MNI INTERVIEW: UK Employment Law Tightens As Jobs Data Ease

The launch of the UK government's Employment Rights Bill is badly timed, with the labour market showing signs of fragility, but evidence from changes to employee protections in other countries suggests that its impact on job numbers should not be large, Nye Cominetti, principal economist at think-tank the Resolution Foundation, told MNI.

The employment reforms, which the government plans to phase in, follow the hike in the rate and lowering of the threshold for National Insurance Contributions for employers, and they come at a time of mounting evidence that the labour market is cooling, Cominetti noted in an interview.

The NICS "increases are particularly incident on low-paid workers because of the threshold reduction, and those by and large, are the same workers whose entitlements are being pushed up in this bill. So it's the same employers basically who took the hit on the tax increase and who are now having to figure out what's going on with these measures," he said.

Former Bank of England Monetary Policy Committee member Jonathan Haskel previously told MNI that the bill will fuel uncertainty and hit hiring, and Cominetti said that it is probably true that there will be a negative effect. The Employment Rights Bill has bundled a raft of measures together, which makes "makes the whole thing appear a bit more intimidating," he said. (See MNI INTERVIEW: Employment Law Hit To UK Productivity - Haskel)

OVERSEAS EXAMPLES

"In practice, there are three or four really big changes in the bill ... the unfair dismissal change, guaranteed hours and shift notice for zero contract workers, extending ...sick pay," said Cominetti, noting also that the reforms are being introduced only gradually, with changes to statutory sick pay, including removing a lower limit on earnings to qualify, not due set to come in until  April 2026.

Examples from other countries would indicate the effect of the legislation on employment will be relatively muted, he said.

"We don't have loads of natural experiments going on where countries are making big changes. and we can see what happens" but looking at "several southern European countries, Spain, Italy, Greece and Portugal, where the strength of regulation came down quite significantly, we didn't see a noticeable, relatively different impact on unemployment in those countries than we did in other parts of Europe, where employment regulations stayed the same," Cominetti said.

"All of that tells me that the economic effects aren't likely to be big in either direction. That doesn't mean I can be very confident in giving ...a point estimate.”

To ease employer uncertainty, Resolution Foundation, which is independent but has influence within the Labour Party, has suggested that the government should simplify wherever possible. For example, proposals to grant protection against unfair dismissal from the first day of employment, but offset by a statutory probation period, could be replaced by a simple six-month qualifying period.

LOOSENING LABOUR MARKET

Administered labour force data already points to a weakening job market, Cominetti said, with vacancies now below pre-pandemic levels. BOE Governor Andrew Bailey has said that a slower labour market could lead the Bank to rethink the pace of easing.

 "For most of the last year, jobs numbers have been flat, which in a growing population means the employment rate is falling, which is not good news. And then in the last few months of data, the job numbers have actually been going down ... that points to a labour market which is currently quite fragile," Cominetti said.

"We think some of that is probably caused by the employer NICS increase, potentially in combination with the minimum wage ... And then other indicators include vacancies (are) trending down.”