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UK Growth – Up or Down? Set Labour Markets Free to Succeed

  • By Politeia
  • January 24, 2014
  • 0

In a country which depends on trade, on selling goods and services to others, productivity matters. That was the real message from Nigel Farage, the UKIP leader this week, when he said that women who worked in the big city banks and brokerage houses were not discriminated against but a woman’s income was affected by taking longer leave because a client base ‘cannot be stuck rigidly to her’ when such leave is taken. Women who did not have children or take a break could, by contrast, earn even more than their male colleagues. Though Mr Farage may have prompted controversy, his nt is a serious one: incomes directly linked to payments for services are determined by productivity.

Economists continue to puzzle about how, despite falling unemployment, productivity and growth are still low, albeit with signs of an upturn. Here in the UK unemployment is still higher than its 5 percent level before the economic crisis As in the Eurozone ‘north‘ it is now around 7.1 percent. (In the poorer southern Eurozone, average unemployment is 17 percent, with the figure in Spain at over 20 percent). UK growth figures for 2013 were around 0.8 percent.

The reasons for this downturn are many, but for Britain and the EU, one factor stands out. The costs of labour are too high compared to what is earned, and the reward for success pitched too low. Payroll taxes, paid by the employer and employee, and corporation tax penalise success. The more that is earned and the greater the productivity, the greater the penalty and the greater the proportion of tax paid. To these penalties must be added hidden or stealth taxes on jobs. These include the costs imposed by employment law for payment to workers when they are producing nothing. Statutory holiday pay accounts for 28 working days paid leave to which another 100 days must be added for weekends. Other leave in its many forms adds further costs paid by the employers and taxpayer. For current maternity leave of up to one year, paid for 39 weeks, employers pay the bill to find, train and employ the replacements. More general compliance costs and the obligation to prove compliance, can, it is estimated add around 12 percent per annum to the running costs. All leave their mark on productivity.

Many labour costs are the result of too much of the wrong legislation. Instead of a labour market protecting free trade under law, the market has been constrained by the steady erosion of workers’ and employers’ freedoms to succeed and be rewarded for doing so.

No one advocates a return to the bleak conditions of the industrial revolution. But even then, Britain in the 19thcentury began to give legal protection to workers, to improve conditions in the workplace, curb the employment of children and women and introduce the concept of employer liability for safety. To employment law was added the social protection of insurance schemes in the 20th century, to cover for income lost through unemployment, health and old age, sickness and bereavement; as was protection for the health of workers including the requirement to take leave for recovering from child birth. No one would wish to question that western economies can and should afford such protection.

But when the law is used to accommodate the wish lists of the baby boomer generation for the sunlit uplands of utopia, something must give. They are fantasising about a make-believe world. But their fantasy has a real cost for which future generations in this country will pay—through jobs and income foregone, and lower living standards than their parents.