Friday, 14 January 2011

Hiring and Firing people

Lefties believe, passionately, that the state should regulate employment: who works for whom, and under what conditions they work, what contracts they can write, and whether or not and under what circumstances they can be fired. The state is crucial for protection of workers, for in their moral universe, the "worker" reigns supreme. His labour is honest, the bosses, or Capitalist always holds the power, with employees on sufferance. Bosses stand ready to, and indeed really want to fire workers at will, driving working conditions down in a race to the bottom. The workhouse beckons, unless the state stands ready to step in and prevent abusive bosses oppressing the masses, like the robber barons of yore. Tories, in this world view as the party of the bosses, are going to take an axe to important employment legislation which is all that stands between social democratic heaven and Victorian working conditions. They argue the Tories will always legislate to the benefit of bosses aiding them in their ever more extreme search for profits, which come, in the left-wing zero-sum-game, from exploited workers. Furthermore, there is no trade off: job protection - making it harder and more costly to fire an employee - has no effect at all on whether or not jobs are created. It's a cost-free benefit to the worker. An exemplar of this view is Claude, who can be found over at Hagley road to Ladywood. Let's have a look at the arguments in detail.

David Cameron's recent plans to make it easier to sack staff in the first two years of their employment have sparked an intense debate over the nature of Britain's labour market. After the "fluffy years", it was only a matter of time before the crook-eyed default Tory approach to the world of paid employment would resurface.
There is a trust issue. The belief, clearly laid out that such reductions to job protection or workers' rights are only to the benefit of "the bosses". Of course Conservatives along with liberals believe that the main cost of these workers' rights is borne by the low skilled and long-term unemployed who find it vastly harder to get work as a result. That the left make it a moral issue suggests they haven't looked at the evidence too closely. They might not like what they see. The motivation of reducing job protection is not some form of class-based loyalty toward the bosses, but in the fact that Governments are judged on two metrics above all others: House prices and Unemployment. Governments are incentivised to keep house prices up and unemployment down. So any argument that the Conservatives are motivated by "profit" is going to get short shrift.
The problem for Cameron and the bosses' organisations, however, is that - unlike the Thatcher years - there's very little left in terms of workers' protection for the government to wade in with the axe. Extreme job insecurity in the UK is already a growing reality.

According to the OECD, Britain is in the top three along with the US and Canada (and well under the OECD average) in the strictness of employment protection index (1985-2008), which measures "the procedures and costs involved in dismissing individuals or groups of workers and the procedures involved in hiring workers on fixed-term or temporary work agency contracts".
Statutory employment rights, whatever the OECD's metrics, are a poor indicator of employment conditions. I enjoy no employment rights as I am self-employed, but I rather like what I do. At the other extreme, the workers of the soviet Union were guaranteed a job, and were very unlikely to be fired, yet didn't think the trade-off in terms of freedom worth while. Of course, Temporary staff give companies the freedom to cover workers' rights like maternity leave without the costs of doing so causing them to go bust. It also gives individuals the flexibility to 'try before they buy' an industry - my work experience after leaving the army was mostly temp work from post-rooms to secretarial positions in any city institution I could find. I built up knowledge from people I met, whilst taking exams. Such positions can also be viewed as an extended job interview - temp-to-perm roles are increasingly common and gave me my first break in 'the city'. The assumption that temporary staff are always abused is ludicrous.
Given the companies' free access to casual staff on "zero hours contract", or the free use of "temps" (which, by law, can be hired repeatedly on fixed-term contracts for up to four years before any tie comes into place), the lax regulation on probationary period for regular staff, as well as some of the lowest levels of statutory redundancy pay in the Western world, the notion that Britain's employment regulations may be at the core of the current dole rates is simply comedy material.
Were anyone suggesting that employment protection was behind the current unemployment figures, Claude would be right to laugh. But no-one's making any such assertion. The truth is that any changes to employment legislation are only going to have effects at the margin. Any jobs created that would not have been so had the employment legislation remained at the status quo ante would be swamped by the much larger effect of economic growth on rates of job creation. The Government's belief is that signals like cutting corporation tax, cutting job protection and easing the burden of regulation will all add up to a significant effect on the unemployment numbers over time as employers are encouraged to take a risk and hire a few people they might not have risked under more onerous legislation. It is not about doing down the workers...
If we carry on this way, soon the only crusade left for the British Chamber of Commerce and the Tories to embark upon under the guise of "cutting red tape" will be against the right for workers to empty their bladder or take a crap at work.
Let's ignore the hyperbole. The idea that it is the state which prevents people from abusing workers more than the fact that in a wealthy economy, any worker is without options, is absurd. Employers seek to avoid the staff turnover that such conditions create: training people to do jobs in Britain's increasingly sophisticated economy is a major cost of employment.

