United Kingdom is ahead in business climate

What do inventions such as the typewriter,  the World Wide Web, DNA fingerprinting (and the DNA database), the microchip, lasagna and the rubber band have in common? They were all invented in the United Kingdom.

When considering where to look for (or start) new business opportunities, the first places which come to my mind are places where it is easy to do business (not too many regulations), innovation is alive and well and a place where I speak the language fluently. For me, that means either Sweden or the UK.

SE_UK flagsIn this blog entry I will explore the UK and Sweden, comparing the two on business environment rankings (including ranking on degree of innovation) and employment laws, as all growing companies will eventually need (several) good people in it.

Landing a 2nd and a 5th place in the Global Innovation Index, Sweden and the UK are two of the top ten most innovative business environments in the world. The two countries differ in many ways (not just in terms of the size of the economy); which I will explore here.

According to the Global Innovation Index 2012, researched by INSEAD and WIPO (World Intellectual Property Organisation), the UK is leading in several aspects important to doing business. It is easier to pay taxes, get credit and resolve an insolvency in the UK and it ranks #6 of High Income OECD countries as the easiest country to start a business in, whereas Sweden comes in at 19th place .

Sweden scores higher in percentage of population with tertiary education enrollment, but the UK offers a higher rate of collaboration between corporations and universities. The higher degree of collaboration between corporations and universities may lead to a lower unemployment rate in the long run.

Examples of regulation differences

In Sweden, fixed term contracts are only allowed in four specific cases:

  1. for general fixed-term employment
  2. for temporary replacement of absent employees (due to maternity leave for example)
  3. for seasonal work (such as berry-picking, ski resorts etc.)
  4. for people above 67 years of age

Also, if an employee in Sweden has been employed either on a general fixed-term contract or as a substitute for someone for longer than two years (during a five-year period), the employment is transformed into indefinite-term employment, making dismissal more difficult and expensive.

In the UK fixed term contracts are generally allowed without any restrictions, but after four years, the employee is treated as a permanent employee.

The cost of making personnel redundant in Sweden is the equivalent of 14 weeks pay, whereas it is only 8 weeks in the United Kingdom.

Trial periods & Unfair dismissal

unfair dismissalAnother difference between the labour laws is the trial periods. In Sweden, a trial period is allowed during a maximum of six months, whereas in the UK it is up to the employee and employer to agree on a trial period.

Unfair dismissal in Sweden is regarded as any dismissal where the employee could have been transferred to other work (due to his/her disability or reduced work capability). If there is a remote possibility of finding work for an employee, then the employer is required to find that possibility, for example it could mean changing the physical work place to accommodate a wheelchair.

In the UK, a less wide range of reasons could be deemed unfair reason for dismissal, but for example maternity, pregnancy, and whistle blowing are unfair reasons for dismissal.

Less employment regulations = Higher employment rate among certain groups

Is the ease of hiring and dismissing employees a reason as to why the UK is ahead of Sweden when it comes to business climate?

Do the strict employment regulations in Sweden mean that Swedish companies are less likely to employ “risky” employees, such as foreign-born and young people? Looking at the latest statistics from OECD it seems this is indeed the case.

In 2010, 11% of the UK population were foreign-born, compared to 6% of the population in Sweden. Although the UK had a higher percentage of foreign-born men and women, the unemployment rate of this population group was 50% lower than in Sweden (8% versus 16% of the male foreign-born population).

Examining the youth (15-24 years old) employment rate we see a similar scenario: the youth employment is nearly 51% in the UK compared to only 38,5% in Sweden.

Give people a break

Even though Sweden can say that it is ahead of the United Kingdom in terms of employment security, the UK is ahead in terms of getting people to work. It seems as if the lack of regulations for employers in the UK translates in to that they are more prone to give the foreign-born and youth a chance at work.

Or is it the case that foreign-born and youths in the UK are more motivated to work than in Sweden? If so, what are the causes for this; is life as an unemployed individual more uncomfortable in the UK than in Sweden? In my optimistic world-view however, when companies dare to employ certain segments of the population because they have little to lose by doing so, they will be rewarded with good employees.

People who are given a chance to show what they can do are quite possibly very keen to reward their employer by doing a good job, resulting in a higher retention rate of employees, and hence the lower unemployment rate among the foreign-born and youth population in the UK.

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