Examination of Witnesses (Questions 1
- 19)
THURSDAY 22 MARCH 2007
PROFESSOR LEN
SHACKLETON AND
MR NIGEL
MEAGER
Q1 Chairman:
Professor Shackleton and Mr Meager, thank you very much for coming
to give evidence to us. You are the first people to give us verbal
evidence on this particular inquiry which we are just starting
and we are very grateful to you for coming to do that. The Commission's
Labour Law Green Paper is obviously potentially quite an important
piece of work. Employment issues are of great interest to this
Committee and a couple of years ago we published a report on the
inquiry into the Working Time Directive which you have probably
seen. So our inquiry on this Labour Law Green Paper is a good
opportunity for us to pull together evidence which will bring
our views on the impact of legislation in the labour market up
to date. The session is open to the public and it will be recorded
for broadcasting or webcasting, a verbatim transcript will be
taken and that will also be put onto the public record in printed
form and on the parliamentary website; in fact your evidence session
will form part of the evidence that we add to the report when
we write it. You will be sent a transcript of this session a few
days afterwards and if you wish to correct something, if you feel
you have misspoken yourselves or you wish to add something, that
is fine but you need to do it as quickly as possible please. If
you think at the end of the session that points that you wish
to make were not made or if you wish to expand something you said
or you were not quite satisfactorily able to answer a question,
please send us supplementary evidence. That is very welcome and
would be well regarded by the Committee. The acoustics in this
room are relatively good, but if you could speak at slightly above
a normal speaking voice, I am sure that would help the members
of the Committee to follow what you are saying. Before we start
perhaps you could for the record state your names and your official
titles.
Professor Shackleton: I am Professor Len Shackleton;
I am the Dean of Westminster Business School.
Mr Meager: I am Nigel Meager; I am the Director
of the Institute for Employment Studies which is based at the
University of Sussex.
Q2 Chairman:
Excellent; thank you. Did you want to make an opening statement
before we go into the question and answer session?
Professor Shackleton: I did. One of the central
issues of the Green Paper is the issue of employment protection.
Employment protection, like other sorts of mandated benefits such
as holiday leave and parental leave tends to increase costs for
employers which has an impact on their demand for employees. But
it also has an impact on the behaviour of the employees themselves,
so you tend to get an increase in the supply of people willing
to do a job at a particular wage rate. The net result of this
in a static analysis is that you would expect average wages to
fall, and on reasonable assumptions you would also expect employment
to fall. In a more complex framework, a dynamic framework, what
is happening is that greater employment protection reduces dismissals
and tends to reduce job turnover, but it also deters new hires
by firms who face the risk of significant costs if they have to
lay staff off. There is evidence, which I hope we shall talk about,
that this increases the duration of unemployment, it makes it
more difficult for younger, less skilled workers to achieve employment
and we get a tendency towards labour market segmentation, which
is one of the features to which the Commission's paper draws attention.
In that kind of situation you have relatively privileged insiders
who have secure jobs and outsiders who are either in insecure
employment or cannot get jobs at all—and this is the issue
which the Commission want to focus on. That is where the discussion
probably ought to go in this session.
Q3 Chairman:
That was a very helpful introduction; thank you very much indeed.
May we stick to the questions or something like them, because
we would like to explore with the witnesses their views about
the general economic background in the United Kingdom and the
impact of labour regulation on this before we go on to points
specifically related to labour law? What is your view of the general
health of the UK economy compared with the economies in the other
Member States at the present moment?
Professor Shackleton: Economies, like people,
are rarely in perfect health. There are always some niggles around
and indeed there may be unrecognised symptoms of more serious
problems for later on. Nevertheless, my view would be that the
UK's labour market at the moment is in an enviable condition compared
with those of many of our continental neighbours, particularly
countries such as France and Italy and to a lesser extent Germany.
