November 29, 2012 3:08 pm

Job preservation key in UK downturn

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The UK labour market has done far better than in past recessions in terms of preserving jobs. Does that mean it has been a triumph for the so-called “Anglo-social” model, partway between the liberal US system and more regulated continental European markets?

Not quite. Taking the good and bad sides of Britain’s experience, it has so far been roughly in the middle of the pack.

Its strength in creating jobs, taking the number employed back above the pre-crisis level, has been counterbalanced by concern about the quality of those jobs – a lot of them part-time or temporary – and a poorer productivity performance than the average for developed countries.

“We may question the quality of some of the jobs being created, but in my view it is better to have people moved into not-so-good jobs than keeping them unemployed,” says Stefano Scarpetta, deputy director for employment at the OECD, the club of mostly rich nations.

“So in that sense I am fairly positive about the UK experience, compared to what I see for example in a number of continental European countries where the share of long-term unemployment is more than 50 per cent.” Italy, Ireland and Estonia come into that category.

In past recessions, the proportion of the unemployed out of work for more than 12 months in Britain has typically increased to 40-50 per cent. This time it has reached only 35 per cent, attributed partly to the welfare-to-work policies of Conservative and Labour governments, aimed at pushing people quickly back into whatever jobs are available.

The UK has 2.51m unemployed – up 60 per cent since 2007, and an identical increase to the US and the eurozone, according to the OECD. That average disguises huge variations, however, from rises of 225 per cent in Greece and 202 per cent in Spain to a fall of 33 per cent in Germany.

In addition, the UK labour model is far from the only one to defy its stereotype. Countries have responded in different ways to the economic shock caused by the financial crisis and sovereign debt problems.

Historically, the US has seen unemployment rise fast in recessions but fall quickly afterwards. This time it has fallen more slowly – currently standing at 7.9 per cent of the workforce, compared with the UK’s 7.8 per cent and the eurozone’s 11.6 per cent – while long-term unemployment is higher than before, possibly because the downturn has wrought structural changes.

In continental Europe, meanwhile, it used to be said that unemployment rose more slowly, because it was harder to sack workers, but stayed high for longer. But this time it has risen sharply in southern European countries, partly because they had more people on temporary contracts than in the past, who could be quickly shed.

Germany, the star performer, has become more “Anglo”. Its “mini-jobs”, tax-free contracts for the low paid, have been criticised for entrenching a new class of working poor in the cleaning, hotel and restaurant trades.

John Philpott, director of The Jobs Economist, a consultancy, worries that the UK is becoming “slightly more Anglo and less social”. He cites the government’s raising of the qualifying period before someone can claim unfair dismissal at an employment tribunal from one to two years.

Such policies, he argues, are double-edged: they encourage swifter hiring in an upturn but more rapid firing in a downturn, and make it harder to build productivity and employee engagement.

But argument still rages over last year’s recommendation by Adrian Beecroft, the venture capitalist, in a government-commissioned report, to loosen hire-and-fire laws. George Osborne, the chancellor, is pushing ahead with his own variant, a plan for companies to offer staff shares in exchange for giving up employment rights.

But even Professor Len Shackleton, fellow at the free-market Institute of Economic Affairs, acknowledges that the UK has been good at creating jobs and that its labour market “remains relatively flexible compared with some other European economies”. He describes Mr Osborne’s plan as “footling ... a half-cooked thing which I think is going nowhere at all”.

A longer-term problem is what many regard as the UK’s historical weakness in training and skills. Research by Oxford Economics for Hays, the recruitment company, found that Britain had one of the highest levels of skills shortage among 27 countries.

“If the UK starts to claw its way to some sort of modest but sustainable growth, the skills shortages we are already seeing in a number of areas are only going to get worse,” says Alistair Cox, chief executive of Hays.

Since it takes years to train information technology specialists and engineers, he argues that Britain needs to meet its needs on the global market – and that the government’s curbs on skilled migrants from outside the EU will hold back growth.

BRITAIN

Britain is the sixth most expensive of 22 European countries in which to dismiss a senior employee, a survey has found. The findings will fuel controversy over whether firing should be made easier.

It follows George Osborne’s proposal for staff to be offered shares in exchange for giving up employment rights. Most responses to consultation are believed to have been hostile.

UK law firm Dundas & Wilson, and Laga, a European legal practice, found a severance package of €150,000 (£121,000) was needed in the UK to dismiss someone on a €120,000 salary who had worked for an employer for 11 years.

That put the UK sixth behind Italy, Belgium, the Netherlands, Spain and Sweden. The cost was €40,000 to pay off someone on €60,000 who had been there seven years.

However, Dundas & Wilson said there “may not be a need” for the chancellor’s scheme. “If the cap on employment tribunal compensation is reduced, which the government proposes to do, that would have a significant impact on the cost of dismissals,” said Mandy Laurie, a partner.

She said the cost of settling cases had risen because the cap on unfair dismissal awards had gone from £12,000 in 1999 to £72,300 today.

This is the last in a five-part series.

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