The state is not the ONLY guarantor of job security. Indeed I suggest it's not even the major one. Claude's argument that job insecurity is the result of legislative changes misses the point.
However, what the last few days also highlighted is the almost total abdication on the part of the left and Labour in the fight against the galloping job insecurity and its noxious effects.

This line from the normally commendable Stumbling and Mumbling blog bothered me to the extreme. While sceptical of David Cameron's proposals, author Chris Dillow also wrote:

"There’s good evidence that [employment protection] reduces workers’ effort and increases absenteeism. This suggests that - at the margin - Cameron’s proposals might increase labour productivity".

Now, the reason why the above quote bothered me so much is that it shows how toxic and widespread certain myths are that even well-informed and well-read people can buy into them without questioning. In brief, the Daily Mailesque-fable that a permanent job or certain guarantees at work will automatically turn you into a slacker.
Just because the Daily Mail thinks something, that doesn't mean it is automatically wrong. Of course the evidence is clear that where job protection is strongest, in the public sector where there is no profit motive for bosses to keep costs down, and where bureaucratic headcount farming rules, shows much higher levels of absenteeism, sickness and lower productivity. Though Claude will no doubt blame this on increasing outsourcing and casualisation, it's not the temps who are involved in stories of people off "sick" for years on full pay, which are legion. No-one's counting the cost, so why risk the aggro of firing someone who will never work? Despite the vastly better job security, longer holidays and shorter hours, stress is the most common cause of sickness in the public sector. Where does that leave the rest of the argument?
They ain't gonna sack me, so why bother, basically. And how can you dispute that if even the usually meticulous and pro-left Chris Dillow can cite "good evidence" on the matter? Except that said "good evidence" points to three pieces of research from Portugal and Italy which are solely and exclusively focused on specific (and already obsolete) legislation passed in those two countries in the 1980s and 1990s. Those laws were extremely protective - overly protective in fact - in a way not remotely comparable to anything Britain ever experienced, not even at its unionised peak. It's like saying "there's good evidence that January is not a cold month and in fact look at this link to prove it". Except that it points to average January temperatures from the Canary Islands and Dubai.

The fact is, instead, that there's literally a mammoth body of research out there warning of the toxic long-term effects of job insecurity (click here for a summary).
How dare Chris Dillow challenge a leftist Shibboleth! Splitter! I'm not going to argue the toss about whether job insecurity is a bad thing. Of course it is! I just don't think it is going to be amenable to the kind of legislation Claude thinks is necessary. If you're vital for the smooth and efficient running of your organisation, bring in business, or have vital skills developed over many years, are just good at your job, or simply try hard then you have job security. If you don't have skills like these, then no amount of legislation is going to help you keep your job. Secondly, job insecurity may be bad for your health and happiness, but unemployment's much worse.

