To Regulate or Not to Regulate—That is the Question

By: Piers Lee, Director, BVA BDRC

Image by: Tatiana Shepeleva – Shutterstock

A healthy employment market underwrites any country’s economy. The more people in employment and the higher the wages, the higher the tax revenue from income and expenditure, ultimately benefiting the country. Furthermore, more income, jobs and opportunities generally contribute to a happier nation.

But what is the best way to develop a healthy employment market?

In Singapore, it has been achieved by making the country an attractive place to start and conduct business. It is one of the least regulated employment markets in the world, allowing employers to hire and fire according to business demand. However, with almost no unemployment and high demand for staff, Singapore can sometimes be a job seeker’s market, making it harder for employers to find staff.

In contrast, more regulated employment markets, like those in continental Europe, provide employees with substantial employment protection, making it riskier for businesses to hire staff. The consequence is higher levels of unemployment, particularly among younger people. For example, in France, the unemployment rate is about 7.3%, but over 17% among those under 24 years. In Italy, the situation is worse, with about an 8.2% unemployment rate rising to over 20% among those under 24.

The UK sits somewhere between the more regulated European employment market and the less regulated markets worldwide, and currently stands with an unemployment rate of about 4%. However, with a change of government in the UK expected in July 2024, things could change quite significantly.

The “New Deal for Working People” announced by the Labour Party commits to giving employees employment rights on the first day of employment, introducing rights to disconnect from work, and strengthening trade union rights, among other measures.

In April 2024, BVA BDRC surveyed 1,200 businesses in the UK via our Business Omnibus (a nationally representative sample of businesses with at least £250,000 revenue) to assess overall awareness of the Labour Party’s plans for these changes to employment laws, how businesses will be affected, and how they might react to these changes.

Faced with the increasing risk of employing staff, the BVA BDRC survey showed that 70% of employers in the UK would implement changes to manage this risk. Most significantly, 22% of employers stated that they would hire fewer employees because of these changes to employment law. Businesses also indicated they might implement a range of structural changes, including using more freelancers instead of hiring employees, increasing the use of technology to replace employees, and even offshoring business to countries where these employment laws would not apply.

Despite this, some employers believe the changes will have a net benefit on business, as happier employees might be more productive. Those businesses claiming a net benefit tend to be larger employers with at least 250 staff. But smaller businesses, particularly those with fewer than 50 employees, are more concerned about the potential changes.

The net positivity among larger businesses may be due to their existing internal resources, which can handle more time in recruitment, deal with disputes, absorb higher costs, or even offshore business to subsidiaries overseas. Another perspective is that larger businesses will benefit from the increased challenges faced by their SME competitors. Non-performing staff in SMEs, who cannot be easily dismissed, have a disproportionately higher impact compared to larger businesses if, with a decent pool of high performing staff, the non-performers can be ‘carried’.

A more cynical view is that the inevitable rise in unemployment rates (as a result of a more regulated employment market), benefits employers by creating a recruiter’s market, where prospective employees have less bargaining power due to the higher number of job seekers, and the general backdrop of high unemployment.

Whether a more regulated employment market is better at a societal level compared to a less regulated one remains open to debate. But it can result in an unintended additional level of inequality, where those in employment enjoy more benefits and job security, while there is an increasing population of unemployed workers or freelancers with no employment benefits or protections at all.  Furthermore, as seen in continental Europe, it is younger people, who are yet to find their first employment position, lack the experience (and hence present a greater employment risk) who face greater uncertainty.

A more regulated employment market may also encourage more employers to seek technological solutions to replace employees. There are already concerns about the extent to which AI could replace workers in the future. Since robots and software cannot sue for unfair dismissal, never take holidays, nor go on strike, new technologies could present a far more attractive investment for employers.

This article was first published in the Q2 2024 edition of Asia Research Media

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