Employers American dream would be a nightmare for UK workers and economy

The business lobbyís fantasy of a red tape free economy fuelled by a íflexibleí workforce that can be hired and fired at will is based on a selective analysis of the US economy and a string of myths about successful job markets, according to a TUC report released today (Thursday).

íBuilding a modern labour marketí, says that when employer lobbyists complain of red tape and say that we should be more like the USA in order to become more productive and competitive they mean that UK workers should accept far fewer holidays, longer work hours and less secure jobs.

The TUC report, released in the run-up to the CBI conference, argues that the UK should instead take the best from both the US and European models to combine the dynamism of the US with the investment in a quality workforce typical of Europe. This would allow us to become one of the most successful economies in the world, without reducing the quality of life of the UK workforce.

Brendan Barber, TUC General Secretary, said:

Everyone agrees that the UK economy needs to be more productive. But it can sometimes be hard to find a serious employer contribution to the debate on how we get there. Instead we hear a continuous whinge about red tape, and calls for us to become like the US. Yet British people donít want the nightmare long hours, short holidays, less secure jobs, huge inequalities and weak safety net of the American ídreamí economy. But we could - and should - benefit from US levels of investment in training, technology and transport, and the venture capital freedoms that have driven economic success in the United States.

But just as importantly we should learn from Europe. As the European Unionís Kok Report showed yesterday, there is an alternative route to prosperity that remains true to our traditional beliefs of fairness at work by building up the skills of our workforce, the expertise of our managers, our investment in people, plant and research.

We cannot compete with India and China by cutting wages and conditions, or by denying ourselves proper holidays as the CBI suggests. We will only do it through smarter workplaces, with high skills, high commitment and high investment.

Labour market myths and realities from íBuilding a modern labour marketí

Myth: strong employment regulations costs jobs
Reality: OECD evidence shows no link between strong employment regulation and unemployment. The fall in unemployment and rise in employment in the UK since the late 1990s has coincided with the Labour governmentís strengthening of employee protections. The UK is second only to the US in its lack of employment regulation, according to a 2004 28-nation OECD study, but both countries have some of the highest rates of inactivity, people who want work but who are out of work, and high unemployment among black and ethnic minority groups. Although the UK has one of the lowest unemployment rates in the EU, it has the fourth highest inactivity rate - above both France and Germany.

Myth: tax threatens competitiveness
Reality: The UK is not a high tax country and there is no evidence that low tax countries with low public spending are more competitive, as employees end up paying for services one way or another. The 30 per cent corporate tax in the UK is below both the EU and OECD average and well below the average rate in the US (45.2%), Germany (38.9%) and Japan (40.9%). The highest rate of individual tax in the UK (40%) is almost 10 per cent lower than the EU average (48.9%) and lower than in the US (45.4%) and Japan (50%).

Myth: lack of íred tapeí encourages diverse types of employment in the UK
Reality: There is no link between economic success and temporary working, which, in theory, should enable workers to move jobs quickly to meet demand in the economy. Almost all the UKís impressive employment growth since 1997 has been in permanent full or part-time work. Over this period the UK has strengthened rights for fixed-term and part-time working and the share of temporary work has fallen. Low regulation UK has levels of temporary working less than half the EU average. And the íentrepreneurialí US has less than half the level of self-employed workers (6.7%) than the average in the EU (14.2%).

Myth: Europe is sclerotic. America is flexible and productive
Reality: The UK is one of the least productive countries in Europe but workers in France, Belgium, Italy, Luxembourg and the Netherlands regularly outperform US workers in terms of productivity per hour worked. Recent evidence suggests a US recovery in productivity per hour worked, compared to most EU nations. The European Commission puts this down to more intensive investment in information technology, mainly in the service sector, and a more efficient use of staff through training. The negative consequences of labour market flexibility US-style are stagnant or falling real wages and household incomes, long hours, rising inequality, increased economic insecurity and poverty.

Myth: a strong welfare state causes high unemployment
Reality: Social protection contributes to economic efficiency and social equality. OECD research shows that a decent social safety net actually makes work more attractive by encouraging job seekers to take risks, for example joining a start up company, as their potential loss of earnings are insured against. In the US workers are unlikely to move jobs because they could lose their health insurance. There is no evidence linking high state benefits and high unemployment rates but social security spending is linked to poverty. The US has the lowest rate of unemployment insurance (benefit) in the 28 OECD countries and over 35 million people (12.5% of population) live below the official poverty line. This number has increased for children under 18 to nearly one in five and around a quarter of black (24.3%) and Hispanic (22.5%) people live in poverty.

Myth: weak unions are good for business
Reality: An international World Bank study concluded: Countries with highly co-ordinated collective bargaining tend to be associated with lower and less persistent unemployment, less earnings equality and fewer and shorter strikes... . In the UK nearly 40 per cent of union members have had job-related training in the last three months, compared to just over a quarter of non-members. Union safety reps reduce injuries at work by 50 per cent, compared to workplaces without them.

Myth: the European model is threatened by globalisation
Reality: Improvement in employee protections would not lead to jobs moving abroad and companies should not be using the threat of offshoring to put pressure on employeesí pay, pensions, working time or other terms and conditions. Employment in the areas most at risk from job offshoring in the UK (such as business services, finance and communications) grew by 30 per cent between 2001/2003. The UKís international trade in services shows a net surplus of 15 billion. Unions are challenging offshoring projects that lack a strong business case but they accept that it is possible to achieve full employment in the UK while developing economies expand their service sectors.