In reality, One way to mitigate job insecurity is a dynamic job market in which a newly redundant worker can quickly find another job. And conservatives believe that reducing the risk of employing someone increases the likelihood, at the margin, of jobs being created. A dynamic job market also increases workers' real bargaining power as it removes some of the fear of the Bosses' ultimate sanction. Conservatives choose the lesser of two evils believing that state efforts to relieve job security are wrong-headed and indeed counter-productive, whilst leftists deny there's a trade off at all: they simply don't believe that reducing job protection results in any net increase in employment. What does the evidence say?
Over the years detailed studies took place around the world, from the US and Canada to Australia, Sweden, Korea, Germany and more. The findings leave room to no doubt: there is a clear correlation between excessive levels of job insecurity and a variety of negative outcomes.
Not in dispute: How much of self-reported job insecurity is due to weak statutory job protection though? If, however there is a positive effect on employment of weakening job protection, then that increase in job insecurity both mitigates the damage by giving the insecure worker options AND reduces the greater harm, of unemployment.
The initial advantages of "increased flexibility and lower costs" for the employers are undisputed. But little is ever said about the long-term effects that "casualisation may have on important aspects of national economic performance such as skill formation" and, most importantly, the ticking time-bomb that is widespread casualisation as weighed against "long-term financial planning".
Having criticised Chris Dillow's links on the grounds that they're obsolete and foreign, he points to a paper dealing with the Australian labour market, much more involved with primary industry, and far more different to that of the UK than Italy's. The conclusions are tenuous at best. It is trivially true that a casualised workforce will be lower skilled, but misses the bigger point that in skilled industries casualisation is unlikely to benefit the employer. It is the absence of unskilled work of any kind that is responsible, in part, for long-term unemployment. The unskilled are priced out of the UK employment market.

The leftist angst against casualisation misses many other point and belies the importance of temporary work as bridging employment between permanent jobs. Indeed the level of one form of contract over another has little correlation with the degree of labour market turnover. Cultural or institutional factors are more important. My father, a Midlands metal-basher, did not employ unskilled people off the dole. He would only employ the unskilled as apprentices if they could demonstrate the ability to turn up, on time and work hard. This skill is the first to be lost by the long-term unemployed and completely lacking in the multi-generational welfare classes - such people are a huge risk to employ. I will be accused of "demonsising the unemployed". However a stint at McDonald's is sufficient to demonstrate the most basic criterion for successful employment: willingness to work. From Claude's chosen link "direct transition from unemployment to a 'permanent' job is less likely than an indirect one which goes from unemployment via a casual job to a permanent one". Casualisation can be seen as a potential "lubrication" into full-time permanent employment, and is vital to the effective functioning of the Labour market for both employer and employee.
But the strongest and most consistent evidence is the one seen across firms, industries, and countries linking job insecurity with "negative employee attitudes, behavio[u]rs, and health" and with the fact - as noted by several researchers - that "job insecurity is more stressful than job loss itself".
That may or may not be the case. But it is not clear that "job insecurity" is much amenable to statutory protection. The best defence against insecurity - being valuable to your organisation - is in the individual's hands. Furthermore, being fired rarely comes out of the blue - there will be a period of disciplinary meetings, performance appraisals and a dawning realisation that you're going to be fired. Under these circumstances of course, the eventual redundancy comes as a relief! I know: I've been fired from a couple of jobs I've been unqualified or unsuited for, and the laborious (state-mandated) process of getting rid of someone by creating a paper-trail of HR department meetings, and warnings is a large part of that stress. Simply working without state-mandated rights to sue your employer, or without statutory redundancy pay does not feature in day-to-day stress for someone working competently for a profitable enterprise.
Amongst the negative effects, a "powerful negative influence on motivation", "reduced effort" and "poor safety compliance by employees". Low levels of job satisfaction are also associated with negative employee attitudes, lower customer performance and effectiveness with customers as well as with -in turn- a detrimental effect on group morale. And that's without taking into account what "the longer term negative effects on workers' depression levels", or "the systemic [relation] between job insecurity and marital and family dysfunction" or, even, the proven effects that "parents' job insecurity has on children's school performance as measured by grades". The fact that "job insecurity reduces job satisfaction is attributable to the uncertainty of not knowing how to predict or control job threats".
And more evidence is provided that job insecurity is a bad thing. No-one disagrees. But those statistics pointing to job insecurity suggest that bad management, not lax legislation is to blame. Whilst stronger protection might help at the margin, what is the cost in extra unemployment? Does Claude really believe that job protection has NO effect on the marginal propensity of a business to hire? In any case, the negative effects of job insecurity are not the issue. The effects of legislation on job security might be, but more importantly, Claude has to demonstrate the primary case that statutory job protection increases net employment, and that is far from proven.

