Select Committee on Education and Employment Appendices to the Minutes of Evidence


Memorandum from Institute of Directors

1.  In response to your call for evidence the Institute of Directors (IoD) would like to make the following broad points on ways in which the Government can assist and encourage employers to fill their vacancies by recruiting unemployed people.

  2.  The IoD's position concerning Government policies to encourage businesses to recruit any employee (whether unemployed or not) is, at its most basic, as follows:

    —  a stable, low inflation macroeconomic environment should be maintained; no more "booms and busts";

    —  the regulatory (especially concerning labour market regulations) and tax burdens should be minimal and imposed in a business friendly way.

  3.  Over the past seven to eight years, there has been an impressive improvement in British macroeconomic policy with regard to low inflation stability. We welcomed the current Government's handing over the day-to-day monetary policy to the Bank of England. Partly as a result of the improved economic performance many sectors of the business community have thrived and jobs have been created. A regional problem does, however, persist and without more vigorous growth in the less prosperous areas it is difficult to see a solution to the problem of regional imbalance in the jobs market.

  4.  We are, however, very concerned about the dramatic increase in the regulatory burden since the current Government came to office. The list of extra regulation is, without doubt, extensive including the Working Families Tax Credit, the Working Time Directive (which has proved to be particularly onerous), the National Minimum Wage and the comprehensive Employment Relations Act. The latter extends employees' rights in three areas: (1) an extension of collective rights, (2) an extension of individual rights (not least of all the increase in the cap for unfair dismissal cases from £12,000 to £50,000 and the reduction in the period of employment for protection against unfair dismissal from two years to one) and (3) the raft of "family friendly" policies including changes to extended maternity leave and parental leave. All in all we estimate that this increase in labour market regulation will cost employers about £5 billion on an annual recurring basis. And it should be emphasised that the burdens fall disproportionately on small to medium sized businesses, as they tend not to have dedicated personnel and/or payroll departments.

  5.  It is instructive to note that according to a recent survey by accountants Kingston Smith, employment regulations have leap-frogged other red tape concerns among small firms to take pole position as the most time-consuming area. Almost 60 per cent of those polled cited it as their primary time-waster compared with not much more than 30 per cent a year ago.

  6.  Now, we realise that the remit of this current inquiry does not cover the review of all this new legislation. But we feel any discussion of recruiting the unemployed should keep in mind the extra difficulties that employers face. We are, if course, fully aware that there has been considerable job creation during the upswing in the economy. But we would warn against complacency. Firstly, if/when the economy dips, the shakeout could be severe and, secondly, the effects of legislation act with a lag. There are, however, already signs of "employer resistance". We are in day-to-day contact with many businesspeople and we know of at least one sizeable employer who, though still expanding the business, is deliberately choosing more capital-intensive methods of production in order to limit the size of her workforce. Moreover, a recent survey of IoD members concerning part-time work confirmed that the disposition of respondents to hire part-time staff is closely determined by the attendant costs "Part-Time Work: The Results of an IoD survey (forthcoming)". Other things being equal, if future regulations significantly increase the cost of employing part-time labour, then employers will be substantially less inclined to hire part-time workers. Indeed, as the costs and the burdens of hiring labour rise, so capital as a factor of production assumes a greater relative attraction. Increased capitalisation is, of course, likely to result in higher labour productivity. But this should not necessarily be welcomed. If it comes at the expense of lower employment (and higher unemployment) it is indeed a false objective. Much of the higher labour productivity rates of, say, France can be explained by the "super automation" of French industry which in turn reflects the cost and inflexibility of French labour. France's unemployment rate is currently 10 per cent compared with the UK's 4 per cent (or just under 6 per cent on the ILO count).

  7.  We would in particular warn against extensive increases in the minimum wage. Even though the minimum wage appears to have caused few casualties in terms of job losses so far, this can be put down to, firstly, its modest rate and, secondly, the fact that it was fortuitously introduced at a time of strong growth. Any reversal of these helpful conditions could result in severe job losses. The minimum wage has particular relevance for the unemployed—especially for the long-termed unemployed. Almost inevitably for one reason or another these people tend to be at the margins of the labour market. A survey we conducted of our members last year showed that many respondents were concerned about the quality of the New Deal recruits. (The results are written up in "The New Deal: One Year On", IoD, May 1999.) Such recruits are by any standards at the margin of employability, Prior to the minimum wage we knew of employers who would take on young people of marginal employable skills on a "nugatory" wage (£2 an hour or so) to see if they were employable, If they were, they would then be offered a permanent job at the going rate. If they were not, their employment would be terminated. This sort of experimentation and flexibility is no longer an option. The minimum wage, at the margins of the labour market, has damaged prospects.

  8.  Concerning specific measures the Government may employ to encourage employers to recruit unemployed people, we believe the Government is doing a good deal already. We were always supporters of the principles behind the New Deal (even though it is far too costly). As we have already said one of the biggest problems, apart from the perception that the New Deal is very bureaucratic, is the lack of suitable recruits. (And, on a more general note, we offered evidence of a shortage of suitably skilled people in our submission to your inquiry "Employability and Jobs: Is there a jobs gap" (21 October 1999).) Seventy four per cent of respondents to our survey on the New Deal indicated that access to "work ready" applicants was an important factor in determining their participation in this scheme "The New Deal One Year On", IoD, May 1999). This implies that if the New Deal is to be a success and if employers are to be persuaded to recruit via the New Deal, it is imperative that the participants are adequately trained.

  9.  Therefore, the Government may want to consider providing employers with extra help in respect of their training costs (perhaps this is a job for the new Intermediaries Fund?). In 1999 we conducted a survey of our members and there was widespread support for extra employee training (the results were written up in "The Skills and Training Agenda: The Results of an IoD Survey", IoD, August 1999). And in a more recent survey we asked our members what action should be taken to encourage employers to hire workers aged over 50 and an unprompted 14 per cent suggested better training (see "The Rise in Unemployment Among Older People: Causes and Solutions", IoD, March 2000). Additionally, when we asked our members whether they would be more likely to take on a worker aged over 50 if the Government helped their firm to cover the costs of training, 54 per cent of respondents gave an affirmative response.

  10.  We would not expect there would be major "churning" implications if help were to be given with training costs (we see little benefit in "churning"; it can destabilise a workforce and rapid turnover is costly and disruptive). Concerning employers reaching out to prospective employees the majority already use advertising and Jobcentres widely and we would expect them to continue to do so. A survey of over 1,000 IoD members in October 1997 revealed that 59 per cent had recruited through the Employment Service in the past.

  11.  Concerning the role of the Employment Service, perhaps they could contact employers directly more frequently. Only 30 per cent of respondents to our survey on the New Deal had been approached by personnel from the Employment Service about participating in this particular project. If the New Deal is to be a success the Employment Service should enhance its links with the business community in order to maintain private sector interest in the project and to discover the recruitment needs of employers.

  12.  We welcome the evidence that private employment agencies are playing an increasingly important role in unemployed people's job search. We have no specific suggestions for the particular role that private agencies should play, but would note that the fact that they are in the private sector gives them an advantage over the state run Jobcentres. And that is they are directly familiar with the workings of the private markets.

  13.  Concerning career progression, we believe that this is overwhelmingly an issue for the individual concerned. For some individuals, they will feel the need to move on from an entry-level job in order to progress. Others may not wish to move on. Providing the requisite training is available for people, the Government, we suggest, should step back and leave matters to the individual and the market.

  I hope that this submission proves to be of use to you.

Institute of Directors

March 2000

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