The Rt. Hon. Patricia Hewitt

UK Labour Market

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.

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.

So now is a good time to take stock, to look ahead, and to consider our vision of the labour market we want in our country in, say, ten years' time.

The labour market, after all, is not like product markets. It is not just a matter of supply and demand. Work engages our ambitions and expectations; it helps to shape our identity and status. At its best, people find in their work not only fair pay for their efforts, but huge satisfaction in working with others and in a job well done. At its worst, at the hands of a minority of unscrupulous employers, people suffer from lack of respect, prejudice or bullying; their rights are flouted; and they risk their health or even their lives in workplaces where health and safety is utterly ignored. Whatever our individual experience, work occupies a very large part of our lives: it matters to us all.

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.

But 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 our 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 both to earn a living, and to care for children and other dependants. But the terms of engagement between work and family – or between paid and unpaid work – have fundamentally changed.

The 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 at the same grade is 18 per cent - 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 then reinforces the problem of lower pay, and the woman's position as the carer in the relationship. Because the man's pay is higher, it becomes economically rational for him to remain in work, to work longer hours and seek promotion to compensate for the lower earnings of his partner, which in turn reinforces his position as the higher earner and reduces still further his chance of being the caring parent. So women suffer from the pay gap - and men suffer from the 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 do I think it's government's job to tell parents how to lead their lives. Instead, government needs to create conditions in which different 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 and we are making that investment. But it isn't the only answer. 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.

And many employers are rising to that challenge. Look at the example of Cogent Investment Operations, a City-based fund manager that is part of BNP Paribas. The managing director there, Ian Barnard, offered his staff a number of working time options from annualized hours to part-time working and working from home. The result was higher productivity and much better staff retention.

Unfortunately, employers don't always make it easy. Rob Jones, from Birmingham, sought to work part-time in the same way as many of his female colleagues did after his daughter was born. With the support of the Equal Opportunities Commission, he got there – but only after 16 months of legal wrangling. As he said "my wish now is that what I have achieved is seen as ordinary". I agree – and it is why we will introduce, from next April, new legal standards for parents with young children who want their employer to change their working hours.

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, off-shore 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.

We also need to 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 under the Sex Discrimination Act – a case that I brought when I was at Liberty – involved a civil servant, Belinda Price, who was barred from recruitment at an executive officer 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.

An ageing population

That brings me to the second major challenge to our labour market – an ageing population. In 1966, over nearly 90 per cent of men aged 60 to 64 were economically active. Indeed, just over 20 per cent of men aged 65 and over were still in work or actively seeking work. All that has changed. Today, less than half of men aged 60 to 64 are still in employment – and a quarter of men aged 55 to 59 are economically inactive, mainly because of early retirement or long term sickness.

So there is a fundamental issue that we have to confront as a society. Whereas in the past, forty years' earnings and savings could reasonably support twenty years in retirement, thirty or thirty-five years in employment will not support another thirty or thirty-five years in retirement – at any rate not without levels of savings, investment or taxation that would seem unthinkable to the struggling 30- or 40-something year old also faced with a mortgage and childcare bills.

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.

Work by the government's internal think-tank, the Performance and Innovation Unit, shows how early retirement – even when it follows voluntary redundancy – is often a pretty unhappy experience for people in their 50s. Indeed only a third of those who took early retirement did so freely. Added to that, of course, is the cost to the organization from losing the years of accumulated wisdom and experience.

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.

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. Across our country as a whole, 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. Some of our major employers – the NHS, for example - have a workforce that is far more diverse than the average. And research from the PIU shows that the working age population will increase by a million in the next ten years and that Britons from the minority ethnic communities will account for more than half of this increase.

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. As e-commerce minister, I helped ensure that we made it easier for our own information and communications technology businesses to be able to recruit skilled professionals and technicians from around the world. And I welcome David Blunkett's decision to open new routes for economic migration – skilled and unskilled – to our country.

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.

Diversity, of course, is not limited to race and ethnic origin, as those employers 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.

The USA and European 'social models'

Let me turn now to the myth that too often shapes debate about our labour market: the myth that we in Britain have to choose between some job -destroying regulatory European social model on the one hand or a US job-creating de-regulatory model on the other. For too long the debate has had us stuck in the middle; workers gazing over the Channel for inspiration, employers looking across the Atlantic.

For a start this characterization is wrong. 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 few people, at least outside the Institute of Directors, believe that all we should do to recognise family responsibilities is twelve weeks' unpaid leave after a child is born. And anybody who deals with the litigious American culture will scoff at the idea that it is a free marketeer's deregulated heaven.

