ourEconomy: Opinion

The UK and US need job security, not just job subsidies

British and American workers have among the worst worker rights in the western world. This needs to change, fast.

Ewan McGaughey
8 April 2020
Police direct traffic as Miami-Dade County residents lineup in their cars to receive a printed unemployment form at John F. Kennedy Library on Tuesday, April 7, 2020.
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Miami Herald/TNS/ABACA/ABACA/PA Images

The corona crisis is already worse than any crash in our modern history. By last week, a million British people had claimed universal credit. Ten million Americans had claimed unemployment insurance, and the St Louis Federal Reserve warns there could be 32% unemployment.

Job losses are sharper than the global financial crisis, the Wall Street crash, the South Sea bubble, everything, and the herd irrationality created by our economic system is making it inevitable. Admirably, the UK government announced subsidies to replace 80% of income for all employed and self-employed people, modelled after Denmark’s 75% subsidies. The US is still deliberating on what to do next. But the UK’s scheme will probably fail to stop a depression, while Denmark succeeds, unless we improve job security. We need a freeze on people being fired over corona virus, worker voice in enterprise decisions, and the extension of rights to everyone who personally performs work.

Why Denmark’s subsidies will work, and the UK’s won’t

Why will Denmark’s subsidies work to limit mass unemployment, but the UK’s probably won’t? There are three major differences in Danish job security laws, so employers cannot take subsidies and fire anyway. First, Danish workers can only be fired for strictly defined reasons, and it has elected work councils that can stop dismissals without negotiation with workers. Second, in enterprises with over 35 staff, Danish workers elect up to one-third of the board of directors. This gives workers a vote to stop irrational, short-term dismissals. Third, Danish law does not tolerate sham self-employment like the UK. It protects more people with worker rights. For instance, in 2017, Denmark banned Uber for refusing to treat drivers as employees, pay taxes, and pay social security, but the UK fails to make Uber follow the law. So far, Denmark has seen a 45,000 person rise in unemployment – bad, but far better in relative terms than the UK or US. Denmark’s subsidies will keep more people in work. UK subsidies will vanish like a cough.

How job security halts depression

Why are UK employers firing so many workers even though they are promised subsidies? The answer is short-term incentives, and not enough rights and democracy. Employers are retaining core workers, and dismissing ‘peripheral’ workers – the young and most vulnerable – for fear of a long-term downturn. This becomes a self-fulfilling prophecy: people are dismissed, lose income, stop shopping, drop business revenue, and this leads to more dismissed, more downturn, and a sinking spiral of depression. When the health crisis has passed, the economic crisis will have just begun. Business will not keep calm and carry on, or resume, because it will be starved of custom and credit, if not already bankrupt.

Denmark is not the best possible system: Germany’s job security and worker representation laws may be stronger. The UK is not the worst possible system: that is currently the USA, where “at will employment” in all states except Montana mean an employer can say “you’re fired” for a good reason, bad reason, or no reason at all. The global financial crisis showed why job security laws matter. The countries with the best job security, the most worker voice, kept the rise in unemployment to a minimum. The USA, with employment at the employer’s will, saw the worst effect in unemployment.

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The opposing ideology and the OECD

But if job security is so good, why are our laws so bad? One answer is that for many years, dozens of economics papers have argued job security damages the economy by reducing productivity, killing jobs, or stifling innovation. The main source of evidence for these claims is the OECD’s ‘indicators of employment protection’, which ranks the strength of different countries’ job security laws. But none of those conclusions are credible, because the OECD’s index is visibly riddled with legal errors, which have escaped any real scrutiny until recently. For instance, the OECD asserts that Italy’s protection is greater than Germany’s, even though Italy has no elected work councils that can veto dismissals. It ranks the UK and Germany’s notice and severance rules as equally protective, when German workers are far better off. The OECD believes US enforcement of employment rights is one of the world’s strongest when the US has no Employment Tribunals, no work councils and often no rights. The OECD’s database is so backwards, so indefensible, that the conclusions of every economics paper based upon it must be regarded as suspect or wrong.

