The Rt. Hon. Patricia Hewitt

Labour Market Speech to MEPs

Had a very worthwhile day meeting members of this Parliament…Grateful to all of you who have given up your time, and also to the European Business Network for hosting this event this evening. The Network was newly launched by my colleague the minister for Europe, Peter Hain, to perform the valuable role of bringing together companies based in Brussels and members of Labour government in Britain.

I'm delighted to be the first British Secretary of State for Trade and Industry to grace its platform, and I am particularly grateful to the DTI's link MEP, Gary Titley [chairing] for all the hard work he has put in to make tonight happen. And of course to the EBN themselves for hosting tonight and particularly to Peter [Skinner MEP] for his kind words of introduction.

Engagement with Europe

Five years ago, the election marked a turning point in Britain's relationship with Europe. After years of isolation, there was to be a new relationship with Europe. Positive, constructive, confident engagement.

We did this because it was in Britain's national interest. Europe affects us all directly and deeply - our jobs, prosperity and security. To have stayed in the isolation room of Europe, would have been a national betrayal.

And we signed the Social Chapter to show that we wanted to be part of Social Europe.

Social justice has always been at the heart of our approach. We share with many Member States the same common values - tackling poverty, removing discrimination, combating social exclusion - together forming the bedrock of what has been called the European Social Model.

Progressing the Social Model took a huge step forward at the Lisbon Summit in 2000, where all Heads of Government agreed an ambitious agenda to make Europe the most competitive and productive knowledge economy in the world. We said we'd create 20 million jobs by 2010. Productivity matching US levels.

Lisbon was founded on the key principle that you cannot divorce economic progress from social justice. To quote the words used at the Lisbon summit, re-iterated at Barcelona, "A job is the best safeguard against social exclusion".

Because you cannot have a just society when you also have high levels of involuntary unemployment.

Tonight I will talk about the type of labour market I want to see in Britain; what the new challenges are; and what type of action we need to take at domestic and European levels to meet those challenges.

Some people say – unfairly in my view - that we British say one thing in Europe and another thing at home; that the language we use for trade unions is different from the language we use for business. I want to say categorically that my vision of a UK labour market is the same – whether I am explaining it in Birmingham, Barcelona, Bucharest or, as tonight, Brussels.

So, just to clarify, I recently outlined my vision for where we should be at a speech in London and I'm saying the same thing here tonight.

Where we have got to

In our first term of government, we achieved our initial goals for labour market reform.

We slashed long-term youth unemployment from 90,000 to 5,000 – a fall of over over 90 per cent. Adult long term unemployment has fallen from 525,000 to 156,000 currently – a fall of 70 per cent.

With the working family tax credit, and record increases in child benefit, we ensured that work would pay.

We introduced greater rights in the workplace, starting with the national minimum wage, to establish fair standards for employees and prevent good employers being undercut by the bad. We have also started a review of employment status, looking at who's covered by statutory employment rights in the UK.

We also implemented the Social Chapter – introducing new regulations for parental leave and part time work. And implemented the Working Time Directive – giving millions of British workers a right to paid holiday.

And confounding our critics, who predicted that the minimum wage and other regulations would destroy jobs, we have achieved the lowest levels of unemployment for 26 years and employment is at a record level, up over 1.5 million since May 1997. We have succeeded on both scores – proving that, providing you get the implementation right, there doesn't have to be a contradiction between job creation and greater rights at work.

Other Member States have enjoyed similar success in job creation: 5 million new jobs have been created across Europe in the 2 years since Lisbon. Sweden, Denmark and Netherlands, as well as the UK, already meet the Lisbon target of 70 per cent of working age people in employment.

But other Member States have some way to go. The latest data from the European Labour Force Survey shows France with a 62 per cent employment rate, and Germany with a 65 per cent rate. In Italy, Spain and Greece the proportion of working age people in employment is lower, at 53, 55 and 56 per cent respectively. And the accession countries face even greater difficulties, with less than half of the working age population in Bulgaria in employment.

Getting people into work is the crucial first rung on the ladder of social opportunity. Work engages our ambitions and expectations; it helps to shape our identity and status.

