Clueless. The Independent has what it thinks is good news for employees:
The minimum amount of money that employers must pay staff they make redundant is set to be increased by the Government, The Independent has learnt. In another attempt to ease the pain of those worst affected by the recession, ministers have launched a review of the minimum payments to which people are entitled by law when they lose their job. With around 1,500 posts being axed each week, unemployment will soon pass the two million mark and could eventually rise to more than three million.
So, what is the predicatble effect of making redundancies more costly to employers? You at the back, there! A firm wants to stay in business. It needs to keep cash in hand in order to do so. Looking ahead it sees uncertainty as to whether it can afford the wage bill, and it has to balance the cost of keeping people on and maintaining capacity, with the cost of losing them, and its ability to continue in business after they have left.
Yes, Purnell minor, if the cash lost by making people redundant increases, they will be made redundant sooner, and firms will be more averse to taking the risk of hiring.
As a crude estimate, we might expect the cash constraint to require someone to be sacked sooner by the amount of time in which the cost of employing them would accrue to equal the increase in statutory redundancy they would be owed. (Which is the sort of ‘linear programming’ people could do before spreadsheets and Monte Carlo methods: the wisdom of the 1970s for a government that has worked so hard to return us to them.)
Those firms that do not make such precautionary sacrifices increase their risk of total failure, and none of their workers getting redundancy pay. So higher redundancy pay means more redundancies and more business failures, in an uncertain proportion.
What’s worse, it is likely that such a change in the rules that is signalled in advance will mean large, well-informed and unsentimental corporations (which are typically more risk averse, and more capital intensive, anyway) reducing their headcounts to get under the wire. Even “a review” undertaken to give an impression of doing something, and as a sop to the trades unions, is likely to influence hiring and firing policies. And not in a good way.
In addition, you will see an increase in automation and robotics. It is well within today’s technology for McDonalds et al. to completely automate the hamburger making and cooking process. It will happen as soon as humans become more expensive than the robot.
Good post Guy.
One of the modern absurdities in the modern world is that it is believed (by the academic, media and political elite – and by those who follow them) that there is a bottomless pit called “business” from which all sorts of nice things can be funded.
Of course many business enterprises are turning to the “government” (i.e. other business enterprises who are paying taxes) for help.
I believe in the United States these are called “Zombie” or “Vampire” enterprises – in that they feed on other business enterprises (via bailouts and debt support – like General Electric with the latter) and then compete with the very enterprises they feed of (if they do not take them over utterly).
It is like the 1960’s and 1970’s “Shopping Centres” which were financed by local property taxes (on local business enterprises) and were filled with enterprises in direct competition with the very shops that had been forced to subsidize them (those shops that had not just been knocked down to make way for the Shopping Centres filled with corporate stores).
Now this principle has been applied to the whole economy.
And, almost neeless to say, the shareholders of the banks and other politically connected corporations have (thanks to the web of regulations directed against them – and the taxes that noninstitutional shareholders have to pay) no control over how these corporations are run.
Any one who doubts this should look into the last AGM of the American General Electric Corporation.
Helecoptors, men with firearms (the works) – and they did not look if they were there to “protect” the shareholders to me, more like intimidate them.
Although it could be argued that G.E. is an extreme example of an out of control corporate management in charge of company that tries to be every sector of the economy (and is virtually an arm of the “progressive” faction in the government).
What they’ll do is avoid payment of redundancies, by making certain contracts exempt from them, and by sacking people for ever more trivial matters of msiconduct.
Not possible in Britain, C Marshall. Employment contracts and dismissals (particularly the latter) are very closely regulated.