Interesting report over 2 articles in The Guardian, 25/06/99. Here's both:
1. Social Chapter does not destroy jobs by Larry Elliott and Mark Atkinson
2. In pursuit of prosperity- The evidence does not confirm
the classic right-wing claim that getting rid of unions prevents
European-style unemployment in Britain. by Mark Atkinson.
1. Social Chapter does not destroy jobs by Larry Elliott and Mark Atkinson
1. Social Chapter Does not destroy Jobs
Larry Elliott & Mark Atkinson
The west's economic think tank yesterday attacked rightwing claims that
Europe's chronic unemployment problem is caused by featherbedding workers
with employment laws making it difficult for companies to hire and fire.
Rejecting the economic orthodoxy of the past 20 years, the Organisation
for Economic Cooperation and Development said it could find no direct link
between tough regulations on job security and high unemployment.
The OECD's findings are bound to be seized upon by unions and politicians
who argue that Europe's position as the world's unemployment blackspot is
the result of weak growth rather than curbs on the freedoms of employers.
In its annual Employment Outlook, the Paris-based club for the world's
richest 29 nations said: "This analysis strengthens the conclusion that
employment protection legislation strictness has little or no effect on
overall unemployment.'
The report also cast doubt on the claim that laws to protect workers in
Europe discriminate against women and young people. It found that when all
factors were taken into consideration there was little evidence that
particular sections of the population were being frozen out of the labour
market by employment protection legislation.
Unemployment in the OECD area has increased by 10 million during the
1990s, rising from 25 to 35 million. The Employment Outlook predicts
little change over the next two years, with 7% of the active population in
the west's richest countries on the dole.
Europe has a jobless rate of 10%; most politicians and the European
Central Bank pin the blame on a lack of flexibility within the labour
market.
While the OECD says that flexibility can improve the speed at which the
labour market responds to changing patterns of demand, it provides no
backing for those keen to introduce a Margaret Thatcher-style shake-up of
the European job market. The report merely notes that employment
protection legislation should be kept under review so that it can be
verified that "excessive or poorly designed provision', are not barriers
to jobs for social groups that may find it hard to break into the labour
market .
* The fragile recovery in confidence among Britain's troubled
manufacturing sector has been knocked back, new figures showed yesterday.
Confidence levels and orders fell in June, according to the CBI's latest
monthly snapshot of the manufacturing sector, and export orders remain at
historically low levels.
+++++++
2. In pursuit of prosperity
The evidence does not confirm
the classic right-wing claim that
getting rid of unions prevents
European-style unemployment in
Britain.
Mark Atkinson
Guardian 25-o0-99
The contrast could not be starker.
Unemployment in Germany is not
far below a post-war high of 4
million while in Britain it's the
lowest for 19 years. The right's
standard explanation is that,
thanks to Thatcher, Britain has a
labour market free of restrictions.
British firms are able to hire and
fire at will while the Germans are
tied up in red tape. This line of
reasoning lies behind the
government's determination to
regulate the labour market with "a
light touch" and its entreaties to
European Union counterparts to reform along AngloSaxon
lines.
But the Organisation of
Economic Cooperation and
Development thinks otherwise. In
fact Tony Blair may have been
needlessly timid when it came to
redressing the balance of power
between labour and capital via the
minimum wage, trade union
legislation and implementation of
Brussels' employment directives.
In its annual employment
outlook, the OECD shatters the
orthodox assumption that strict
employment protection legislation
costs jobs. It finds no firm
evidence of a link between the laws
governing labour and economic
performance. The box speaks
volumes: union strength varies
wildly, offering no correlation with
prosperity.
That there are differences in
employment protection between
low unemployment Britain and
jobless Germany is riot in doubt.
Along with the United States,
New Zealand and Canada, Britain has
the least restrictive regulatory
regime. At the other extreme are the
southern European countries, France and Germany, which have
relatively strict employment
protection. France has just
introduced a top limit of 35 hours
that may be worked each week.
Yet the OECD says interventions by the state have
"little or no effect" on unem-
ployment. A tough regulatory
regime does benefit men of
prime working age at the ex-
pense of young people and
women who find it hard to
break into the labour market.
But when alternative expla-
nations for joblessness are
factored in - such as the
level of demand - the appar-
ent link breaks down.
While male workers in countries
with strict regulatory regimes
appear to have a better chance of
being in work than other social
groups, the correlation becomes
"very weak and statistically insignificant" when other
factors are considered.
Does it then follow that Britain
could afford to double the minimum
wage, reintroduce the closed shop
and secondary picketing and scrap
the wide range of exemptions
covered by the EU working time
directive, which seeks to limit hours
worked and provide for minimum
paid holidays, without suffering
harmful effects?
Probably not. For while strict
employment protection regimes do
not appear to influence either the
levels or the demographic
composition of both
unemployment and employment,
they do lower labour market
turnover, says the OECD. That is
not a problem for people lucky
enough to be in work. It just means
they have a better chance of
keeping their jobs.
But the flip side is that the
periods the jobless spend on the
dole tend to last longer. "With
stricter employment protection legislation, fewer
individuals become unemployed,
but those who become
unemployed are at a greater risk of
remaining unemployed for a year or
more."
Long-term unemployment is an
obvious social evil. It can also
prevent the efficient functioning of
the labour market. While
employment legislation might not
directly cause unemployment, it can slow
down the labour market's
response to changing patterns of
demand due to the extra costs, in
time and money, incurred by
companies when hiring and firing.
But it is also true that demand for,
and not supply of, labour is in the
driving seat. Without an adequate
level of ~ demand in the economy, there is nothing for the most
flexible jobs market to respond to.
This perhaps sheds some light
on why the British economy and
labour market has outperformed its
major European competitors in the
last seven years.
The period began with a
powerful boost to demand in the
form of a competitive devaluation
prompted by Britain's exit from the
European exchange rate
mechanism. From then on it is
widely acknowledged by
economists that macroeconomic
management has been well
handled, first by Kenneth Clarke
and now by an independent Bank
of England. Moreover fiscal policy
has been tightened to such a
degree that Gordon Brown has
been able to find room to support
demand without compromising
long-term budgetary targets.
By contrast, Germany, and by
association much of the
rest of Europe, has been
imprisoned for most of the 1990s
by a monetary straightjacket
imposed by the Bundesbank, an
overvalued currency and restrictive
fiscal policy designed to ensure it
qualified for monetary union.
Faced with expanding demand,
the improved flexibility of the UK
labour market has enabled it to
generate an unprecedented number
of jobs. But it would not have done
so without the increased level of
demand.
As the UK economy struggles
to recover from what is officially a
short-term cyclical downturn
prompted by last year's global
financial crisis, the government
will be hoping it proves to be just
that. Otherwise it will soon
discover the downside of a flexible
labour market - rapid job gains
matched by rapid job losses.
Mark Atkinson is our
economics correspondent
<end both articles>
