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Fixing construction's broken employment system

Fixing construction's broken employment system

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The UK construction industry is currently awaiting further details of the “Sector Deal” recently struck between the Government and the Construction Leadership Council. It’s expected that these details will follow at some point in the New Year.

Ideally the Sector Deal should have something significant to say about fixing construction’s broken employment system: in other words, how the industry’s workers (and particularly those based on-site) are employed, trained, motivated and rewarded. This is important because, as a labour-intensive activity, it is difficult to see how construction can be carried out more productively or to higher quality standards without a stronger and more sustainable employment system.

Professor David Marsden – the distinguished LSE economist who first coined the ‘employment system’ concept – describes this as ‘rules of the game’. The aim of these rules is to reduce uncertainty and establish a stable structure for firms, enabling them to make decisions about (among other things) job classification, career progression, supervision, pay and incentives, training, and the balance between direct and indirect employment.

Successful employment systems can take different forms. In construction, economic logic encourages firms to fit their own operations around a set of occupational labour markets, better known as ‘trades’, and to rely on collective arrangements for training, pay setting, and so on.

Free-riding

This shared form of employment system (which Marsden calls the ‘training approach’) carries obvious risks of opportunism, many of which occur in today’s UK construction industry. This most notably arises from firms that choose effectively to ‘free-ride’ by reaping the benefits of collective training and pay-setting arrangements, whilst undermining them. Typical ‘free-riding’ behaviours include firms failing to invest in training, poaching qualified personnel from competitors who do train, and/or breaching collective agreement terms and conditions.

In contrast, in countries that have preserved successful ‘training approach’ employment systems – for example, Germany, Denmark and the Netherlands – a combination of strong inter-firm training and collective bargaining institutions, societal pressures and active Government support tends to minimise ‘free-riding’ behaviours.

Fixing the broken system

Fixing UK construction’s broken employment system won’t be quick or easy.  Greater investment in digital and off-site methods may help, but is not a panacea and could well remain uneconomic or irrelevant for large swathes of construction activity. Similarly, undertaking training board reorganisations or launching short-lived, supply-side recruitment and training initiatives are unlikely ever to have more than a modest and temporary impact.

Before any meaningful dialogue can take place on how to restore, or reinvent, UK construction’s broken employment system, there is a need to acknowledge the underlying long-term causes which have contributed to the industry’s chronic under-investment in skills, notably:

  • main contractors’ withdrawal from direct construction activity and consequent disengagement from site employment and skills matters;
  • client and main contractor procurement policies which hinder sustainable employment and training practices;
  • tax and employment laws which incentivise false self-employment in various forms;
  • insufficient regulation of occupational standards;
  • suboptimal representation of some specialist subcontractors; and
  • the dilution and distortion of an independent workforce voice.  

To date, there is little sign that the Sector Deal will recognise the importance of a sustainable employment system. One key question therefore is whether Government and the CLC will now start to engage with a broader range of stakeholders, including specialist subcontractors, on finding solutions. This change of approach is essential if the construction industry as a whole is to achieve the Sector Deal’s stated high-level objectives of improved efficiency, quality and skills.

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