We have unemployment which is significantly lower than the average
for the EU as a whole. Employment continues to grow and over 70
per cent of those of working age are actually in employment in
the UK, whereas the figure in countries like Italy and Spain is
less than 60 per cent. We have had 15 years of continuous growth
of national income. Our GDP per head has overtaken that of a number
of countries which were formerly ahead of us, such as France and
Italy. Problems like inflation bogged the British economy for
many years and although they have not entirely disappeared, and
indeed inflation has gone up again this week, the consensus is
that inflation is broadly under control and it is on a time path
where it will come down in a year or two. It is a pretty good
picture overall but it has flaws in it. Productivity has not grown
as rapidly as it might have done; that is one of the issues. Taxation
has certainly risen and despite yesterday's Budget we are no longer
a low tax economy in quite the way we were a few years ago; we
have crept up much closer to the average level of tax in countries
like Germany and France, although not to the same extent. Employment
regulation, one of the issues we are talking about here, has clearly
increased in recent years, so some of our advantage in labour
market flexibility has been eroded. On the whole, however, the
economy is strong. There are other issues which people might like
to take up like inequality and poverty and so forth, but if we
are just looking at the broad measures, the British economy is
in a very favourable position.
Q4 Chairman:
Thank you. Mr Meager, would you like to start off by making a
short statement?
Mr Meager: Just very briefly, if I might my
Lord Chairman. I should just like to say that I have a number
of reservations about any project to harmonise labour law provisions
further across the EU which is implicit in the Green Paper. It
seems to me that labour law is a rather blunt instrument for achieving
the objectives that the EU has, which are to improve labour market
performance on the one hand and to provide a degree of social
protection on the other. One thing which has become very clear
to me, doing comparative research on labour market policy in the
EU, is that the extreme diversity of legal provisions, traditions
and institutional arrangements makes valid comparisons very difficult
to make. It is certainly not possible to conclude that a set of
laws and institutions which has one effect in one national context
will have a similar effect in other national contexts. Particularly
when one looks at it from the side of labour market performance,
it is not possible to consider the effects of labour law separately
from the effects of the labour market policy regime (by which
I mean the kinds of training and other support measures that are
in place for the unemployed), or indeed from the effects of the
benefit system and the welfare regime, or indeed from the effects
of the collective bargaining and employment relations tradition
in the country in question. In my view it makes absolutely no
sense to make prescriptions about labour law without taking a
view on these other elements. For example, a set of labour legislation
which gives rather little employment protection, such as we actually
have in the UK, will have vastly different implications for labour
market performance depending on how generous and supportive the
unemployment benefit regime is and how well developed the institutions
for retraining and redeploying displaced workers are. That is
what I would like to say in general terms. May I just pick up
the points that Professor Shackleton was making about the relative
performance of the UK economy and the potential relevance of labour
regulation to that? I could not agree more that the UK economy
is in a relatively healthy state, and the positive end-of-term
reports that we keep getting from OECD and IMF tend to reinforce
that. We have had continuous economic growth and employment growth
for well over 10 years. The question is why? It seems to me that
there is no single factor which can account for that performance.
We have had a stable macroeconomic environment; I do not wish
to go into who might take credit for it which is a rather spurious
discussion. However, the link which used to exist between sustaining
low unemployment and generating high inflation has clearly been
broken in the UK in a way which has surprised a lot of economists
including me. A number of reasons can explain that. We have had
rather more success than might be expected in getting inactive
groups into the labour market and expanding labour supply. The
recent expansion in immigration has been a positive factor from
that point of view; it has both increased labour supply and dampened
down inflationary pressures in the economy. And one should not
underestimate the effect of the changed industrial relations climate
since the 1980s; the inflationary effect of wage bargaining and
collective behaviour and so on has just completely gone; or perhaps
not completely gone, but it has a very different effect than it
used to have. The role of labour law or labour regulation in all
of this, seems to me to be rather small. There is a common argument
that the UK's relative success, in labour market terms, is due
to its rather de-regulated and loose employment protection regime
and its rather light touch labour law. I really do not buy this
argument at all. The UK, despite recent changes, has pretty well
the least regulated labour market in the EU. The OECD regularly
publishes rankings of the strictness of the employment protection
regimes in Member States, and the UK is always at the bottom among
EU Member States. It is at a similar level to other English-speaking
liberal economies, the United States, Australia, New Zealand and
so on, but it is well below nearly all continental European countries;
only Denmark comes close. The key point is that the UK has always
been like that. If we go back to the 1970s and the 1980s, when
the UK by any measure of labour market performance was seriously
the sick man of Europe, we had the highest unemployment rate of
the large economies, very poor growth, recession and all the rest
of it; but we also had a deregulated labour market then. If anything,
labour regulation has got slightly tighter since that time; it
is still low but it has not got looser, so it is very difficult
to argue that the improved labour market performance is a result
of changes in labour law. I am not saying that labour regulation
is irrelevant to labour market performance. Clearly it is not,
and there would come a point beyond which further tightening in
labour law would have a negative effect on employment. My argument
is simply, certainly when you look at the international comparative
evidence, that we are not anywhere near that point yet, but we
still have a relatively loose regulatory environment and, to give
credit where credit is due, the Government have done not a bad
job in balancing over the last few years the conflicting pressures
to improve protection for disadvantaged groups of workers, on
the one hand, and the need to maintain a labour market which adjusts
flexibly to business market and technological changes, on the
other hand.
