Labour markets in industrialised societies have transformed in recent decades. Since the 1970s, flexible and short-term contracts, irregular working hours, and long-term joblessness have steadily replaced long-term, full-time and stable employment in certain sectors of the economy. In the UK the years since the 2007-08 crisis have seen employment rise to record levels. But at the same time, many workers experience continual insecurity with zero-hours contracts and can be dismissed with little warning or compensation. Furthermore, unemployment remains a persistent challenge for post-industrial cities where manufacturing jobs have almost disappeared whilst new forms of work have been slow to materialise.
Interest in these labour market changes reached new heights in the UK following a 2017 review of modern working practices overseen by Matthew Taylor, Chief Executive of the Royal Society of Arts (RSA). The review argued that a “thriving economy and fair society” should enable individuals to attain secure, well-paid work, and called for government protections that empower workers and protect them against insecurity. More recently, the World Bank’s 2019 World Development Report challenged governments to re-think its approach to labour market policy in order to mitigate the harms associated with job automation.
Both reports gave a variety of reasons for government intervention, including health and well-being. Becoming unemployed or lacking job security erodes individuals’ health. It creates concerns about financial security and brings feelings of low self-esteem and personal control, thereby creating stresses that harm both physical and mental health.
What, then, can protect workers from the health risks associated with job loss and insecurity? Our paper, published earlier this week in Social Policy and Administration, provides new insights into the possible answers to this question.
In our study we examined whether workers report better health when they are protected by labour market regulations that set generous legal entitlements to notice periods and severance payments. We investigated these two rules as they re-wire the power dynamic between workers and their employers, protecting workers from the stresses of losing their job without sufficient notice or compensation, and the associated financial stresses.
To investigate this we combined a rich survey of individuals’ self-reported health in 22 European countries from the European Union Statistics on Income and Living Conditions (EU-SILC), 2005-2010, with data from the OECD’s Employment Protection Legislation Index. Our statistical analysis of these data showed that people who were entitled to more generous severance payments and notice periods were less likely to report a decline in self-reported health between two waves of the EU-SILC survey.
This association was slightly stronger among those experiencing job loss: those who lost their jobs and had the most generous severance payments were no more likely to report a decline in their health than their employed counterparts. Importantly, we found that these associations remained stable even after adjusting for differences between countries in a range of other policies that could account for these correlations, including differences in GDP per capita, unemployment rates, and social spending.
These findings underscore how regulations that protect individuals from rapid, uncompensated dismissal could have a significant impact on their health. But is there also a possible downside to this legislation? Do dismissal regulations that increase the costs of firing an employee make firms reluctant to take on new staff (and make job-seeking more difficult for the long-term unemployed)?
In fact, recent research suggests that employment legislation (including severance payments and notice period legislation) does not necessarily affect employment rates or turnover. Rigorous econometric testing has not been able to conclude that employment protection has a big impact on labour market performance. An example being the OECD review, which concluded that stricter employment protection does not appear to influence mean unemployment rates or the ratio of employment to population.
In short, more generous dismissal protections could protect health without creating costly inflexibilities. Dismissal regulations may be one lever for governments to empower workers. By re-wiring the power dynamic between employers and employees, these laws could improve health and wellbeing by making peoples’ lives feel more secure.
More details of our paper, co-authored by Aaron Reeves (Oxford and LSE), Martin McKee (London School of Hygiene and Tropical Medicine), and David Stuckler (Bocconi University), can be found on the Social Policy and Administration webpage.
Image caption: Diego Rivera, The Making of a Fresco Showing the Building of a City, 1931, fresco, 271 by 357 inches, gift of William Gerstle. Image Copyright © San Francisco Art Institute.