The government is suggesting reducing workers' rights, especially by extending probationary periods, makes it more likely that employers will take the risk of employing someone. Likewise reducing the likelihood of being sued by a disgruntled former worker will reduce the risk of hiring people, and therefore have a small effect on the likelihood of a job being created, as does reducing statutory sick and redundancy pay. No-one is suggesting that these effects are massive. Such policies are not going to end unemployment overnight, but every little change has a small effect at the margin, which may take a long time to filter through companies' institutional inertia and will be very difficult to tease out of the data in the imperfect laboratory that is an international developed economy.
And that's because, while insecurity in the short-term may spur a worker to perform better if the goal is a latter stage of more protection and various perks, an ongoing perception of "precariousness" will start having an adverse effect, as the worker will feel increasingly uncertain that their persistence can be sufficient enough for them to retain their job.
This demonstrates how little Claude knows about business. Using fear of unemployment is poor management. The largest employer in the country is the Small & Medium Enterprise sector: family businesses, like the one I grew up with. The risk of hiring an incompetent or idle worker is vast, as margins are thin and competition is hot. One person not putting their shoulder to the wheel at crucial times in a factory employing a couple of dozen people could cost the company a customer or its reputation. Under these circumstances, it makes sense to pay good people well and choose them carefully.
For a worker with little to lose, the lack of ties will offer no incentives to stop them from slacking off or "looking elsewhere" altogether.
Claude makes my point for me. If you need your staff, you need to motivate them - just as getting drunk on company time and crashing the company van will get you fired pretty damn quick, stakhanovite effort will get you a couple of hundred quid extra in your pocket at the end of the month, with tickets to a football match and hand-written note from the boss that a couple of days extra paid holiday should be taken to take the significant other somewhere nice, by way of a "thank you". Otherwise they will go and find an employer who will appreciate their efforts. Good management is about a happy workforce.

I understand the point Claude's making. But he can't have it both ways: either cutting these rights is a big issue which will benefit company profits (which does lead to increased hiring and help reduce unemployment) or it is a drop in the ocean and have little effect, in which case, why is he so upset? My view is that state statutory redundancy and sick-pay and tribunal rights for workers have little effect on job security, and less on the workers' feeling of job security. Their effect on employers behaviour in terms of jobs created will likewise be small. On balance, I think the trade-off is worth it. If you want to be secure at work, work hard and make yourself invaluable to your employer.

Unemployment is not constant: it is a statistical result of two fast flowing streams: people entering the job-market from education for example, or redundancy; and those getting jobs. Even during a recession 10% of people leave the unemployment pool every month, and it is this stream: getting jobs, which is the more variable. Jobs are lost at a more constant rate over the cycle than are created. Thus it makes sense if, and if you're a sensible government you do, want to reduce unemployment, it makes sense to concentrate on job creation rather than job destruction which is much less amenable to government action.

The effect, as I mentioned above of job protection on unemployment is extremely difficult to tease out of much larger cyclical effects of the business cycle. But the effect is clearer in the more volatile seasonable data. Job protection significantly reduces job flows. It can also be teased out of intra-regional data: flexibility reduces (some) unemployment. The coalition's policy is a step towards creating a more dynamic job market that has a better chance of creating full employment than ever stronger job protection for the decreasing band of workers lucky(?) enough to secure a job for life, ever will.