For this Labour government, the labour market is the point where our two over-riding ambitions meet most starkly. Our ambition for a dynamic, successful economy. And our quest for social justice. This government is often accused of being obsessed with the work ethic. I make no apology for that. I have seen at close hand, in my own constituency, how unemployment destroys people's health, undermines their families and destroys community cohesion. I have no doubt jobs are vital to social inclusion and social justice.

To achieve our ambitions, therefore, we must set three goals for labour market policy. Full employment, high levels of productivity, and higher standards – including greater diversity and choice - in the workplace. More jobs, better jobs, and high performance workplaces.

Before we can consider the implications for policy of these goals, we need to understand better how the labour market should respond to the huge waves of change that are taking place in our economy and society.

Changes in the roles and aspirations of women, and the relationship between work and family.

The increase in life expectancy.

And an increasingly diverse workforce.

Work and family

Every family needs to earn a living and care for children and other dependants at the same time. But the terms of engagement between work and family – or between paid and unpaid work – have fundamentally changed.

The UK Equal Opportunities Commission explains the source of the problem for two-parent families. Because women are still paid less across the economy to start with – the average pay gap between women and men in the same job is 18 per cent in the UK, against around 14% at European level - it is economically rational for them, rather than their partner, to give up work or reduce their working hours when their first child is born. This reinforces the problem of lower pay, and the woman's position as the carer in the relationship. And then, in order to make up for his partner's loss in income, it then becomes economically rational for the father to work even longer hours to make up.

A vicious circle results where women suffer from a pay gap and men suffer from a time gap. We have to help parents find better ways to rebalance this time-money equation.

I don't expect one new model of work and family to replace the old model. Nor is it government's job to tell parents how to lead their lives. Instead, government needs to create conditions in which parents can exercise far greater choice about how they balance work and family in ways that suit them.

Investment in childcare is an important part of the solution. We have invested £900 million in childcare since 1997 - creating places for 900,000 children. But this on its own is not enough. Many parents would prefer to spend more time with their children, rather than both working full-time in order to pay a childminder or nursery. So the challenge to policy-makers, and to employers, is to create a far greater variety of working hours at much higher levels of responsibility and pay – and to make them available to men as well as women.

Many employers are rising to that challenge. Look at the example of Cogent Investment Operations, based in London but part of the French firm Paribas. The managing director there, Ian Barnard, offered his staff a number of working time options from annualised hours to part time working and working from home. The result was higher productivity and much better staff retention.

But far from shorter hours being the norm for fathers today, the reverse is true. The proportion of UK employees working long hours increased in the ten years to 1998. Male full time workers are twice as likely to work long hours in Britain compared with the EU as a whole. Long hours working causes deterioration in performance at work – particularly, as is common, when it is combined with sleep deprivation. There is a worrying effect on health and safety, not to mention motivation, absence and turnover.

The working time legislation that we introduced has had some effect in stopping the rise in working hours and putting limits on night and shift working. Next year we will extend them to three sectors where long hours are particularly prevalent – junior doctors, offshore and transport workers. But we also need to achieve a culture change in the way people work and an understanding amongst managers and staff alike that long hours aren't necessarily the route to high performance.

This is a problem faced by all European countries, but the routes we choose to find solutions vary significantly. The Netherlands, for example, has achieved a dramatic increase in part-time work. France, with its very different legal and regulatory tradition, has introduced a 35-hour working week – or, more accurately, the sixteen hundred hour working year.

What all solutions have in common however is that they challenge old assumptions about career paths – that people have to work relentlessly in their 20s and 30s, in order to peak in their 40s or early 50s, before descending into what Charles Handy called the 'third age'.

Indeed the first test case of indirect discrimination brought in the UK under the Sex Discrimination Act – a case that I brought when I was at the civil rights group, Liberty – involved a civil servant, Belinda Price, who was barred from recruitment at junior management level because she was "too old" at 35! We argued, successfully, that in career terms she was in fact younger than a 35-year old man because she'd taken some years out to bring up children. We won the case … and I am glad to say that civil service Departments in Britain no longer operate an age bar on recruitment or promotion below the retirement age.

