Experts de-bunk economic myths on the Employment Rights Bill

“In recent discussions of the Employment Rights Bill, it seems to have become widely believed that there is an inevitable trade-off between labour laws and growth.  However, this is not the case.

The question of the economic effects of labour laws has been intensively researched in recent years.  The emerging consensus is that labour laws do not, on the whole, have negative economic consequences, and may well have positive ones.

Employment protection laws, requiring good cause for dismissal, positively impact labour quality, and thereby productivity.  They incentivise firms to invest in training and in capital goods which complement workers’ skills.  Law promoting collective bargaining tend to raise wages and stabilise employment.  Higher wages support consumption and promote demand for locally produced goods and services.  They also underpin the tax base.  Labour laws need not deter private investment, and can complement improvements to public infrastructure and measures to reduce the cost of capital for productive enterprise.  Over time, as their effects feed through to the wider economy and government finances, labour laws largely pay for themselves.

Labour law have other societal benefits.  Through their impact in reducing income inequality, labour laws promote inclusive growth.  Strong labour laws help protect democracies from authoritarian variants of populism.  By ensuring that the gains from innovation are more widely shared, they help build consensus around the introduction of new technologies.  They make it less likely that the burdens of environmental transitions will fall on the economically most vulnerable.

It is sometimes argued that labour laws harm small and medium-sized enterprises.  However, SMEs especially benefit from effective labour law enforcement and inspection, which limit the scope for undercutting.  Ultimately, nobody gains from a race to the bottom.

Britain was a pioneer in labour legislation, being not just the first industrial nation, but the first to enact modern factory laws.  Today, after several decades of neglect, the UK needs a new labour law, setting out clear and comprehensive rights for workers which are effectively enforced.  Labour law reform is not just desirable, but an essential part of a strategy for the country’s industrial revival.”

Signed by:

Simon Deakin, Professor of Law at the University of Cambridge

Ruth Dukes, Professor of Labour Law at the University of Glasgow

Keith Ewing, Professor of Labour Law at King’s College London, and President of the IER

Lord John Hendy KC, Chairperson of the IER

Michael Kitson, Associate Professor in International Macroeconomic at the University of Cambridge

Daniele Girardi, Doctor of Economics at King’s College London

Jonathan Michie, Professor of Innovation & Knowledge Exchange at the University of Oxford

Ozlem Onaran, Professor of Economics at the University of Greenwich

Roberto Veneziani, Professor of Economics at QMUL