New rights for families are good news for business

It’s great news that the Government will be introducing legislation to make the six months of maternity leave transferrable between parents.

This change will provide families with more choice as to how they balance their work and family lives, allow children to spend more time with their fathers and may be a step towards reducing pregnancy discrimination faced by women.

As ever, we can expect the usual uproar from parts of the business community, who continually refuse to recognise the role that regulations play in enabling economic growth, and have already claimed that this new right will have enormous costs for employers.

But what is the reality of the impact that such legislation has? The empirical evidence* suggests that paid maternity leave:

• Increases the time that women spend out of the labour market immediately after giving birth;

• Increases the likelihood of women returning to employment after the leave period runs out;

• Increases the likelihood of returning to the same job – i.e. it improves worker retention;

• Has much bigger effects than unpaid maternity leave – largely because women are much less likely to take unpaid maternity leave; and

• Has positive impacts on child health (measured by birthweight), a negative correlation with infant mortality, and a positive impact on mothers’ health outcomes.

These are clearly not business costs.

But it is hardly surprising that the British Chambers of Commerce do not include these benefits in their business burdens barometer, as its whole purpose is to pedal the myth that regulation is a destructive force, preventing job creation and harming corporate profits.

This orthodox economic position is ideologically, not evidence based, as some of the evidence below serves to illustrate.

Since 1997, the Labour Government has introduced a new set of minimum employment standards. These include the National Minimum Wage and the right to four weeks’ paid annual leave in the Working Time Regulations and maternity and paternity rights.

At the same time as these new rights were being introduced, employment levels in the UK rose sharply. For example, between 1997 and 2005, the total number of employee jobs increased by 2.1 million (9.6 per cent).

It is also worth noting that rights including the right to request flexible working, equal treatment rights for part-time workers and stronger protection against unfair dismissal have played a role in limiting job losses during the recent recession.

The OECD’s employment protection index ranks the UK as the second least protected of all developed nations, as is shown in the chart below:

If de-regulation is so necessary, why are so many other successful economies surviving with better protection for people at work? If regulation is such a key determinant of economic success, why have the US and the UK suffered so badly in the downturn?

The truth is that some of the world’s most productive economies combine good rights at work, strong trade unions and low unemployment. The idea that wealth creation only comes about when few have rights is simply wrong in a modern knowledge economy.

*Thanks to Howard Reed and Stewart Lansley for this evidence review – taken from a forthcoming Touchstone pamphlet