I know the EU ombudsman recently tacked a similar problem here in Brussels. I am pleased that both the Parliament and Commission have decided to end age discrimination in recruitment.

An ageing population

That brings me to the second major challenge to our labour market – an ageing population.

In 1970, just under 70 per cent of men aged 60 to 64 were economically active across the EU. All that has changed. Today, just over 30 per cent of men aged 60 to 64 are economically active.

As the Commission's report earlier this year on "increasing labour market participation" pointed out, participation rates of men, particularly in low-skilled occupations, begin to decline rapidly from the age of 50, compared with over 60 in 1970.

In many ways, as I indicated at the outset, our labour market is functioning well. But in relation to the over 50s, it is time to recognise that our labour market is dysfunctional. So here is another challenge to our labour market – to create far greater opportunities for working for the over 50s and, in future, for a growing proportion of over 60s too. And it means abandoning the pernicious prejudice against older people (and I should declare an interest, as a 53-year-old), that is such a barrier to their continuing employment. I am currently consulting on how we legislate on this following European agreement in this area.

There is, of course, a very close connection between the pressures that arise from an ageing population, and the changes that arise when half the workforce are women. If more and more of us can expect to be active and healthy into our 70s – in other words, if our active, adult lives are five or six decades long – then women and men should surely be able to reduce their working hours or take a break from employment altogether for a few years - be it to care for children, to update their skills, or simply to take time out to travel the world – without wrecking their promotion prospects. There is no one model: different people will work different hours at different stages in their lives.

A diverse workforce

The third wave of change I want to refer to comes from our increasingly diverse workforce. In Britain, 7 per cent of the population are from Black, Asian or other minority ethnic communities. But the average conceals the true picture. My own city of Leicester, for instance, will soon be the first in Britain where half the population comes from British Asian and African-Caribbean communities; indeed, that is already the case with our under-25's.

We do not recognise often enough what a source of competitive advantage we gain from our diversity. Our 2nd and 3rd generation Asian and African Caribbean British business professionals have ties of family, culture and language that boost our trade with Africa, the Indian sub-continent, South East Asia and other parts of world. The extraordinarily cosmopolitan nature of London, in particular, helps to attract investment and business from all over the world. And of course we benefit from the skilled migrants who want to come and work in an English-speaking business environment.

But alongside the advantages and opportunities of diversity, there is also massive personal and community disadvantage. Unemployment is far higher amongst the African-Caribbean and some Asian communities. Too often, barriers of prejudice create unemployment and poverty amongst minority ethnic communities living only a mile away from jobs and prosperity. When an African-Caribbean graduate can only get a job as a minicab driver, what incentive does that give his children to succeed at school? All this is evidence of a labour market not functioning as it should.

Many of our best firms already recognise the advantages of a diverse workforce. But too many do not and are losing out as a result. A recent report from the government's internal think-tank, the PIU, concluded that the high education profiles, yet poor employment prospects of some ethnic minority groups lead to a substantial loss in productivity with implications for the whole economy.

But I believe the fact that the market is not functioning properly actually represents an opportunity for managers seeking to recruit talent in their own firms.

And it is an opportunity that will only increase. The PIU estimates that the working age population will increase by a million in the next ten years and that minority ethnic communities will account for more than half of this increase.

The challenge for managers is to review their own employment procedures so that they can tap into this talent. So when a manager is considering placing a job advert in the national press, why not advertise in the Black and Asian papers, or the local press as well. And headhunters should be asked to go the extra mile to make sure they are reaching out to everybody.

It is clearly the right thing to do, but also makes sound business sense to cast the net as wide as possible when fishing for new talent.

Diversity, of course, is not limited to race and ethnic origin, as those employers in Britain recognise who sign up to Stonewall's Diversity Champions scheme, or who creatively adapt the working environment, or exploit new technologies, to enable people with disabilities to fulfill their potential. But the basic message is the same: a business that wants to serve all its customers, and use all the available talents, needs to recruit from all the community.