Q5 Lord Moser:
There is one central point in your joint economic assessment,
which I agree with on the whole and it is a good picture of GNP,
et cetera... I do not buy everything that the Chancellor says
about how good it all is, but never mind that. The puzzle is our
poor productivity and you both commented in passing on that. After
all, you talk about the improving labour situation, but productivity
is extremely disappointing still and compares poorly with most
other countries. That deserves one more word from both of you
before we go on.
Professor Shackleton: Productivity is an extremely
tricky concept to play around with. The most commonly quoted measure
is labour productivity and one of the effects of having more people
in work is that the average productivity tends to fall because
you are taking in workers who, in a different context, would not
get taken on. Apart from that of course, major factors are the
education and training of workers, which we know to have been
a longstanding problem in the UK, and also the level of investment
and the type of industries being invested in. The UK has a much
more service-based economy than, say, Germany and this is reflected
to a degree in these macrostatistics on productivity which do
need to be deconstructed to see exactly what could be done.
Q6 Lord Moser:
It applies throughout the system.
Professor Shackleton: Yes.
Lord Moser: I shall be very interested
as we go through this project in understanding whether changes
in labour law will impact on productivity. To me productivity
is actually the key economic measure rather than all the ones
that the Chancellor tends to talk about, but I shall leave it
at that for the moment.
Chairman: I am going to pass on to Lord
Wade because he wants to get into this aspect of things and also
onto the international comparisons outside the European Union.
Q7 Lord Wade of Chorlton:
Thank you both for the presentation so far. I should like to build
on that by just exploring a little bit further as to whether you
think existing labour law has been a good or a bad thing for the
economy in the UK as it stands at the moment, but, more particularly,
how that looks and affects our globalisation of our products and
how that impacts upon our international trade and how you see
that evolving. Clearly it is all right having labour laws in Europe,
but if those laws are very different from the rest of the world,
then clearly that is a competitive issue. Coming back to Lord
Moser's point, an important point which he has raised and which
I want to explore with you is about how labour law impacts upon
productivity because that is, I agree with him entirely, the key
really to wealth creation and making more money available and
lifting the whole standard of living for everybody. Perhaps Professor
Shackleton might answer that first because Mr Meager did address
one or two of those issues.
Professor Shackleton: Let me say I agree with
Mr Meager that labour law is only one aspect of a complex situation.
We have had a very good macroframework in this country and macroeconomic
policy is one issue, industrial relations another. Product market
competition is a third which has not been mentioned. We do have
a pretty good competition regime in the UK and we do allow firms
to enter and leave without the kind of restrictions which are
placed in France and Germany and so on. It is a complex picture.
Nevertheless, you are quite right to focus on international comparisons
because there is some evidence now. The World Bank has produced
a series of indices about various aspects of labour legislation.
If you take the index they have on employment protection, for
example, which focuses on hiring and firing in that index the
only major world economies in the same ball park as we are are
the United States, New Zealand, Australia, Denmark and also, an
important one of course, China where there are relatively few
restrictions, as you can imagine, on hiring and firing workers.
When these sorts of indices are put into a proper econometric
framework, where you are controlling for some of these other factors
which Mr Meager was drawing attention to, there does seem to be
evidence that a high level of employment protection is associated
with a small proportion of the working age population in employment,
slower growth and a higher proportion of so-called atypical employment,
particularly temporary employment rather than permanent employment.
There is something real there about the association of labour
law with the effectiveness of a particular labour market, so that
is an issue. Of course, you are right to draw attention to the
context of international trade. We are not competing just with
Germany and Italy and France, we are competing with China, we
are competing with Japan, we are competing with all the industrialising
economies of Asia and so forth and we always have to bear this
in mind.
