MNI INTERVIEW: Employment Law Hit To UK Productivity - Haskel

The UK government's Employment Rights Bill may already be delivering a hit to productivity growth even before it has been approved by parliament, former two-term Bank of England Monetary Policy Committee member Jonathan Haskel told MNI.

The bill covers many areas of labour law including flexible working and rules on firing and rehiring, and employers may anticipate its measures without waiting for it to enter the statute books, Haskel said in an interview, in which he also expressed support for the Office for Budget Responsibility's cautious optimism on an AI-driven productivity boost despite downside risks from global trade fragmentation.

"Employers are forward looking. They've already acted on the basis of National Insurance contributions when they were announced .... We've seen that in the Bank of England hiring intentions data ...they realise that this [employment rights legislation] is coming down the track. So I'm afraid to say, I think that's something which, unfortunately, is potentially holding intangible investment back now," said Haskel, whose work has highlighted the importance of intangible investment for productivity and is now professor of economics at Imperial College Business School.

"I worry about ... more costly labour market regulation ...A lot of this labour market regulation ... is shrouded in mystery because of the uncertainty over the legal interpretation of these issues." 

While details of the bill have yet to be agreed, its final committee stage reading will take place in the upper chamber on May 21, and it could become law before parliament’s summer recess.

SUPPLY CHAIN FRAGMENTATION

Haskel was more upbeat about the likely impact of other UK government policies on productivity, such as planning reform and support for business clusters, though he noted that regulation needs to recognise that clusters tend to form in cities.

"I don't think anybody denies that if these planning regulations go through it'll be easier to build big infrastructure products ...renewed power stations and more roads. But the extent to which it'll be easier to build in cities, I'm not sure." he said.

He was also supportive of productivity forecasts by the Office for Budget Responsibility,  the official fiscal forecaster, which have been widely criticised by analysts for excessive optimism.

"If I were the OBR, I would say that AI is coming," he said, adding that "a little bit of upside on productivity growth would be my central projection, because of the possibilities around AI." (See MNI INTERVIEW:  OBR's Productivity Outlook Realistic - Miles)

The U.S.-led shift towards increased trade protectionism, however, is an unambiguous negative in his view, not only because it will impede competition and the flow of knowledge and investment but also due to the risk of breaking global supply chains. This latter aspect is significantly adding to the difficulty of macroeconomic forecasting for central banks including the Bank of England, which are trying to work out how best to account for the potential inflationary impact of disruption to the complex flow of goods and components around the world despite a lack of timely and complete data.

"What I just don't know is whether we've got a very good number, which tells you by how much productivity growth would be impaired by the lack of the global supply chain," Haskel said.

"In defence of the [economics] profession, we don't know, because we don't know exactly what the trade policy is going to be. We don't know how much retaliation there is going to be, which is crucial to work out the exchange rate and supply chain consequences of this new age of trade barriers," he said. (See MNI INTERVIEW: Central Bank Supply-Chain Data Old, Incomplete)