How to get there

I have set out the three goals that should shape our employment policy over the next decade: full employment, across all sections of our community. Rapidly rising levels of productivity – people working smarter, not harder. And higher standards – including greater diversity and choice - in the workplace.

We have many policy tools available to help us achieve those goals. These tools include common action within the EU.

But too often – especially in the UK – the debate is polarised between what some see as a job-destroying regulatory, European social model on the one hand; and a US job-creating deregulatory model on the other.

I reject this characterisation – it is a myth. There is much to admire in the US in terms of high levels of job creation and participation, the ability to absorb migrants and their sustained growth in productivity in recent years. But anybody who deals with the litigious American culture will scoff at the idea that it is a free marketeer's deregulated heaven.

Nor is there a single European labour market. Rather, there are fifteen different labour markets, fifteen models each with different traditions, different levels of employment, productivity and labour market participation, different proportions of self-employed, temporary and part-time workers. And of course very different institutional structures for wage bargaining and employee involvement.

Different traditions. Different systems. Even more to come as enlargement becomes a reality. There is no single right approach, but there are lessons we can learn from each other. As the High Level Group on Industrial Relations recently said: "diversity should be treated as an asset".

This is even more the case as we approach enlargement. Accession countries are facing much change. They are still shaking off the rigidities of the past. Market economies are new. Unemployment is high. It is important that they sign up to the existing acquis and play a full role in social Europe. But we need to recognize as well that inflexible, over-regulated labour markets may have particularly damaging consequences for the applicant countries. Enlargement makes it difficult to apply a one-size fits all solution.

As British people, we have a range of tools to achieve our aims. Some are home grown. Some involve legislation, others the promotion of best practice.

Take our aim to have high performance workplaces. The critical outcome is to have greater trust between managers and staff. That's when performance rises. But there is more than one way to achieve that end. Some firms follow the partnership route. Companies like Tesco, in its partnership with the shopworkers' union, USDAW, and TNT, with the Transport and General Workers Union are amongst the success stories of this approach.

Our main social partners, the CBI and TUC, concluded, in their report on productivity, "collective voice is important in building a climate of trust where individual employees are confident that their contribution will be valued".

We've made it easier for those that do go down this route by giving trade union members a legal right to recognition by employers for purposes of collective bargaining, and by providing support through our Partnership Fund to help dialogue between firms and unions to thrive. And as we implement the European Directive on Information and Consultation, for firms employing over 50 people, we will also ensure that employees are given information in good time and have a proper opportunity to give their views, instead of hearing that they are losing their job by turning on the radio in the morning.

But, as British policy-makers striving to improve the performance of our workplaces, we need to recognize that we have no dominant model of how employers interact with their staff. Successful though formal partnerships are, they are not the only way. And people should do what they think best, in their own company. For instance, in smaller organizations – where most job growth will come in future – trust, communication and partnership may well exist without any formal structure at all.

That's why we're also spreading best practice across the public and private sectors through, for instance, the competition for the "100 best companies to work for" - the companies voted by their own employees as being great places to work. Companies that don't just please their employees, but that also satisfy their investors – significantly out-performing the FT all share index in recent years.

The same principle applies at a European level, where there is potential for the Social Dialogue to play a valuable role. To this end I welcome the progress made on teleworking, but this sort of solution is all too rare.

The social dialogue is not producing consensus often enough. An expectation has grown up that if agreement is not reached, the Commission will bring forward a legislative proposal of its own. For those on the union side there is not sufficient incentive to explore alternatives to regulation. And when a directive is proposed employers look to the Council to block it. This is a sterile process.

We need a rejuvenated social dialogue. One that is geared to deliver the Lisbon strategy.

The Council is taking steps to become more open, and so should the social partners. I am pleased that both UNICE and ETUC are responding positively to the EU Governance initiative that the Commission has launched. I expect a similarly positive response to the Commission's Better Regulation Action Plan.

The social partners need new tools. Member States have taken up with vigour what is known as the Open Method of Coordination. Peer pressure focused more on results and less on the process of getting there. The social partners could adopt a similar mindset and identify the challenges that Europe faces where they have a clear role. Skills, lifelong learning, corporate social responsibility, work organization, equal opportunities. At EU level, they should be developing voluntary guidelines, benchmarking, devising indicators. These could then be taken up at a national level and fed straight down into the workplace.