Q8 Lord Wade of Chorlton:
Coming back to the point of productivity, perhaps you could explore
that point further. You mentioned the importance of productivity
but how is that actually related in your view to different levels
of employment law?
Professor Shackleton: For example, if you have
restrictions on the number of hours in which people can work,
this is going to lead to more people having to be employed to
meet a particular output and that is going to be associated with
lower productivity per worker, other things being equal; of course
this is always the qualification which you have to apply. If,
on the other hand, you have the kind of regime where employees
are highly trained and they can move from one job to another and
productivity can be increased to offset the impact of labour legislation,
then that is a very different matter. Economists are always getting
criticised for that old bit of Latin they keep bringing out, ceteris
paribus. You have to control for these other factors when
making statements about the impact of this variable on that, and
it is very important to re-emphasise that.
Q9 Lord Wade of Chorlton:
Would Mr Meager care to comment on this international issue?
Mr Meager: Just briefly. I would not like you
to draw the conclusion from my earlier remarks that I think labour
law is, in principle, irrelevant to economic performance. My point
was rather that it has not been a key factor in explaining the
UK's current economic performance and, in my view, strictness
of employment protection and related legislation is not a significant
barrier in the UK to its economic performance. In some other EU
Member States I would reach a very different conclusion, as indeed
those Member States themselves are making that conclusion. I would
agree with Professor Shackleton's analysis thus far. On the productivity
question, it is a slightly more nuanced picture in my view than
portrayed by Professor Shackleton. To take the example that he
gives of working time, it has been argued and indeed there is
some evidence that there are problems indeed in restricting working
time, but actually one of the side effects can be that if employers
cannot work their workforces longer than a certain number of hours,
it provides an incentive for them actually to get more out of
the hours that they are working rather than necessarily employing
more people, and as a result to invest in training and development
and so on. Interestingly, my institute did do a small study for
the DTI a few years back where we followed up, after a period
of two or three years, a number of companies who had expected
to be affected by the working time regulations when they were
introduced into this country. One of things we found on following
them up was, independently of the opt-out really, how easy they
had found it to adjust to the working time regulations; and some
of them were actually saying "Well, to be honest, it gave
us an incentive to tackle some of these slightly unhelpful practices
of systematic overtime" et cetera and it did lead to a prompt
to flexibility and so on. I would not go as far as to say that
would be a reason for having working time regulation; that is
not a good reason for introducing working time regulation. All
I would want to say is that the effects on productivity do not
necessarily go one way and it is surprising often for economists
that, despite the extreme working time restrictions that have
been in place in France for a number of years, they do have extremely
high productivity per hour.
Q10 Chairman:
I worked at NEDO for quite a number of years. In those days we
used sometimes to make the suggestion that if you did not have
a lot of control on working time, it was a disincentive to investment
by the company in better working practices of all kinds. I do
not know whether that is still a viable assumption or not but
it rather suggests that where your labour time is expensive because
it is short, you therefore have a higher incentive to invest in
different working practices, better machinery, whatever it is
that you are doing to off-set the cost of your labour force. Does
that operate at all?
Mr Meager: My argument would be that it operates
to some extent but that is not a good reason for introducing working
time practices.
Chairman: No, I am not suggesting that.
One of the reasons that we were less effective in investment was
that our labour costs were low, so we had less incentive to invest
in better machinery and better methods. We do not have very much
of a manufacturing industry any more so that is probably not relevant.
Q11 Baroness Neuberger:
A very quick follow-up and I ought to declare an interest, being
married to an academic economist. Just to press you further on
the point about the UK and the way, I think you were saying, that
people adapt to things like working time directives. Do you think
there is something particularly distinctive about the way people
in the UK operate within the labour law, how firms react, how
employees themselves react, that is different from other parts
of Europe? Is it a particularly UK characteristic?
