Lack of regulation may not be the key to success

Jun 12 2006 by Nic Paton Print This Article

The idea that low levels of employment regulation and weak trade unions are the resaon for Britain's good record at creating jobs and keeping unemployment down is a myth, controversial new research has suggested.

The study by the think-tank The Work Foundation has also questioned the widespread assumption within British corporate and political circle that "being more like America" is essential if high levels of unemployment in some continental European countries, including Britain, are to be reduced.

The research, entitled Who's Afraid of Labour Market Flexibility, has argued that several European countries (Denmark, Sweden, Austria and the Netherlands) have achieved comparable or better levels of labour market dynamism to the UK, while at the same time allowing for much greater levels of "workplace justice".

These nations have demonstrated that the combination of moderately tight labour law, strong trade unions and collective bargaining, and relatively generous levels of unemployment benefits (combined with tight conditions, job search obligations and active labour market programmes), are compatible with strong employment performance.

Therefore, the foundation has said, it is wrong to believe, contrary to the orthodoxy of the past two decades, that the most lightly regulated countries are the most successful.

David Coats, associate director of policy at The Work Foundation and the author of the report, said: "The standard view of flexibility is shot through with myths, half-truths and downright manipulation of the evidence.

"In the UK and US, the idea that deregulation equals high employment has been allowed free reign despite the overwhelming evidence that countries with very different laws and institutions have performed just as well economically, have less wage inequality and a higher quality of working life for their citizens," he added.

"Although it remains true that countries such as France and Germany suffer from high levels of unemployment, others – notably Denmark, Sweden, the Netherlands and Austria – do not," he continued.

Very different models of employment can yield equally good outcomes

"In reality, very different models of employment can yield equally good outcomes. There is no single path to full and fulfilling employment," he added.

The study disputed the notion that Europe has "an employment problem" caused by excessively generous levels of benefit and excessively rigid employment law.

While there are individual countries showing the effects of misguided policies, the experience of the Continent as a whole has suggested that mixed bundles of institutions, policies and cultural traditions can lead to good labour market performance, said the foundation.

The study has recommended a series of specific reforms, aimed at improving the level of "workplace justice" offered in Britain.

These would enhance the quality of working life without damaging job creation or unemployment levels, it argued.

The reforms include: a higher level of compensation for redundancy, reducing the qualifying period for a redundancy payment and a review of the penalties and sanctions imposed on employers who fail to properly inform and consult about threats to employment and redundancies.

Other recommendations are: the development of "sector forums" in low pay, low skill, low productivity industries to improve productivity and increase pay and an improvement in the level of out-of-work benefits so that the unemployed are not the victims of a catastrophic collapse in income following job loss.

Finally, the Foundation called for increased investment in active labour market programmes to get the socially excluded back to work and the introduction of an effective 48-hour limit on the average working week.

The paper has been written in advance of a review of economic policy from the Organisation for Economic Co-Operation and Development, which is due to be published shortly.

Twelve years ago – the foundation pointed out – the OECD published its 1994 Jobs Study, which had a huge influence on the policy choices of advanced nations and helped entrench a view that low regulation, low benefit levels with tight conditions, weak unions and low levels of collective bargaining were the only path to full employment.