Mote or beam?

It was inevitable, I guess, that the Coalition Government would in time abandon any pretence that it would abolish the spin doctoring used by New Labour.  The leaking of the Beecroft review of employment regulation is more evidence that all Governments need spin. I spoke to someone from Number Ten a few weeks ago who mentioned the review in passing saying that all the measures Mr Beecroft proposed were simply too ‘nasty-looking’ to take forward. Leaking the paper, presumably in some way to appease Conservatives demanding the Government repatriate various EU regulatory powers, is a classic spinning tactic; using the impression that something is being done as an alternative to actually doing anything.

Mr Beecroft’s suggestion that labour productivity would be improved by making it easier to sack coasting workers opens up issues relating to management, on the one hand, and the wider state of the labour market, on the other.

There is no question that unfair dismissal rules impose burdens on managers, but any manager who seriously claimed that these rules were the cause of poor productivity in their organisation would have to face to some searching questions. Putting aside the quality of their recruitment procedure, why, for example, had they not used the probationary period before employment rules kick in to identify workers who lacked the skills and drive needed? Second, given the importance of social norms and peer pressure, if a high proportion of staff is slacking with impunity, questions surely need to be asked about general staff motivation. Thirdly, while it can be time consuming and bureaucratic, it is possible to ease people out of organisations on grounds of under-performance so to have lots of weak workers implies poor performance management.

I suspect the consequences of making it easier to sack people would depend on the quality of management. Good managers would probably use the new freedom wisely just like a football coach would use increased transfer funds to improve their team. But mediocre managers - like failing football coaches - would simply churn their workforce as an alternative to the more important challenge of getting more out of the workers they have. The sad reality is there are probably of lot more examples of the latter quality of management than the former in the British economy.  

The broader issue is this. Most political parties have at one time or another said that they want the UK to be a high skill, high wage, high productivity, economy. The recent reality has been the reverse. For most of the labour market real wages (take home pay adjusted for inflation) have been stagnant for a decade and are now falling faster than at any time in recent history. The living standards of those relying on in-work child care benefits have fallen faster still as these entitlements have been cut back.  At the same time labour productivity has also virtually flat-lined (which was one of the reasons why until recently the economic downturn was not fully reflected in the unemployment statistics).  In internationally comparative terms, the UK is becoming a lower wage, lower skill, lower productivity economy.

It is surely the case that a combination of trends – decline in real wages, reductions in in-work benefits, disproportionate rises in the living costs of poor families, increasing pressure on claimants to work – is leading to an accelerating increase in the number of people for whom their net income from working is only very marginally higher than being on benefits. I have not seen any statistics on this phenomenon, but it would be interesting to know, for example, how many people now in employment are in net terms receiving a marginal income increase over benefits payments of less than £1 an hour.

The classic right of centre response would be that benefit levels are too high. But, in fact, basic out of work benefits are already very low. The net income unemployed families get is higher than Jobseekers Allowance primarily because of the extra support we give to children and also help with housing costs. The Government is trying to bear down on these but there is a limit if we don’t want children to suffer profound hardship (with, by the way, consequences for their own likely employ-ability in later life) or have thousands of families living on the streets.

There are other arguments for making people work for a marginal improvement in their income. Opinion polls demonstrate a strong public belief in a social obligation on benefit claimants to take any available work. Also, there is a great deal of data which suggests people in work are happier and healthier than those on the dole.

The real challenge – and this is where I think Adrian Beecroft may be aiming at a mote rather than the beam – is improving the productivity of work in the British economy. This is a complex issue with several factors at play. It is about investment (paceMr Beecroft, international evidence suggest that where the costs of employing people are higher employers tend to invest more in them). It is also about consumers. More demanding consumers play an important role in driving improvements in performance among manufacturers and retailers. It is also about the quality of management in British firms and organisations.

Years ago, when it seemed that the problem of work was more one of quality than quantity, I remember writing an article arguing that every job in the UK economy should be one that seeks to enhance the human capital of employees. In fact, I think I argued that every employment contract should contain a commitment by the employer to offer the employee opportunities to develop their skills and achieve career progression. Looking back from these tough times this seems like little more than a pipe dream. But still, if we are not to abandon entirely the hope that the UK can be a high performing economy, we must not give up on the quest that every job is genuinely a stepping stone to a more satisfying, more productive and better paid job.