Mr Meager: It is very difficult to answer that
question because there is a lot of anecdotal evidence. You will
get a lot of people who say "Of course what happens in the
UK is that we gold-plate the legislation whereas those rotten
foreigners just ignore it". The evidence is less strong than
that might suggest. Certainly when we did the working time study
a few years back looking at long working hours—this was
a cross-country study that we did for the DTI and we looked not
just at the UK but also at companies in Sweden, France and Germany—the
thing that struck me was actually the similarity, particularly
for professional and white collar workers. It did not seem to
us that there was anything particularly distinctive about the
UK. There was just as much of a long-hours culture amongst managers
in these other countries and they were just as prone in the UK
and, say, Germany to get round the legislation if it did not suit
them. The thing that was very different between the UK and these
other countries in terms of long hours, because we were looking
at the working time legislation, was amongst blue collar workers
where we did find much more long-hours working in the UK, which
seemed to be associated not with legislation but more to do with
a culture not of long-hours working but of systematic overtime
often driven by low wages, particularly in parts of the economy,
the South East and London, where these people were wanting to
work long hours and to keep their overtime shifts because that
was the way of reaching a target income level. We looked at the
Post Office in the UK and also in Sweden and there was a huge
difference in working time for exactly that reason. Talking to
Post Office union officials, they were saying "We don't want
these hours taken away. Our members want them and they need them
to pay their mortgages" whereas in Sweden it was exactly
the opposite. That was not really anything to do with working
time legislation, it was something completely different.
Chairman: We should move on. Lady Howarth,
your question on flexibility and security in the labour market.
Q12 Baroness Howarth of Breckland:
I am going to concentrate on what would have been question three
and question five because they go together and they are two sides
of the same coin. First of all, the flexibility and security in
the labour market, which we have very much just been talking about,
anything else in relation to that and the variety of contracts
that now exist. It is The Empty Raincoat, Charles Handy
sort of picture. Then, to move into the other question at the
same time because it is the other side, this wonderful word "flexicurity",
which is how to make sure that people have life-learning to develop
their skills, all the alternatives of policies, encouraging employment
in inactive people in order to encourage the economy. Both of
those things at the same time.
Mr Meager: "Flexicurity" is a hideous
word but we know what it means. First of all I should like just
to challenge slightly the association that seems to be written
into this Green Paper that there is an association between insecurity
on the one hand and certain types of non-standard working patterns
on the other. Lumping together part-time work, temporary work,
self-employment as though they were similarly insecure, precarious,
et cetera is extremely unhelpful in this. It seems to me that,
for example, part-time work, certainly in this country offers
a considerable amount of flexibility to lots of employees and
to lots of employers. You get high quality part-time work and
you get low quality part-time work, but there is nothing definitionally
true about part-time work that makes it more insecure than full-time
work. Most part-time workers have open-ended contracts the same
as I do and I am a full-time worker. They are not more insecure,
they just work fewer hours per week. That is my first point. If
you are going to look at these things, you need to disentangle
it a bit more. Secondly, the relationship between labour law and
security, which again is implicit in this, is not a clear one.
The points that Professor Shackleton has made are true: there
are strange relationships between employment protection legislation
and security. If you have more employment protection legislation,
that can give an incentive to employers, which we tend not to
have to much extent in the UK, to generate unusual forms of work
or strange temporary contracts to get round the legislation and
that can lead to more insecurity. Another paradox, another thing
we have to look at, is the relationship between legal security
as laid down in the law and how secure people actually feel. It
seems to me that if you care about individual welfare, it is as
important to know how secure people feel in their jobs and in
their labour market circumstances. Interestingly there are several
comparative surveys across the EU and other countries on this
and in the UK employees, workers generally, score surprisingly
highly in these surveys in terms of their perceived feelings of
security about their jobs. There is a paradox actually that across
countries there seems to be an inverse relationship between the
strictness of employment protection legislation and how secure
people feel. It is almost the case that, in those countries where
you have very, very restrictive employment legislation, for some
reason surveys of employees find that they feel more insecure
than in countries like the UK where there is less employment protection
legislation. One of the reasons might be, and this has been suggested
by some commentators, that in countries where there is really,
really strict employment protection legislation it is virtually
impossible, except in dire circumstances, to fire anybody; it
is a rather rare event, you do not get these sort of people made
redundant in small numbers. They tend to save it up for big crises
and you get these huge redundancies which are all over the newspapers.
This is the sort of thing that happens in Germany and France and
they have these collective agreements. That creates a climate
of anxiety and similarly in countries like Spain, where it is
virtually impossible to fire a permanent worker, nearly all new
jobs until recently have been temporary jobs. So the workforce
notice that nearly all the people they know who are starting new
jobs are getting temporary jobs and that makes them feel insecure.
