21 June 2024

A revolution in workers’ rights will hurt the worst-off


If, as now seems inevitable, Labour forms the next government, it promises to bring in ‘the biggest shake-up of the workplace in a generation’. What happens when those ambitions collide with hard realities on the ground? The labour market already seems to be facing a downturn, with unemployment and inactivity rising, employment and vacancies falling, and productivity continuing to flatline. There are also longstanding problems with real pay growing only very slowly.

But it could be worse. Despite problems, the UK’s labour market has performed markedly better since the global recession than those in most continental European countries, where the stranglehold of unions and over-zealous regulators effectively excludes large numbers from employment or keeps them in insecure temporary jobs, with young people in particular the losers.

So what is Keir Starmer’s Labour offering? We know they plan to implement some key features of a ‘New Deal for Working People’ within their first hundred days of office. Featuring prominently will be repeal of the Conservatives’ 2016 Trade Union Act and the 2023 Minimum Service Levels Act. This has been a key demand of the unions, though neither of these Acts has been very effective. The hurdles necessary for industrial action in the 2016 Act – high proportions of votes cast and votes eligible in key sectors – have usually been overcome by substantial majorities when ballots have been held. The MSL Act is a dead letter: the only attempt to apply it, by the railway company LNER, failed miserably. It is badly-written, imposing so many duties on businesses using it, in such a tight schedule, that it is practically useless. It won’t be missed.

The repeal of these Acts is, however, just one aspect of Labour’s pro-union agenda, which also involves measures to encourage union membership such as enabling recruiters to enter workplaces (both physically and online), the introduction of electronic strike ballots, mandatory time off for diversity coordinators and easier union recognition.

Another pro-union move is the proposal to revive national sectoral bargaining. This is being sold as a way of boosting pay across the economy, setting higher wage rates which cannot be undercut.

Sectoral bargaining grew up at the end of the nineteenth century, as employers’ associations were set up to counterbalance the growing strength of industry-wide unions – and to mitigate the threat to established firms of new entry: all had to pay the standard wage rate.

It’s long been in decline. Over 200 employers’ associations were recognised by the government’s Certification Officer in 1976. Today just 38 are accredited. Larger private businesses are now often part of multinational corporations which set their own pay levels and structures across the organisation, rather than being part of a national wage-setter. Sectoral bargaining is rare in today’s Britain. It persists in several EU countries, although Germany, like us, has largely abandoned it.

Reviving sectoral collective bargaining will be an uphill struggle. In many sectors businesses don’t even recognise unions at all. Labour will try first to implement national bargaining in social care. But this sector has few big employers – there are 18,000 organisations offering adult care, many very small. This would not be a latter-day Engineering Employers Federation. Such an arrangement would more probably resemble the old Wages Councils, which until the early 1990s used to set pay in sectors with low unionisation.

Centralised bargaining reduces competition and entrenches union influence, thus tending to retard productivity. Whether it would achieve very much for workers in social care is debatable; given that a budget-constrained government funds about half of all care, a union-pushed bonanza seems unlikely.

Measures like these may be intended to revive union power and influence, but they seem unlikely to do very much to increase unionisation. In 1979, over half of all employees were in unions; today it is only around 22% – and those mainly in the public sector. Despite what Guardian readers think, this isn’t solely or even largely the result of harsh anti-union laws. It’s an international phenomenon: between 1980 and 2019, unionisation in OECD countries fell from 36.5% to 15.8%. This reflected changes in industrial structure and society which are beyond government control. Across the EU, legislation has embedded unions in ‘social partnership’ structures, yet membership continues to fall. In France, for example, where paralysing strikes make ours look like tea and crumpets, unionisation is about 8% of the workforce. Maybe this will be our fate too.

Other Labour manifesto promises include day one rights to parental leave, sick pay and protection against unfair dismissal. These proposals will raise costs to employers in the first instance, although economic theory and practical experience suggests that they will be passed on, either in higher prices or, more likely, in lower pay than workers would otherwise have obtained. They will also likely make employers much more choosy, with younger workers and those with family responsibilities or poor health records finding it harder to get jobs.

Although it doesn’t feature in Labour’s manifesto, another likely measure apparently in the pipeline is scrapping the cap on compensation for unfair dismissal. This would bring it into line with discrimination claims, where there is no cap and there have recently been awards in excess of £4 million.

A large number of claims for unfair dismissal are probably spurious, but organisations end up paying people to go away. An increase in potential compensation is likely to attract more speculative applications and more undeserved settlements. Again it would make employers more cautious in taking on new workers; it is likely to lead, as in other European countries with tight employment protection laws, to greater use of temporary, fixed-term contracts for younger workers, women returners and other disadvantaged groups.

Labour also intends to ban ‘fire and rehire’ arrangements – where a company facing a terminal crisis sacks the workforce and then offers to rehire at lower pay. Such a device – a loophole in unfair dismissal laws – has rarely been used. A ban will thus have little immediate impact, although it could mean in some circumstances the closure of a business which could have been revived.

Also on the table is a ban on ‘exploitative’ zero-hours contracts, though that qualification suggests that the practice is not going to be banned outright as many unionists have demanded. This may well close off job opportunities for some groups (such as students and people with poor health, people seeking extra work on top of their normal work, or those with care responsibilities which don’t fit in to a fixed timetable).

A significant boost to the National Living Wage is proposed, to turn it into a ‘real’ living wage based on the cost of living, and now applicable to all workers – even 16-year-olds. While there clearly would be real gainers from this, it seems inevitable that many, perhaps all, teenage jobs would disappear, making entry into the labour market later on much more difficult for young people. It would be a fundamental change in the remit of the Low Pay Commission, which has in the past worked to the rule that its proposals for pay rates should not endanger jobs. Quite how a ‘real living wage’ should be calculated is not clear, or what its relationship should be to universal credit and other benefits which purport to support a reasonable living standard.

Yet another costly new quango is proposed, a ‘Single Enforcement Body’ to increase compliance with the law on minimum wages, modern slavery, gangmasters and employment agencies. No real case is made that this will increase compliance.

A headline Labour promise is to create 650,000 new ‘green’ jobs, a vague commitment which assumes an ability no government, particularly a cash-strapped one, can automatically be assumed to possess. Although some may be direct government or local authority employees, the bulk of these jobs will have to be created by the private sector, not the state. They will be doing so against a series of policies which would seem to discourage job creation.

Finally Labour promises extensions to the 2010 Equality Act to cover such issues as menopause discrimination, to facilitate claims for equal pay for ethnic minorities, and to require ethnic pay gap reporting for large employers. The latter scheme is modelled on gender pay gap reporting, which has been a costly and ineffective attempt to reduce a disparity between men and women’s average pay (a disparity largely fuelled by career and family choices which are beyond the control of employers). As Tony Sewell’s Commission on Race and Ethnic Disparities pointed out in dismissing the idea, Ethnic Pay Gap Reporting will be even more pointless given the difficulties of classifying and identifying very disparate ethnic groups.

Most of these interventions will be costly to employers and, if past experience is anything to go by, will produce unintended negative consequences for many they are intended to help. None help to boost productivity, which is what really boosts living standards. It will be no surprise if unemployment rises sharply in the next few years while existing patterns of disadvantage are left largely intact.

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Professor Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.