The consequences of employment
36. Both the UK and Denmark, for example, adopt
a light approach to employment protection laws governing the ease
of hiring and firing (i.e. there are relatively few legal constraints
on numerical flexibility). (Q 13) The experience of both
countries in this respect is generally viewed favourably. In the
Green Paper it is suggested that strict employment protection
laws which, in the face of structural change, attempt to protect
existing jobs by making it difficult for organisations to restructure,
can have the unintended consequence of deterring job creation
in general and the creation of permanent jobs in particular.
37. The Green Paper suggests that this can result
in a higher rate of structural unemployment (especially if the
only way employers can easily avoid firing restrictions is to
hire staff on short-term contract) or give rise to a two-tier
labour market with a stratum of less protected precarious employment
that is more prone to the forces of change than protected employment.
In some cases both problems may arise.
38. In discussing this possibility, the Green
Paper cites the Employment in Europe 2006 report
which refers to research showing that stringent employment protection
legislation reduces the dynamism of the labour market, has a negative
impact on productivity and segments the labour market in favour
of so-called employed "insiders" in protected jobs and
to the disadvantage of "outsiders" (both those unemployed
and precariously employed).
39. In similar vein, Professor Shackleton
told us that "cross country analyses indicate that overall
employment tends to be lower where employment protection is greater.
Similarly, higher degrees of employment protection are associated
with higher unemployment of women and young people, with a greater
reliance on temporary and other forms of 'atypical' employment
and a larger proportion of activity in the informal or black economy".
40. This conclusion is not without its critics.
The TUC, for example, stated that independent research had found
no negative correlation between employment protection legislation
and unemployment, employment levels or innovation and productivity.
41. However, the consensus of opinion presented
to us indicated that stringent employment legislation could hamper
job creation and lead to segmentation of the labour market. (QQ 7-9,
39-42, 63, 70) (pp 85-96)
42. The Committee welcomes the Green Paper in
opening up a debate on whether and how employment protection legislation
might be modernised to assist labour market flexibility within
the EU, while at the same time highlighting the need for accompanying
measures to help people cope with change and reduce the insecurity
they might face in a less protected labour market.
43. However, our conclusions and recommendations
on the ideas outlined for discussion in the Green Paper are based
not only on the extent to which we consider them to assist the
Lisbon objective for the EU as a whole but also, and indeed primarily,
upon their specific relevance to the UK economy and labour market.
44. In this latter regard, our evidence has shown
that the UK, by contrast with most other EU Member States, has
relatively light employment protection legislation. One consequence
of this is that relatively fewer UK workers have non-standard
contracts of work and, of those that do, the vast majority prefer
to have them. Moreover, while there are exceptions, such workers
enjoy similar employment rights to employees with standard work
contracts, and in several ways these rights have been strengthened
in recent years as a result of legislation introduced independently
by the UK in addition to those resulting from the implementation
of EU directives. (for example: (QQ 12, 41,146)) (pp 119-122,
pp 85-96 and pp 37-40)
45. We conclude that most of the issues raised
in the Green Paper are already adequately addressed within UK
labour law where the labour market is relatively lightly regulated
in comparison with some other Member States.
46. In consequence, we recommend that it would
not be helpful to introduce new EU wide changes to labour law
since this would not meet the specific circumstances of the UK
nor of other individual Member States.
47. We consider, nevertheless, that the Green
Paper provides valuable insights into the role of labour law in
promoting labour market flexibility and in enhancing the genuine
employment security that comes from helping people to cope with
structural change. In addition, we welcome the focus it provides
on what individual Member States might learn from the experience
of others when deciding what reform of labour law or other employment
and welfare policies might best help them to meet the economic
and social challenges of the early 21st century.