If there is anything in this "flexicurity" thing, and
I think there is something in it, it is this idea that if we are
concerned about security, we might want to move away from focusing
just on job security and focus on employment security. The traditional
employment protection approach to security protects people in
a given job. The "flexicurity" approach, if it means
anything, is saying rather than worrying too much about protecting
particular jobs, let us try to protect the capacity of the economy
to generate new jobs on the one hand by having a relatively flexible
regime but also the employability and, on the other hand, the
skills of the workforce and the kind of support they have between
jobs so that it makes it easier to take those new jobs when they
come up. There are some examples of European economies where they
seem to have begun to crack that job security-employment security
puzzle.
Q13 Baroness Howarth of Breckland:
Where does the UK stand in that in relation to others?
Mr Meager: It is interesting. The country that
has done it, on the face of it, most successfully is Denmark because
Denmark actually, of the continental European countries (and this
is often a surprise to people), has a fairly hire-and-fire labour
law regime. It is almost as loose as in the UK. The Danish workers
are right at the top of all the indices of happiness, feeling
secure in their jobs et cetera and the paradox seems to be that
despite the fact that there is a very, very high labour turnover
in Denmark people expect to find a new job relatively quickly
and to be supported in the gaps between jobs. The sting in the
tail is that it is very, very expensive. They have a generous,
although time-limited, unemployment benefit regime where there
is a lot of obligation on the jobseeker to retrain and look for
work but there also is a lot of support for them and they have
a very, very extensive set of active labour market programmes
aimed at training, retraining, upskilling people so that they
can take new jobs. If we take the Danish example, there are three
corners to the triangle: there is labour law, which is the flexibility
bit; there is the unemployment benefit and welfare regime bit
of it; and there is the training and skills bit of it. The UK
probably does rather well on the labour law flexibility bit, but
rather less well on the other two corners and that is, in a sense,
why I think from the UK's perspective, not from other Member States'
perspective, this whole Green Paper focus on labour law is sort
of off the point. We probably have that bit quite well in place
and there is not a strong case for tinkering with labour law in
order to enhance "flexicurity": it is much more about
the welfare-to-work and unemployment support regime for people,
and particularly the training and upskilling. I hate to be too
negative about it, but I do think it is off beam.
Q14 Baroness Howarth of Breckland:
We have the happiness indices. Do these factors have any relation
to the productivity indices that we were trying to get to?
Mr Meager: I have not seen that done. Productivity
is very high in Denmark as well, but reported happiness is not
that high in France actually. I do not think there is a one-to-one
correlation but there has not been any work on that.
Q15 Chairman:
Do you want to add something to the discussion we have just been
having Professor Shackleton?
Professor Shackleton: A couple of thoughts on
flexibility first of all. I would want to emphasise that by most
indicators the UK has a very flexible labour market. Normally
economists talk about four different types of flexibility: numerical
flexibility, which is about hiring and firing and we have already
spoken about that; working time flexibility which we have also
already spoken about; functional flexibility, the ability to move
from job to job. This is a mixed picture in the UK. On the plus
side, we have very few restrictions based on qualifications. In
Germany, if you want to open up a pastry cook's or something you
have to be a Meister. You do not in the UK. Gordon Ramsay
can do it if he wants to; he does not have to have a qualification
and most people would think that was a good thing, unless you
do not like Gordon Ramsay very much. We are flexible in that sense.
Of course, you could argue on the downside though that countries
like Germany have very high levels of skills for middle range
people in the labour market, which we do not have in the UK, and
this makes them more adaptable. Finally, there is wage flexibility
in both its real and nominal forms; the nominal form of course
is how money wages, move in relation to shifts in demand. Real
wage flexibility is wages corrected for inflation, how they adjust
to labour supply and demand shifts. Although in the 1970s and
1980s we were considered to be relatively inflexible, the most
recent evidence on this suggests that both in nominal and in real
terms the UK has a very high level of wage flexibility. We are
very flexible in that sense. The other thing I would just throw
in, in relation to what Mr Meager was saying, is about the Danish
system. It is an attractive system and it has been very successful
though it is very expensive. There are two other points you could
make about how transferable it is to other countries, particularly
to those countries who are thinking about labour market reform
like Germany, France and Italy and so on. You have to put the
Danish system in some kind of long-run context. Denmark has never
had restrictive employment legislation. It has always operated,
rather in the way we used to operate in the UK, by collective
negotiations with a very powerful trade union movement. They still
have something like 75 per cent unionisation in Denmark, very
high, and unions currently negotiate at a national level. The
reforms which brought about the "flexicurity" we now
associate with Denmark in the 1990s were actually agreed with
the trade unions. Whether you could get that same result in Germany
or France or Italy I really doubt. The other element, and we are
talking about national attitudes and things, is an interesting
piece of work being done recently by a couple of German economists
who argue that the "flexicurity" model is only sustainable
in countries with very strong public spiritedness. They asked
a question in a cross-country survey about people's attitudes
towards welfare cheating. The Danish come out as the most critical
of welfare cheating and they have a very good sense of public
morality, whereas I am afraid France comes bottom of this particular
league; many French people seem to regard welfare cheating as
perfectly acceptable. What these authors argue is that in this
context, trying to transfer the Danish model to the French labour
market, say, would be very difficult to do.
Q16 Lord Trefgarne:
Could you say where we are in the welfare cheating league?
Professor Shackleton: We are somewhere in the
middle.
Q17 Earl of Dundee:
Following from the Green Paper proposals on the need to reform
existing labour law provisions, what benefits do you think would
accrue from these to our UK economy?
Mr Meager: Briefly, you will probably have gathered
from my previous answers that I do not think very many benefits
would flow. The model implied in the Green Paper seems to be that
the growing deregulation at the edges of labour law in some continental
countries in particular has led to an increased segmentation in
the labour market and that is why they are making these proposals.
That does not seem to me to apply to the UK. We have not had those
kinds of changes to labour legislation because we have not needed
them to the same extent, because we already had a relatively loose
regime. There is no evidence that the forms of work that they
seem to be concerned about in the Green Paper have been growing
strongly in the UK. So if you take part-time work, apart from
the Netherlands we have always had the second highest rate of
part-time work in the EU, but it has not been going up particularly
strongly, if at all, in recent years. Self-employment has gone
up and down with the cycle. There was a blip in the 1980s for
reasons we could perhaps talk about but there is no long-term
upward trend in self-employment in the UK. Temporary work, likewise:
it has hovered at around five to six to seven per cent of the
workforce ever since I can remember, certainly since the early
1980s. This idea that there is growing segmentation... I am not
saying there is not segmentation in the UK, but the problem identified
in the paper, that there is growing segmentation in some countries
due to the upsurge in these forms of work and we need to reform
labour law to do something about it, does not seem to me to characterise
the experience in the UK, so I am not convinced.
Q18 Earl of Dundee:
Earlier on you pointed out the paradox to do with the so-called
"flexicurity". For example, part-time work which sounds
insecure is now really much more secure than people think. Nevertheless,
what measures of reform would you like to see to best protect
insecure employment, whatever that may currently be?
Mr Meager: There are several points to make
there. One is that one of the characteristics that the UK labour
market actually seems to do quite well on is its ability to allow
people to move between segments of the labour market. In the comparative
tables that the European Commission produces, for example, showing
the proportion of the workforce that moves between permanent work,
temporary work, employee status, self-employee status et cetera
in either direction, the UK is right at the top of the list. It
has a very, very mobile workforce in that sense compared with
most countries, so the idea of bring trapped in a particular segment
of the labour market or in a particular form of work is less of
an issue in the UK. In so far as there is segmentation in the
labour market, it is much less to do with forms of contractual
arrangement determined by labour law and it is much more to do
with the question we were talking about earlier, skill levels.
Persistent disadvantage and being trapped in parts of the labour
market is much more, in my view, to do with what the economists
call the human capital of people involved than it is to do with
the availability or otherwise of fancy employment contracts. The
segmentation there is not just an individual one, there is an
inter-generational segmentation. One of the features of the UK
economy is that educational disadvantage gets transmitted between
generations. One's chances of moving out of the occupational and
skill level that one's parents had are no higher now in the UK
than they were in the 1950s and 1960s. It is a real surprise when
you look at the data. If there is an excluded underclass in the
workforce, in my view it is much more to do with the educational
opportunities and skill levels, and fiddling around with labour
law is not going to make a huge difference to that. It seems to
me to be low priority if that is our concern.
Q19 Earl of Dundee:
In this context you believe that little help comes from labour
law changes. Nevertheless, segmentation remains a problem. The
Commission recognises this problem but connects it, incorrectly
as you assert, to labour laws.
Mr Meager: Incorrectly in the UK's case.
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