Regulation is here to stay, but is beneficial

Regulation has become the taboo word. It never works and obstructs
efficiency and free choice, runs the conventional wisdom. You only have to
think of the US labour market – lack of regulation has meant jobs galore.

Except the story is a great deal more complicated in the US – even
paradoxically proving the opposite. Regulation works, and if we want efficiency
and justice it may be that the old belief that a mixture of carrot (the
business case) and stick (regulation) works, still stands.

Take the explosion in women’s jobs in the US. Not only have women won the
vast proportion of new jobs that have been generated over the last 20 years,
they now hold 49 per cent of managerial and professional jobs, even though they
only represent 47 per cent of the labour force. This figure will increase. By
2030, analysts estimate that American women will constitute 54 per cent of
management and professional occupations. Scaling the corporate ladder has done
a lot to narrow the gender wage gap in the US.

There is no doubt the US labour market has been opened to women because of
the acute sensitivity of employers to being sued for discrimination. Any
American business that earns a reputation for being sexist is not only going to
be taken to the cleaners for compensation, but will also suffer in the
marketplace. It will lose business and talented female recruits.

One of the myths is that the US labour market is lightly regulated. In terms
of discrimination, its market is more savagely policed than almost any other
advanced country’s – the secret of it creating so many jobs for women.

Once regulation and litigation prized open the opportunity, American women
have demonstrated that equal pay is not a cost but a necessity. It is not
possible to construct a high-performance workplace around embedded inequity in
pay – and the US has shown the way.

The successful business case has been created by the regulatory and legal
environment rather than emerged as an act of generous voluntarism. It may be
true that the long boom in the US has generated demand for female labour, but
it has been regulation that has made sure that so many of the jobs are decently
paid.

It makes a salutary story for employers on this side of the Atlantic who
argue that deregulation is the only way forward, and that all constraint on
business is job destroying.

Nobody sane is going to argue for burdensome and excessive regulation. But
equally, nobody sane is going to argue for no or minimal regulation either. We
can’t hope for firms to voluntarily behave properly simultaneously; there is
too much pressure to cut costs and go for immediate profit.

Labour market regulation is not only here to stay, it can be very
beneficial.

By Will Hutton, Chief executive, The Work Foundation

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