As we struggle to stop Covid-19, we’re being hit with a fresh pandemic of unemployment. In April, the number of people claiming unemployment benefits increased by the most since records began to reach almost 2.1 million, probably taking us to well over 10% unemployment. It’s now obvious that the UK government’s coronavirus job retention scheme (CJRS), which subsidises 80% of people’s wages but did not put the necessary duties on employers to prevent them from firing employees, is failing in the one thing it’s meant to do: retain jobs.
Job numbers haven’t collapsed in other countries such as Denmark or Germany because they have security and democracy at work, not just wage subsidies. Unemployment in Denmark has risen to just 4.2%. Unemployment in Germany has risen to 5.8%. It might get worse, but it’s a fraction of the UK’s problem.
Unemployment isn’t natural. It’s a legal and social choice. In Germany, workers in companies with more than 20 staff can elect a work council that may veto or delay dismissals and get compensation to internalise the social costs. In companies with more than 2,000 workers, staff can elect half of the supervisory board of directors. The system was restored post-second world war, after Hitler abolished all labour rights. It restarted with a law that the UK and US helped to draft, but we’ve failed to follow it ourselves. In Denmark, workers in companies with more than 35 staff have the right to organise cooperation committees and workers elect up to one third of the board of directors.
Democracy and security at work make enterprise more rational. Directors elected by staff ensure managers think in the long term. In this crisis, short-term thinking isn’t even creating so-called shareholder value, just a sinking spiral of dole queues and shuttered shops.
The unemployment pandemic is by far the worst in the US, because it has the worst labour rights in the free world. Despite a $2.2tn bailout, 36 million people have been fired. This probably means more than 25% unemployment, a crisis worse than the Great Depression. Americans have no self-standing job security rights, except to get 60 days’ warning before mass layoffs. An arbitrary, incompetent or venal boss can say “you’re fired” for a good reason, a bad reason, or no reason at all. This is the Donald Trump system of job security. It’s creating a “you’re fired” depression.
But the UK can’t be content with its laws. Yes, employers must give reasonable notice before dismissal. At no time can an employer dismiss an employee in a way that breaches the “duty of mutual respect”, or the contract. After two years of work, employees can only be dismissed for a fair reason, as assessed by an employment tribunal, and have a right to a redundancy payment if the dismissal is for economic reasons.
That’s fine, but British workers have no votes at work (outside universities such as Cambridge or Edinburgh), and no voice or veto over dismissals. Many employers evade employment rights by drafting sham contracts, pretending their staff are self-employed. The CJRS, with a £30-40bn expected cost, pays 80% of wages to any employee who is furloughed, and it also covers the self-employed. But the scheme came without job security and workplace democracy conditions, as labour law experts called for. So, employers fire staff despite subsidies.
A dwindling minority of economic theorists argue we need “labour market flexibility”, saying that rights kill jobs. But there’s no credible evidence for this claim. For instance, the Organisation for Economic Cooperation and Development (OECD) – whose research has influenced the World Bank and the International Monetary Fund – thinks employment protection legislation hampers job creation, productivity and investment. But the OECD’s analysis is based on breathtaking misunderstandings of employment law. By contrast, the latest credible research shows that job security and workplace democracy decrease unemployment, while improving productivity and innovation.
How can we stop the unemployment pandemic? First, we must change what got us here, and boost workplace security and democracy. In the UK, the secretary of state could amend the Advisory, Conciliation and Arbitration Service (Acas) code that employers must follow before making dismissals. Such amendments could give all staff a voice on dismissals through elected work councils, if unions collectively bargain for them, or if five or more staff request it.
We must strengthen our pension laws so that staff representatives, not short-term asset managers, control shareholder votes in companies. Then, to stop irrational layoff decisions being made to begin with, workers need the right to vote for representatives on their board of directors, like they do at Oxford University, BMW or H&M. We already have a democratic society act drafted for the UK, and any US state can pass the workplace democracy and security laws they need without the federal government. States can adapt models such as those that have been proposed by senators Elizabeth Warren, Bernie Sanders or Tammy Baldwin.
Second, because so many have already lost their jobs, we need an immediate freeze on dismissals, as France, Italy and Spain have done, and to cancel the dismissals that have taken place since March. The crisis of confidence afflicting business, forcing them to plan for a future of mass unemployment, comes from their fear of collapsing demand. Fear will dissolve with a credible recovery plan.
Third, and ultimately, the government has to provide everyone with a job guarantee and a fair income by filling the gaps of our social security system. This is what the Universal Declaration of Human Rights requires: universal social security and the right to work for fair pay. From 1944, the UK government, with agreement among Conservatives, Labour and Liberals, maintained full employment for three decades. If we act, we can make the pandemic of unemployment history, and become a stronger, more caring, compassionate society again.
• Ewan McGaughey is a senior lecturer in law at King’s College London