Because regulation is not always the answer – particularly when employment law is already too complicated for most small businesses to understand. We need to consider all alternatives first - and do so in a way that allows us to meet our social objectives while minimising the costs we impose on business. And we need to respect the different traditions of different EU countries as we do so.

In this respect, I share the views of Yves Barou, the architect of France's 35-hour working week, when he wrote recently in Policy Network that: "Europe can play a leading role [in addressing the new challenges of the labour market] taking advantage of its diversity and its tradition of collective regulation. A minimal framework of regulation is likely to fit the new conditions best, but must ensure genuine flexibility and individual choice." And he goes on to argue for a "a flexible European framework that promotes innovation" rather than "complex rigid compromises".

I was also impressed by the sensible recommendations in the Mandelkern Report published last year and addressed to the Commission, Member States and the Parliament. I am pleased that the Commission has taken on board many of these points in its Action Plan. I am particularly keen to see meaningful consideration of alternatives to regulation at the European level, a culture of consultation on regulatory proposals, and a rigorous Assessment Instrument. I know that Gary [chairing] has called for the European Parliament to adopt a similar approach, which is something I would certainly support.

So regulation when necessary, when non-legislative approaches have failed - but not regulation that protects those in jobs at the expense of those without. In short, intelligent regulation.

The current discussions on agency workers offer us a chance to put this into practice.

In the UK, employment agencies play a leading role in promoting diversity in the workplace. Often, people's first experience of work after leaving school or university can be through an employment agency – providing that crucial first rung on the ladder of employment.

And similarly ethnic minorities, mothers returning to work, and older people. Some of whom might shy away from applying directly for a permanent job. An employment agency gets their foot in the door. In fact the proportion of ethnic minorities amongst agency workers is three times higher than the proportion for the population as a whole.

And as we promote more equal opportunities, flexible working and diversity at work, so demands for temporary work increase. And temporary work can lead on in to permanent work.

The best way to get a good job is to get a job, and employment agencies help people to do that. There are 700,000 people working for an agency in the UK –more than in any other member state except France. Up until only recently agencies were illegal in Italy. We need to ensure we reflect these different traditions if we legislate.

I'm not saying agency workers don't need minimum standards of protection. They do. We provide these in the United Kingdom through regulations that, for example, ensure basic employment rights and prevent the use of agency workers to break strikes.

But there are serious problems in applying the principle to equal treatment to agency workers' contractual terms. It is not that straightforward.

Some people have said they are afraid that agency workers will take the place of permanent staff. If this is the case then the principle of non-discrimination should apply only after a period of, say, 12 to 18 months. By then, the agency worker cannot truly be said to be merely temporary and should be put on the same footing. This would stop companies using agency workers to undermine the conditions of permanent workers. At the same time, it would avoid administrative burdens that might discourage companies from taking on agency workers.

As I have said, my view is we need to concentrate now on implementing what we have; learning from each other through benchmarking and sharing best practice. The forthcoming revision of the European Employment Strategy offers an opportunity to embed this approach further into our policy-making. The focus must be on outcomes (the Lisbon targets), not on process and it is essential that the commitments at Barcelona are not watered down.

It is also vital that the process respects national competence and traditions (for example, the involvement of the social partners must not compromise national systems). We need also to consider seriously the way that the Parliament can become more effectively involved and contribute to the revised employment process.

Before I take your questions, I'd like to sum up.

People think we're not committed to social justice. But we've done a range of things at home to promote social inclusion, lifting the living standards of millions of our most disadvantaged people.

People think we are pursuing pure liberalism in Europe. That's not the case. Our labour market aims are full employment, high productivity and high-performance labour markets that allow different types of people to work in different ways at different stages in their lives.

People think we're opposed to regulation. But we have regulated. And will continue to, provided there is real evidence of a market failure.

I believe passionately in social justice and social renewal, I've dedicated most of my working life to it. And my aim remains to create a better and fairer society where there is real opportunity and prosperity for all.