Your job is in your hands. If you're relying on the law to prevent yourself getting fired, you're either on the way there, or you work in the public sector.



10 comments:

Simon Jester said...

In short: leftist denies "worker rights" have any impact on unemployment rates, states that Tories are all evil.

In other news: water is wet, ursines excrete arboreally, the bishop of Rome is a papist, etc, etc.

claude said...
This comment has been removed by the author.
claude said...

"Your job is in your hands. If you're relying on the law to prevent yourself getting fired, you're either on the way there, or you work in the public sector".

The word 'simplistic' doesnt even begin to cover it. You automatically shun a range of REAL issues going from health to bad management, from victimisation to bullying, from profiteering to simple cross-wiring.

These issues exist in the real world. They always have, they always will. No amount of saying that the "loony leftists believe that" will make them go away.

And it won't do any good to say that "leftists" think "ALL employers are bad and they're ALL bullies".
No-one is saying that. I know it fits your argument nicely to pretend that "leftists" say that.

The point is: who protects vulnerable workers from those bosses/managers who are unscrupulous and cuntish?

Also, how you banalise the whole mammoth issue of casualisation with fairy tales of "a couple of hundred quid extra in your pocket at the end of the month, with tickets to a football match and hand-written note from the boss that a couple of days extra paid holiday" shows how cocooned you are from the real world. You may have done some temping in your time, but the fact that you think your own "success story" should automatically happen to everyone else or that it's what goes on ordinarily is crook-eyed and self-delusional.

More points are addressed at mine in the comments bit as I dont wanna leave a dull mile-long reply.

I'm glad however, that you repeatedly conceded that "job insecurity is bad". That's a start.

ReefKnot said...

Excellent piece. I have saved it so I can refer to it easily. More thoughtful items like this would be appreciated.

Libertarian said...

This is an excellent piece, thank you.

I work in the employment and career related industry and you are absolutely right. Oh by the way I started out in this business as a temp contractor and now own 5 companies employing more than 100 full time staff.

This wouldn't have happened if IR35 or the Agency Workers Directive had been in force when I started out

B.K. said...

I liked this one. A lot. Well done.

Jackart said...

A further point. If you have strong job protection, you ensure widespread casualisation by splitting the workforce into highly protected insiders with jobs they can't be fired from, and casual outsiders who have little prospect of a permanent job.

This is what has happened in France.

If casualisation and temping you're against, you need to make it less risky to take someone on on a proper contract.

Anonymous said...

Jackart

Nice post. Agree pretty much with everything said here.

Messgae for @claude - Jackart has it about right. You and your ilk have it wrong. I should know. I run a small business employing 40-ish people (in manufacturing!!!) and I'm not an evil capitalist - I try to to do the best by my people and am usually frustrated in my attempts by government legislation, including so-called employment protection. Do you employ anybody? In the private sector? In a value creating industry? Hmm, thought not - then don't pontificate about something you know nothing about.

Shiney

adamV said...

Interesting post. As we move away from physical infrastructure to virtual, it does make sense to revisit employment regulation in relation to flexible working, working from home, PT and the increase in freelancing, but I would say this HAS to be done in the round and consider improved credit and loan regulations for self/un-employed & freelancer as well as a push for more online employment.
Given the immense hardship faced by people made redundant, especially in areas of low socio-economics, as well as a total void of education and therefore confidence in how to be self employed or start a small business, its hardly surprising people be they from the 'left' or not are sensitive to any increased possibility of losing their regular wage

Anonymous said...

I just turned temping at a lucrative company doing odds and ends into a full-time account manager role.

During my 6 months unemployment beforehand, I cared not about 'secure' or 'insecure' employment - I just wanted employment.

If it was up to the left, I would not have been allowed to have been employed as a temp and would have got glorious secure employment patrolling the gulag.

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