Monday, July 07, 2003

This is No Solution

The UK government is rumoured to be preparing laws to combat 'ageism'. It is pretty easy to understand why this kind of law could come forward at this time. And of course I am against any kind of discrimination against old people. But in the context of employment law, this would seem to me to be a minefield. In a market economy there is no way you can effectively compel an employer to accept older workers. To give an example, my wife works for a large German multinational. In general the salaries and social conditions have been good, far better than those offered by local Spanish companies. But two or three years ago everything started to change, little by little the working conditions are deteriorating. I keep explaining to her, this is what flexibilisation and restructuring mean, your firm will never again 'improve' conditions. She is a sentimental person and has been loyal to her company and dedicated to her work. But every day she is now more detached, more indifferent. This is the other side of the 'flexibilisation' coin. She sees irregular and unjust treatment of the younger workers on the 'new' contracts, and she doesn't like what she sees. Now her case is different, since, having heard so much about all this at home, she is starting a new career, she is studying alternative medicine, and one day will be a kind of 'doctor' (this means that I, who try never to go to a doctor, am effectively trapped: remember my son is a conventional medic). So she would welcome some 'downsizing'. But her case is not typical in Spain.

And what is the latest proposal on the table of her local management? Recycling all those employees with more than 25 years of service. What does 'recycling' mean here? Easing them out. Now all of this is fine and normal in one sense. We do need more dynamic labour markets. 25 years in one company is too much for anyone. People should begin second careers mid-life. I agree. But the reality of carrying out such a transformation in a rapidly ageing society seems less clear. And here there is certainly a mismatch between the collective social interest that we all work to 70 (or is that 75), and the specific interest at firm and company level, which is to have a young and 'flexible' workforce.

How the circle will be squared (or even if it can be) I don't know. What I do know is that legislation to oblige companies to retain older workers won't work: in a globalised world they can just change country. In addition, if you don't allow younger workers good opportunities to enter then they will change country (remember the point about rising emmigration among young, educated Germans). Bottom line: we may have to accept second 'downwardly mobile' careers in the 50 - 75 age group, with lower salaries, and worse conditions. This seems to be the Japanese experience. Big question: what does this do to the life cycle theory of consumption, and what will be the macro implications?

Proposals to end age discrimination at work prompted warnings of an explosion of legal claims on Wednesday and of a likely increase in the pension age to 70 for many workers. And consultations on whether employers should be allowed to set a retirement age produced differing views from business, professional bodies, lawyers and pressure groups for the elderly. In the biggest change to employment law in a generation, age discrimination will be outlawed by October 2006. But ministers are divided about whether to outlaw mandatory retirement ages or to allow employers to retire employees at 70. The legislation is aimed at ending a situation "where hundreds of thousands of people are forced out of employment against their will in their fifties or late forties and find they cannot get another job", Patricia Hewitt, the trade and industry secretary, said. But John Cridland, deputy-director general of the Confederation of British Industry, said: "Employers will fear an explosion of employment tribunal cases because age discrimination is more difficult to define than other discrimination legislation." James Davies, employment lawyer at the law firm Lewis Silkin, said there would be "a rash of claims". Awards could run into the hundreds of thousands of pounds. Trades unions welcomed the legislation. But they warned that employees should not be forced to work longer for their pensions. Deborah Cooper, senior actuary at the pension specialists Mercer, said it was "almost a certainty" that employers "will at least consider raising pension age for future service" - particularly if 70 becomes the default age.
Source: Financial Times

The proposed change in UK employment law to tackle age discrimination has its origins in an European Council directive which goes back to November 2000:

On 29 November 2000, the European Council unanimously adopted a new Directive requiring equal treatment in employment and occupation in the areas of sexual orientation, religion,disability and age. This will extend significantly the scope of anti-discrimination legislation in the UK.

The UK Government, along with all other Member States, is now required to introduce legislationin the relevant areas. Whilst the UK laws concerning disability discrimination would alreadyappear to comply with the provisions of the Directive, new legislation will be required in the otherareas and the timetable for introduction is as follows:

a) legislation outlawing discrimination on grounds of religion ­ by 31 December 2003;

b) on grounds of age ­ by 31 December 2006.

Source: Lawgram.Com

Now maybe I should make some things clear. I am not against legislation which makes discrimination illegal. But I can see a difference between discrimination on grounds of religion or sexual orientation, which should have no real bearing on our capacity for work, and on grounds of age, were clearly our capacities may alter. Now it is quite coherent to try to argue the case for this law on humanitarian, and social responsibility grounds, my problem is in understanding where this relates to the structural reforms and the labour market flexibilisation on which our future is so evidently supposed to depend. How is it really proposed to establish definitions and criteria? How will we decide between a decision based on age related impairment (I mean we do slow down, and our short-term memories do deteriorate), and one based on prejudice? I mean we can establish quotas of old people, like we establish quotas of disabled people. The firm could be seen to be socially responsible. But isn't that just what everyone is criticising the old Japanese system for, for offering 'lifelong' employment and not being adapted to change. Somewhere along the line our economies need to produce more 'jobs', to create employment. But if we leave this to the market mechanisms firms will have a youth (30-45 age group) bias. Increasing the participation rates of the 55 - 75 age group is very laudible, but do we have any serious suggestions on the table about how we make ourselves more productive when we reach this age. If not unit costs will inev?tably rise (there must be a parrallel here with the Malthusian argument about extending agriculture across progressively less productive land) and our economies will become relatively less efficient: precisely the result we want to avoid. This is why I favour an immigration driven approach to the problem.

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