Thank you.

Other speeches by The Rt. Hon. Patricia Hewitt

• Chemicals Industry Association (23/01/03)
• Women in IT Conference (22/01/03)
• Awards for Responsible Capitalism (27/11/02)
• E - Summit (19/11/02)
• Daycare Trust Conference (13/11/02)
• Asian Trader Awards Event (12/11/02)
• T&G Manufacturing Conference (11/11/02)
• LGA Economic Regeneration Conference (05/11/02)
• Quoted Companies Alliance Dinner (30/10/02)
• The British Retail Consortium Annual Dinner (29/10/02)
• Leading Edge ICT Seminar (22/10/02)
• European Union - Challenges and Opportunities (16/10/02)
• The Government view on Business and the Environment (10/10/02)
• 100 Group Speech (08/10/02)
• Institute of Public Policy & Research Manufacturing Project Speech (23/09/02)
• The Royal Television Society (10/09/02)
• Science Strategy Document Launch (23/07/02)
• Full and Fulfilling Employment (11/07/02)
• Invest UK Annual Review of Operations 2002 (10/07/02)
• Company Law Speech (05/07/02)
• Celebrating Excellence in the Knowledge Economy (03/07/02)
• Royal Society of Chemistry Parliamentary Links Day (25/06/02)
• UK Labour Market (29/05/02)
• National Federation of sub-Postmasters Conference (21/05/02)
• Intellect Launch (16/05/02)
• Council for Excellence in Management and Leadership Report (13/05/02)
• Research Councils UK Launch (01/05/02)
• British Chambers of Commerce Annual Conference (22/04/02)
• Russian Economic Forum (18/04/02)
• Housebuilder of the Year Awards (28/03/02)
• Statement to the House of Commons (06/03/02)
• Reforming Europe's Economy: Obstacles and Practicalities (04/03/02)
• Trade & Industry Dinner (27/02/02)
• Social Enterprise & Co-operatives: 21st Century Businesses (26/02/02)
• Keele University (21/02/02)
• Women in Rural Enterprise Conference (07/02/02)
• The Lisbon Agenda - Delivering Jobs and Prosperity for all (06/02/02)
• NCVO Annual Conference (06/02/02)
• TUC Flexibility for All Conference (05/02/02)
• QED Annual Review (24/01/02)
• The Future for Manufacturing Industry (23/01/02)
• Women in Science - the 10th Anniversary of the Daphne Jackson Trust (21/01/02)
• The Annual Dinner of The British Israel Chamber of Commerce (16/01/02)

(the following are available from the archive)
• Free Trade For a Fair, Prosperous World (24/07/01)
• Business in the Community Awards for Excellence (11/07/01)
• Business And Society - Roles and Responsibilities (09/07/01)
• Statement at the Press Launch of Enterprise for all (18/06/01)
• Business Unlimited : Investing in South Africa Conference (14/06/01)
• AEEU Conference (13/06/01)
• Regulating UK Communications (22/03/01)
• "The UK Online: The British Government's approach to e-business" (19/01/01)
• Creating Competitive Advantage in the Knowledge Economy (21/11/00)
• European Telework 2000 'New Ways of Working' Conference (13/09/00)
• World Congress on Information Technology: "Better Government: The Vision and the Challenges" (14/06/00)
• Microsoft Government Leaders Conference (07/04/00)
• e-Commerce Strategy Presentation by the Minister for e-Commerce, Harvard Information Infrastructure Project (14/03/00)
• Business Link National Conference (19/10/99)
• The CBI & Real Business Magazine 9th Growing Business Awards (06/12/01)
• Proshare Awards Speech (04/12/01)
• Building a high productivity, low carbon economy (04/12/01)
• Yorkshire Forward Business Lunch (30/11/01)
• "Made in Sheffield" Dinner (29/11/01)
• Free and Fair Trade for Peace and Prosperity (06/11/01)
• "Building a Stronger World Community Through Trade" (25/10/01)
• "Economic Reform in Europe : more important than ever." (24/10/01)
• TUC Congress (10/09/01)