Neither 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.

For example, France and Germany do less well on employment but their productivity is higher, with lower working hours. Indeed a German manager is much more likely, if you work late, to ask why you can't get your work done in time, than to admire you for your commitment.

What this diversity indicates is that there is much that we can learn from each other, but also that the policy priorities of different countries will vary at different points in time. Some governments will need to emphasise job creation and inclusion, others raising productivity and skills.

But all of us in Europe share the same goals, articulated at Lisbon over two years ago. We said then that we want to create dynamic, socially inclusive labour markets and 20 million new jobs by 2010. Common goals – but different ways of achieving them. Now that we have in place an extensive framework of European labour standards, it is right that the emphasis is shifting away from new waves of pan-EU legislation to a much stronger focus on sharing best practice and on the role of member states in raising people's skills, reforming social security systems and designing welfare-to-work policies that suit their particular national circumstances.

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, to create more wealth in each hour they put in. And higher standards – including greater diversity and choice - in the workplace.

We have many policy tools available to help us achieve those goals. Full employment is not only a goal in itself – it is also a means to our other ends. As the Chartered Institute of Personnel and Development has recently reported, a tight labour market and growing skills shortages are driving more organizations to recruit more widely, to improve the training and development they provide, and to vary the job specification to suit an incoming candidate. Indeed, when skilled and expert people are at a premium, a growing minority of fortunate employees can pick and choose between employers, behaving like a consumer when it comes to choosing an employer, looking not only for good pay, but for interesting and exciting work, good conditions and a decent balance of work and life.

At the other end of the labour market, of course, are people with no choice whatsoever – like some of the women I represent in west Leicester, trapped in sweatshops, not always even paid the minimum wage, terrified to report their employers and unable because of poor English and limited skills to seek another job. As we invest in basic skills, and tackle the national disgrace of 7 million people without adequate literacy and numeracy, we will start to extend choice and opportunities to people for whom work today is a misery.

So full employment, and better skills, are also routes to more fulfilling employment. But we have other policy tools available as well. Some we have agreed on the European stage, others are home grown. Some involve legislation, others the promotion of best practice - both indirectly in the private sector, and directly as the employer of 5 million people in the public services and public sector. There is no single route to achieving our vision, and much of what we do will help us make progress on more than one front.

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 USDAW, and TNT, with the TGWU are amongst the success stories of this approach. And as 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 successful though formal partnerships are, they are not the only way. In smaller organizations – where most job growth will come in future – trust, communication and partnership may well exist without any formal structure at all. Some businesses – large as well as small - may decide that the best way to secure trust and commitment is to make staff the co-owners of the company, through employee share ownership plans and share options – an approach we have also backed with tax incentives.

We're also spreading best practice across the public and private sectors, so that organizations can learn from each other which methods of organization work best to get the best out of their staff. We co-sponsor, 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.

Where we need to, we will regulate – but in ways that support full employment and higher productivity too. Sometimes fears of regulation are mis-placed. Remember the million jobs that were going to disappear with the national minimum wage? The reverse happened. Remember how women were going to be put out of work by Barbara Castle's Equal Pay Act? The reverse happened. But that doesn't mean that regulation is the answer to every problem, or that a European Directive is needed whenever the social partners fail to agree – particularly when employment law is already too complicated for most small businesses to understand, and employment tribunals have long ceased to be the informal bodies originally intended. That is why, of course, much to the dismay of some employment lawyers, we are putting the emphasis on better workplace procedures in the new Employment Bill, and strengthening the role of ACAS in settling disputes without formal tribunals. So regulation when necessary, and when non-legislative approaches cannot or do not work, but not regulation that protects those in jobs at the expense of those without.

I warmly welcome today's announcement by the Work Foundation that it is establishing a Panel of Enquiry to look at how we can create high performance workplaces. I shall follow its efforts with great interest and look forward to its findings.

At a time of immense social, economic and technological change, we need a national debate about the workplace and the labour market of the future. We need a high performance labour market as well as high performance work-places. A high performance labour market where everyone who wants to work can find the opportunity of work; where everyone has the chance to get new skills and, with them, better work; where businesses can find the people they need to fulfill their own potential. High performance work places where the rights of every worker are respected, where there is trust and commitment, and where people have the skills, the tools, the management support and the leadership they need to create the wealth, the products and the services upon which all of us depend.

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)
• Labour Market Speech to MEPs (19/06/02)
• 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)