Theresa May’s labour market wheeze is cribbed from Ed Miliband: Workers beware

Ben Southwood
Follow Ben
Labour Leader Ed Miliband Announces His Party's Education Manifesto
Another bacon sandwich: Do May's policies for workers bring us closer to the so-called PIGS? (Source: Getty)

Labour voters can stop worrying about their party’s impending electoral wipeout – Jeremy Corbyn’s Labour may be doomed, but Ed Miliband seems to have taken over the Tories, at least when it comes to economic policy.

Many people see politics as a series of two-sided struggles. In their view, if any policy benefits one group it must be at the expense of some other group. As each issue comes up interest groups fight it out, and eventually one of them wins. In this view, the job of government is to work out when a group, say “business”, or “workers”, or “farmers”, or “homeowners”, can afford to help out, and when it needs a hand.

The benefit of this zero-sum world view is that you don’t actually have to think through any of the details of policy at all. You just need to work out if some broad group is, in your estimation, doing well, and when it’s doing badly. After all, according to this view, all policies are just redistributions of power and resources from group to group.

Read more: Conservatives face criticism for pledge to boost workers' rights

However, those that hold this view have a hard time explaining the real-world effects of policies like those Theresa May is proposing. Our recovery from the Great Recession in the UK may have been slow, but it’s been plain sailing compared to the experience in Portugal, Italy, Greece and Spain; the so-called PIGS of the Eurozone. One reason for this is that the Bank of England responded more consistently and aggressively as shocks rolled in – with quantitative easing, interest rate cuts, and forward guidance – compared to the European Central Bank.

But another is labour market regulation. In 2012, under pressure from euro area authorities, Portugal scrapped a whole swathe of labour market regulations. But loosening these rules was not an attempt to benefit “business” when it faced troubled times – both workers and businesses benefited from it being easier to create jobs. Before 2012, firms had to pay overtime at a premium of 50-100 per cent over normal pay; after, they were allowed to pay 25-50 per cent if they chose. Both sides benefited, even during a downturn: it didn’t just result in lower overtime pay for existing hours of overtime, but big gains in overtime usage, total employment – and these improved sales.

When you allow for policies that make everyone better off, as well as policies that make everyone worse off, then you have to think much harder about policy. Theresa May’s policies may sound nice, but labour market flexibility in the UK is a large part of why unemployment is 4.7 per cent, and employment is at the highest rate ever, despite one of the slowest recoveries from a slump imaginable. The corresponding rates for the PIGS are 10 per cent, 11.5 per cent, 18 per cent and 23.1 per cent.

It’s also a large part of why innovative businesses like Uber, Airbnb, and Deliveroo are able to expand so rapidly to bring their products to households across the UK. Cracking down on the gig economy will guarantee that future Ubers start up abroad, not here in Britain.

No, there is no question that we will turn into Italy after the election. The labour market rigidity of the PIGS is still miles away. But May’s latest wheeze, cribbed directly from Ed Miliband, inches us just that little bit closer.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles