David Blanchflower: Slashing employment regulation would do nothing to boost growth

Economic Outlook: The data does not support Liam Fox's contention that job protection regulations are a problem

The economic data for the UK over the last week or so have shown some slight signs of improvement. The public finances look a bit better than many had expected and there was a small rise in retail sales in January. The announcement of an additional £50bn of gilts this month by the MPC will also boost demand.

But the latest Bank of England's agents' report on the economy found that investment and employment intentions all continued to moderate. The growth rate of turnover in business services also slowed further. The agents' scores should be taken seriously as they were good predictors of the recession that was coming in 2008.

Finally, the Office for National Statistics has confirmed the economy shrank by 0.2 per cent in the last three months of 2011, and even revised down its estimates for growth earlier in the year.

There is little evidence, then, that the British economy is about to enter a major growth spurt, and so politicians of various persuasions have been prognosticating on the appropriate strategy for George Osborne to follow in his 21 March Budget to get the economy moving.

I was especially struck by two. The first was by Ed Balls, shadow Chancellor, who has been pushing a five-point plan, which involves an immediate and temporary reversal of VAT that Osborne increased in January 2011 (let's call this plan A). Mr Balls went further last week, arguing that if Mr Osborne didn't like his plan A, he had plans B, C and D that were just as good. For the same amount of money, Mr Balls argued, he could cut the basic rate of income tax by 3p for a year (plan B); raise the income tax personal allowance to more than £10,000 (plan C); or increase tax credits for almost six million working people by about £2,000 (plan D).

Mr Balls certainly has a point when he says "it would be better to cut VAT now – it's fairer and quicker and would help pensioners and others who don't pay income tax. But any substantial tax cuts to help households and stimulate the economy would be better than doing nothing." So the Labour Party is for tax cuts. Good; so am I.

In an interesting article in The Financial Times, the ex-Defence Secretary Liam Fox set out his ideas for growth, some of which I have to say I agree with. The good stuff first. Mr Fox argues for cutting employer's national insurance contributions across the board, which would help to price workers into jobs and is a really good idea. Mr Fox goes on to suggest that if the Chancellor can't go that far, "he should consider targeting such tax cuts on the employment of 16- to 24-year-olds, making them more attractive to employers," which I have been pushing for a long time and is welcome. This is fairer and likely to have a much bigger impact on job creation than cutting the 50p tax rate.

Mr Fox went a step too far then by suggesting that there had been a "debauchery of our currency", whatever that means, plus, to restore Britain's competitiveness, he argued, we must begin deregulating the labour market, because "it is too difficult to hire and fire and too expensive to take on new employees".

No it isn't, and he presented no evidence to back up his claim. It turns out that despite rhetoric like this from the Tory right, the data does not support Mr Fox's contention that job protection regulations are a significant problem in the UK and, if anything, the opposite.

According to the World Bank's Doing Business rankings, the UK ranks seventh in the world for ease of operating out of 183 countries, behind only, in order, Singapore, Hong Kong, New Zealand, the United States, Denmark and Norway.

There is more evidence. The OECD's employment protection index measures the procedures and costs involved in dismissing individuals or groups of workers and the procedures involved in hiring workers on fixed-term or temporary work agency contracts. On this index, which is presented in column 1 of the table above for 21 countries, the UK ranks third, behind only Canada (second) and the US (first) for the states with the lowest employment protection. Italy is 14th, Portugal 18th, Greece 19th and France 20th. No evidence there.

Importantly, there is only a very weak statistical correlation between the degree of employment protection and the increase in unemployment since the onset of recession, which I set as January 2008, through to the most recent figure we have. Germany and the Netherlands have much higher levels of employment protection than the UK, but a much smaller rise in unemployment.

The next to last column presents the proportion of workers who are union members, which is actually negatively correlated with the increase in unemployment or its current level; unions protected jobs in the downturn. So the correlation goes the wrong way. There is also a negative correlation between the level of employment protection and the cumulative growth in GDP between Q1 2008 and Q3 2011 presented in the final column. Incidentally, an OECD report published at the end of last week warned against the dangers of reducing job protections in "bad times", of the sort that the UK economy is experiencing at the moment.

There is zero credible empirical evidence supporting Mr Fox's contention that Britain's economic problems would be fixed by slashing workers' rights. If he or anyone else has such evidence, beyond anecdotes, now is the time to present it. Tax cuts, though, are another matter.

Sport
Mourinho lost his temper as well as the match
sportLiverpool handed title boost as Sunderland smash manager’s 77-game home league run
Voices
Sweet tweet: Victoria Beckham’s selfie, taken on her 40th birthday on Thursday
voices... and her career-long attack on the absurd criteria by which we define our 'betters', by Ellen E Jones
Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
tv
News
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
VIDEO
Life & Style
food + drinkWhat’s not to like?
Voices
Clock off: France has had a 35‑hour working week since 1999
voicesThere's no truth to a law banning work emails after 6pm, but that didn’t stop media hysteria
Arts & Entertainment
Maisie Williams of Game of Thrones now
tvMajor roles that grow with their child actors are helping them to steal the show on TV
Life & Style
Lana Del Rey, Alexa Chung and Cara Delevingne each carry their signature bag
fashionMulberry's decision to go for the super-rich backfired dramatically
Arts & Entertainment
Kingdom Tower
architecture
Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit