“In recent discussions of the Employment Rights Bill, it seems to have become widely believed that there is an inevitable trade-off between labour laws and growth. However, this is not the case.
The question of the economic effects of labour laws has been intensively researched in recent years. The emerging consensus is that labour laws do not, on the whole, have negative economic consequences, and may well have positive ones.
Employment protection laws, requiring good cause for dismissal, positively impact labour quality, and thereby productivity. They incentivise firms to invest in training and in capital goods which complement workers’ skills. Law promoting collective bargaining tend to raise wages and stabilise employment. Higher wages support consumption and promote demand for locally produced goods and services. They also underpin the tax base. Labour laws need not deter private investment, and can complement improvements to public infrastructure and measures to reduce the cost of capital for productive enterprise. Over time, as their effects feed through to the wider economy and government finances, labour laws largely pay for themselves.
Labour law have other societal benefits. Through their impact in reducing income inequality, labour laws promote inclusive growth. Strong labour laws help protect democracies from authoritarian variants of populism. By ensuring that the gains from innovation are more widely shared, they help build consensus around the introduction...
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