,000 to £50,000 and the reduction in the
period of employment for protection against unfair dismissal from
two years to one) and (3) the raft of "family friendly"
policies including changes to extended maternity leave and parental
leave. All in all we estimate that this increase in labour market
regulation will cost employers about £5 billion on an annual
recurring basis. And it should be emphasised that the burdens
fall disproportionately on small to medium sized businesses, as
they tend not to have dedicated personnel and/or payroll departments.
5. It is instructive to note that according
to a recent survey by accountants Kingston Smith, employment regulations
have leap-frogged other red tape concerns among small firms to
take pole position as the most time-consuming area. Almost 60
per cent of those polled cited it as their primary time-waster
compared with not much more than 30 per cent a year ago.
6. Now, we realise that the remit of this
current inquiry does not cover the review of all this new legislation.
But we feel any discussion of recruiting the unemployed should
keep in mind the extra difficulties that employers face. We are,
if course, fully aware that there has been considerable job creation
during the upswing in the economy. But we would warn against complacency.
Firstly, if/when the economy dips, the shakeout could be severe
and, secondly, the effects of legislation act with a lag. There
are, however, already signs of "employer resistance".
We are in day-to-day contact with many businesspeople and we know
of at least one sizeable employer who, though still expanding
the business, is deliberately choosing more capital-intensive
methods of production in order to limit the size of her workforce.
Moreover, a recent survey of IoD members concerning part-time
work confirmed that the disposition of respondents to hire part-time
staff is closely determined by the attendant costs "Part-Time
Work: The Results of an IoD survey (forthcoming)". Other
things being equal, if future regulations significantly increase
the cost of employing part-time labour, then employers will be
substantially less inclined to hire part-time workers. Indeed,
as the costs and the burdens of hiring labour rise, so capital
as a factor of production assumes a greater relative attraction.
Increased capitalisation is, of course, likely to result in higher
labour productivity. But this should not necessarily be welcomed.
If it comes at the expense of lower employment (and higher unemployment)
it is indeed a false objective. Much of the higher labour productivity
rates of, say, France can be explained by the "super automation"
of French industry which in turn reflects the cost and inflexibility
of French labour. France's unemployment rate is currently 10 per
cent compared with the UK's 4 per cent (or just under 6 per cent
on the ILO count).
7. We would in particular warn against extensive
increases in the minimum wage. Even though the minimum wage appears
to have caused few casualties in terms of job losses so far, this
can be put down to, firstly, its modest rate and, secondly, the
fact that it was fortuitously introduced at a time of strong growth.
Any reversal of these helpful conditions could result in severe
job losses. The minimum wage has particular relevance for the
unemployedespecially for the long-termed unemployed. Almost
inevitably for one reason or another these people tend to be at
the margins of the labour market. A survey we conducted of our
members last year showed that many respondents were concerned
about the quality of the New Deal recruits. (The results are written
up in "The New Deal: One Year On", IoD, May 1999.)
Such recruits are by any standards at the margin of employability,
Prior to the minimum wage we knew of employers who would take
on young people of marginal employable skills on a "nugatory"
wage (£2 an hour or so) to see if they were employable, If
they were, they would then be offered a permanent job at the going
rate. If they were not, their employment would be terminated.
This sort of experimentation and flexibility is no longer an option.
The minimum wage, at the margins of the labour market, has damaged
8. Concerning specific measures the Government
may employ to encourage employers to recruit unemployed people,
we believe the Government is doing a good deal already. We were
always supporters of the principles behind the New Deal (even
though it is far too costly). As we have already said one of the
biggest problems, apart from the perception that the New Deal
is very bureaucratic, is the lack of suitable recruits. (And,
on a more general note, we offered evidence of a shortage of suitably
skilled people in our submission to your inquiry "Employability
and Jobs: Is there a jobs gap" (21 October 1999).) Seventy
four per cent of respondents to our survey on the New Deal indicated
that access to "work ready" applicants was an important
factor in determining their participation in this scheme "The
New Deal One Year On", IoD, May 1999). This implies that
if the New Deal is to be a success and if employers are to be
persuaded to recruit via the New Deal, it is imperative that the
participants are adequately trained.
9. Therefore, the Government may want to
consider providing employers with extra help in respect of their
training costs (perhaps this is a job for the new Intermediaries
Fund?). In 1999 we conducted a survey of our members and there
was widespread support for extra employee training (the results
were written up in "The Skills and Training Agenda: The
Results of an IoD Survey", IoD, August 1999). And in
a more recent survey we asked our members what action should be
taken to encourage employers to hire workers aged over 50 and
an unprompted 14 per cent suggested better training (see "The
Rise in Unemployment Among Older People: Causes and Solutions",
IoD, March 2000). Additionally, when we asked our members whether
they would be more likely to take on a worker aged over 50 if
the Government helped their firm to cover the costs of training,
54 per cent of respondents gave an affirmative response.
10. We would not expect there would be major
"churning" implications if help were to be given with
training costs (we see little benefit in "churning";
it can destabilise a workforce and rapid turnover is costly and
disruptive). Concerning employers reaching out to prospective
employees the majority already use advertising and Jobcentres
widely and we would expect them to continue to do so. A survey
of over 1,000 IoD members in October 1997 revealed that 59 per
cent had recruited through the Employment Service in the past.
11. Concerning the role of the Employment
Service, perhaps they could contact employers directly more frequently.
Only 30 per cent of respondents to our survey on the New Deal
had been approached by personnel from the Employment Service about
participating in this particular project. If the New Deal is to
be a success the Employment Service should enhance its links with
the business community in order to maintain private sector interest
in the project and to discover the recruitment needs of employers.
12. We welcome the evidence that private
employment agencies are playing an increasingly important role
in unemployed people's job search. We have no specific suggestions
for the particular role that private agencies should play, but
would note that the fact that they are in the private sector gives
them an advantage over the state run Jobcentres. And that is they
are directly familiar with the workings of the private markets.
13. Concerning career progression, we believe
that this is overwhelmingly an issue for the individual concerned.
For some individuals, they will feel the need to move on from
an entry-level job in order to progress. Others may not wish to
move on. Providing the requisite training is available for people,
the Government, we suggest, should step back and leave matters
to the individual and the market.
I hope that this submission proves to be of
use to you.
Institute of Directors