Labor Market Reform in the United Kingdom: From Thatcher to Blair

Article excerpt

The United Kingdom's labor market reform experience, broadly defined, has attracted considerable attention in the United States for the main reason that it is the European counterfactual, having gone in an opposite direction from other European Union (EU) member states for most of the past two decades.1 It is closer to the United States than any other Europan country, having followed the deregulatory path begun in that nation. Americans, long accustomed to seeing Europe's problems as largely brought about by labor market rigidities, often look beyond their own experience to the U.K. for additional confirmation of the benefits of labor market flexibility and deregulation. Crudely put, in the transformation of Britain from the sick man of Europe to a vibrant economy, they have been that confirmation. Even if things are never that simple in practice, the fact that New Labour was to move cautiously after taking power in 1997 hints that something was radically wrong in the Britain of the 1970s and that many of the Thatcher reforms had, however grudgingly, gained widespread acceptance.

In this paper, we provide a review of the broad labor market reforms instituted in Britain in the Thatcher and immediate postThatcher years, distinguishing between labor law reforms and the rest. A strong caveat is then entered in respect to recent initiatives pursued by Britain's new labour government, including the decision to return to the European fold in matters of EU social policy, which threaten to derail Britain's progress. An evaluation of the Thatcher reforms and some assessment of the probable cost to Britain of New Labour's policies precedes a brief summary.

Trade union law under successive conservative governments

Prior to the election of Margaret Thatcher in 1979, British trade unions enjoyed extensive immunities under the law.2 Union power was widely believed to be excessive, a perception underscored by the defeat of the Heath government in the wake of the coal miners' strike and the subsequent turmoil of the "winter of discontent," when public sector unions succeeded in disrupting many essential public services. Much of the blame for Britain's economic malaise came to be attributed to an over-mighty union movement (see Addison and Burton, 1984); the union movement's market power being buttressed by its close links with the Labour Party that it had helped found. In 1974/75 these links were instrumental in rolling back a series of rather modest union reforms implemented by the Heath administration under the ill-fated 1971 Industrial Relations Act.

Mrs. Thatcher embarked on a series of reforms that gathered momentum through time, and upon which her successor modesdy built. Between 1980 and 1993, no less than six pieces of "corrective" legislation were passed-we shall ignore the consolidations. There is no disagreement that their effect was to severely dent union bargaining power, even if the economic effects are necessarily more controversial given the elusiveness of institutional variables in econometric analysis of labor market (especially macroeconomic) outcomes.

The 1980 employment act

The main thrust of this first, tentative piece of legislation was to constrain industrial action by limiting "secondary" action and restricting picketing. The changes introduced in the former area were subtle but in general ensured that any secondary action causing other workers to break their contracts of employment (and which did not directly bring pressure on the primary employer) lost immunity. As far as picketing was concerned, this had to be restricted to the primary dispute, so that secondary picketing lost all immunity and was actionable in the courts.

Apart from these measures dealing with immunities, the 1980 Act also dealt with union recognition, individual rights to dissociate from a union, and other procedures that served to buttress union power. First, the statutory union recognition procedures established by the labour government in 1975 were abolished. …