Are employment rights and unions a drag on the UK’s economy?

Last week, in a speech to the Institute of Directors, George Osborne promised to get tough with the unions and trailed a far-reaching review of employment law, with the aim of reducing employment protection and other workers’ rights. Unions are the “forces of stagnation” said the Chancellor. Employment protection and union activity, he claimed, are holding back growth.

Now most managers will tell you that trade unions and employment law are a pain in the backside, that is until they find themselves in trouble with their employers, at which point they will call the union and chuck in a discrimination claim just like everyone else. But it is true, employment legislation is an administrative headache and union reps can be awkward at times. Most of us will have experienced such frustration at some point in our careers.

But do trade unions and employment protection really act as a drag on the economy?

Let’s look at the countries with the highest levels of union membership - between 50 and 70 percent of the workforce. They are, in order of union density, Sweden, Denmark, Finland, Norway and Belgium.

Now let’s compare the recent and forecast GDP growth in those countries to that of the UK. (Using OECD figures.) 

  GDP Growth  
  2010 2011 2012
Sweden 4.4 3.3 3.4
Denmark 2.2 1.6 2.1
Finland 2.7 3.0 3.0
Norway  0.5 1.8 2.3
Belgium 2.1 1.8 1.8
UK 1.8 1.7 2.0

So all the most heavily unionised countries are growing as fast, and in many cases faster, than the UK. If trade unions act as a drag on growth, these countries seem to be doing fine in spite of it.

What about employment protection and workers’ rights then?

The OECD’s employment protection index shows that just about every developed country has more of it than we do.

Click here to downlad the data

The country with the highest level of protection, Turkey, grew by 8.2 percent in 2010 and is forecast to do over 5 percent annually for the next two years.

OK, comparisons with Turkey are a little unfair, but Germany, which is more comparable to the UK, manages to combine high levels of employment protection with high growth.

I’m not saying here that high levels of unionisation and employment protection lead to better economic growth. You could point to the sluggish growth in highly protected France and fairly highly unionised Italy to refute that. But it is clear that having strong employment protection and high levels of union membership don’t stop an economy from performing well.

Last year a report for the TUC (H/T Liberal Conspiracy) concluded that there was no relationship between employment protection and a country’s economic performance. The recent OECD data confirms that.

I will leave those better qualified to pick apart the legal problems with the government’s employment law proposals. What we can be sure of, though, is that they will make very little difference to the UK’s economic growth rates. If employment protection is reduced and the law on industrial disputes changed, there will be a great fanfare and a lot of heated argument and discussion. Meanwhile, the UK’s growth forecasts will remain as they are now – stubbornly sluggish.

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3 Responses to Are employment rights and unions a drag on the UK’s economy?

  1. I am glad you wrote this one Rick. Blaming employee rights and high union representation for slow economic growth is very short sighted. This madness of focus on shareholders rather than stakeholders made sense to some when quick “globalisation” driven decisions were taken in last decade or so. Countries such as US have not only applied these rules within their borders, but also forced them on other countries arguing that this is the only way to progress. Quick boost of economical growth were nothing but numbers, used to support this blind perception. In the mean time no one gave it a second thought until collapse of Lehman Brothers…. It was then and it is Now when we all try and fix not only our bank system but also health sector… etc.
    Performance management driven society with (especially in UK) high working hours culture damage our community beyond recognisable. Amount of stress related illnesses as well as lack of WLB in workplace backfires as the people who are here to be productive are drowning from exhaustion. Short-termism can be occasionally justified in small businesses, but never, if it comes to how countries are being managed and where one decision affects whole generations.
    Employee rights and Unions seem to be our only way out of this mess as the Corporations have very little records of being ethical and rarely playing other than just profit making role. Regardless to “business case” of every decision, there is and should be a bottom line: “STOP KILLING YOUR PEOPLE”

  2. Pingback: Are employment rights and unions a drag on the UK’s economy? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  3. “Now most managers will tell you that trade unions and employment law are a pain in the backside”

    Agree that trade unions are. The problem is that trade union leaders are self serving and not interested in their members. Now we are in 2012 it is clear that more trouble is ahead. Teachers strikes were all antagonised by the unions, employment law does need shaking up but I would say the best place to start is with strike voting within the unions themselves.

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