By contrast, research based on a credible and transparent legal database from the University of Cambridge, Centre for Business Research, shows that job security enhances innovation, employment and productivity. Credible understanding of job security is crucial now, given the scale of the corona crisis.

So what can the UK, the US and the world do?

What can the UK do?

The UK is fortunate in its ability to freeze dismissals immediately, put workers on boards, and extend the scope of worker rights protection, all without Parliament. First, by order the Secretary of State can amend the ACAS code on redundancies, to require no dismissals for the duration of the coronavirus (with strict exceptions), and it can make all subsidies to business conditional on rehiring anybody already dismissed. It can equally, like France, Italy and Spain, give an emergency order freezing all dismissals. As Keir Starmer has argued, money must come with ‘job protection’.

Second, the government can change the UK Corporate Governance Code, so every listed company elects worker directors to boards. It can also order that pensions and shareholder rights are democratically controlled by the real investors, and not short-term asset manager intermediaries. Accountable corporate governance is essential in this emergency to ensure subsidies are not squandered. Third, the Secretary of State can extend all worker rights by order to everyone who personally performs work. No doubt the corona crisis and our response so far has ‘exposed the inadequacy of the existing UK labour law framework’, and proved (as Boris Johnson says) ‘that there really is such a thing as society’. Our law and our society are hurt, but they can be mended.

What can the US do?

The US federal government is in a dire place, but a “You’re Fired” Depression can be pre-empted by democratic state action. Number one, states can legislate to replace “at will employment” with discharge only for “just cause”, as recommended by Harvard’s Labor and Worklife program, and Bernie Sanders’ presidential campaign.

Number two, states can create elected work councils with powers to stop unjust discharge, like the plan the US government helped write for Germany in 1946.

Number three, states can require all corporations have elected worker directors on boards, and require worker pension and capital funds have elected representatives, so that termination decisions are accountable. Elizabeth Warren’s coronavirus plan advocates worker representation on boards in return for federal money, and Bernie Sanders proposes to ensure ‘shareholder democracy’ in capital. These measures can also be enacted by every state before the federal government acts. Number four, states can, like California’s AB5 law, extend protection for all rights to more employees. Once again, states can become the laboratories of democracy.

What can every country do?

British and American workers have among the worst job security and democratic rights ‘in the western world’. But every country would benefit by extending job security and workplace democracy. Every country would also benefit by increasing the right to paid holidays, because more holidays will enable more flexibility in responding to crisis. European economies shrink by 10-20% each summer because people go on holiday, and we have no trouble managing that economic ‘downturn’. We simply shift our work. The human right to moreholidays with pay’ is the best guarantor of flexible workplaces.

This is an appalling health crisis, our loved ones are being lost, we face mass unemployment, and potentially a social catastrophe. But the coronavirus also shows how easily we can improve the future. In cities and towns, the air has become clean, traffic accidents have dropped, and noise has turned to calm. People are sometimes bored staying at home, but many of us are no longer frantically running, driving, elbowing, or flying around. We see our international institutions, like the World Health Organisation, coordinating containment and research on a vaccine. We also see pettiness, and selfishness, but we see those people are an isolated few.

Governments everywhere have shown that with the will, we can expand health, give everyone an income, abolish homelessness, and switch our production rapidly for ventilators or health equipment: things we can also do to halt climate damage and war. Above all we see people helping each other. Maybe, just maybe, we can not only heal our people in this crisis, we can also heal our society and heal the world.

Further reading

  • E McGaughey, ‘Ten things the government can do right now to prevent a Corona depression’ (20 March 2020) Institute for Employment Rights, co-signed by 40 labour law experts.
  • A Adams-Prassl et al, ‘Inequality in the Impact of the Coronavirus Shock: New Survey Evidence from the UK’ (2020) Working Paper
  • V De Stefano, ‘Labour and social protection in times of COVID-19’ (3 April 2020) YouTube
  • S Block and B Sachs, ‘Clean slate for worker power: building a just economy and democracy’ (2019) Harvard Worklife Program

Trade deals, Brexit and disaster capitalism

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