Editorial

Citation

Gennard, J. (2006), "Editorial", Employee Relations, Vol. 28 No. 5. https://doi.org/10.1108/er.2006.01928eaa.001

Editorial

It is all due to the easy way with which employees can be dismissed?

Over the past ten years the manufacturing sector in the UK has lost many jobs as a result of employers transferring work and investment from the UK to other parts of Europe and the World. The UK motor car industry has particularly been badly hit. In 1997 it employed 234,000 people. By 2005, it had fallen to 185,000. Recent years have seen the closure of old plants that were once the backbone of UK vehicle manufacture. Ford cut production at Dagenham in 2000 as did Vauxhall (General Motors) at Luton in 2001. In 2006 Peugeot decided to close its Ryton, Coventry plant with effect from March 2007, whilst Vauxhall announced the ending of its nightshift at its Ellesmere Port on Merseyside with a loss of 900 jobs.

Why has British manufacturing been moving out of the UK? The UK unions argue because it is easier to sack (dismiss) employees in the UK than in the rest of Europe but particularly in France. They cite ten reasons for this. In France where more than ten employees are affected by closure or the transfer of work the obligations on employers to inform and consult with the workforce are laid down in law and include a minimum number of meetings after which the scales are laid down. In the UK there are no specifications about consultation. There is also in France a notice period of redundancy of up to five months compared to the UK where it is only three. Again in France where more than 50 employees are at risk the employer has to prepare a social compensation plan and provide that to the unions. The employer is obligated to listen to and study suggestions from the unions for mitigating the issues. There is no such obligation in the UK.

In France the works committee may appoint an accountant, paid for by the employer who has 20-22 days to produce a report. The unions in France have the right to challenge the company's decision in a Court of Law. No such right exists in the UK. Those who support “the easier to dismiss thesis” also point out that in France employers have to provide to the government detailed information. The government will then check that the employer has compiled with all their obligations and will apply time limits which the employer must follow before issuing notices of termination. Again no such obligation exists in the UK. In France the costs of implementation of the social plan required in cases of more than ten employees being made redundant are significant. The social plan is likely to address internal re-deployment, retaining, relocation packages and re-employment of spouses and partners. It is estimated that on average in France it costs £100,000 to make a French worker redundant. In the UK the maximum allowed for statutory redundancy compensation is £5,000 for 20 years service.

The “easier to dismiss” school argue, in addition, that in the UK there is no “right to strike”, only immunity for unions against legal recourse providing a lengthy balloting process is followed. In France they have the right to take immediate industrial action and solidarity action to challenge company decisions. In France the right to strike is included in the constitutional rights of workers. They also point out that the political impact of closures is different in the two countries. UK politicians are seen as washing their hands of quality well paid jobs arguing that responsibility lies with the market whilst in France it is perceived that French politicians would be shamed out of office unless they made every effort to protect jobs in their countries.

Although this argument has some validity it is too simple and far from being the only factor taken into account by multi-national companies when deciding to de-localise production. The corollary of the “easier to sack” thesis is that it is easier in the UK to hire workers than in the rest of Europe so why will manufacturing employers want to sack cheaper workers? Another important factor is the proportion of labour costs to total production costs. Over the last 30 years the UK manufacturing sector has become much more capital intensive. In the UK motor car industry, for example, labour costs are only about 10 per cent of total costs.

A more important factor than it being easier to sack workers in the UK is that the UK manufacturing sector has lower productivity compared with other European countries. It does not have the infrastructure support, investment and research and development that exist in other countries. The UK has long underinvested in manufacturing relative to its major competitors. Compared with the USA, France and Germany the UK languishes at the bottom of the Table in investment by business and second from bottom in investment by the central government. Accordingly, the UK's Department of Trade and Industry the amount invested in machine per hour in the UK is two thirds that of France or Germany two of the UK main competitors. So Labour may be cheaper in the UK and may be easier to sack but UK manufacturing workers do not have much help from machines. As a result there is a significant productivity gap in the UK relative to its major competitors. It costs more to manufacture in the UK. This productivity deficit in UK manufacturing is possibly the major factor in the decision to close down in the UK and transfer the investment to mainland Europe.

In addition there is the fact that compared with France, Germany and Belgium some UK manufacturing plants are on the western periphery of the single European Market. This means there are alternative sites for multinational companies to manufacture more centrally located in the market. Ford's decision to terminate car production at Dagenham in Essex came as its invested $275m in its Cologne plant to build the Fiesta which had been built at both plants until then. General Motors ended the Vectra production whilst investing to ramp up production at Russelsheium in Germany. As one European Vehicle Manufacturer Analyst remarked in May 2006:

...Companies see Europe as a chessboard. They have to work out the best configuration of the prices. So they invest where they can expect the best returns...

It is, however, well to remember that manufacturers in Germany, Belgium, France and Spain are not isolated from the transfer of work and investment from their countries to other countries. Labour costs in Western Europe are nearly four times what they are in Central and Eastern Europe so they have also to improve their productivity if they wish to minimise the threat of the de-localisation of production. Baver, a large German printing and publishing company, transferred investment from Cologne to western Poland, (just ten kilometre inside Poland). As it closed, Ryton Peugeot invested £745m at its Trnava plant in Slovakia where it expects to produce 450,000 cars by 2009.

John Gennard