Academic journal article National Institute Economic Review

The Economic Effects of Industrial Relations Legislation since 1979

Academic journal article National Institute Economic Review

The Economic Effects of Industrial Relations Legislation since 1979

Article excerpt



Industrial relations legislation has played a central part in the labour market policy of the Conservative government that came to office in 1979. The government has attempted to achieve a fundamental change in the legal position of trade unions and thereby in the conduct of collective bargaining. It is a legislative policy that has been popularly credited with considerable economic success.

The purpose of this article is to examine this verdict and to assess the economic consequences of the legislation. We attempt this in the knowledge that it is an unusual and in some ways rather artificial task. Other analysts have preffered to consider the government's labour market policy more broadly. The justification for our approach is that policy makers have placed particular emphasis on these legal instruments, and that consequently they both deserve and require to have their specific effects examined, so far as is possible.

Legislation cannot be considered in isolation. Its impact is strongly affected by the broader policy stance adopted by the government in power. An evaluation of its effects must also take into account concurrent changes for which government policy may claim no direct responsibility. Space constraints prevent our discussing many important but less directly relevant aspects of labour market policy such as training, income distribution, and public sector pay.

We commence with an outline of the theoretical rationale of the legislation. Then follows a summary of the background and nature of the legislation. Next we look at the evidence of its impact, first on industrial relations behaviour and then on economic outcomes. We conclude with a discussion of the explanation of these outcomes. Our conclusion will be that the economic effects of the legislation have been limited and, to some extent, perverse.

The government's theoritical position

`The Government believe that improvements in our industrial relations are essential to an economic recovery', stated a Green Paper issued in 1981 (Cmnd 8128: para 383). In late 1988 the Secretary of State reviewed the government's overall legislative strategy in a policy document (Cm540) which spelled out its underlying theoretical position. The government's view was that ` unions have used their power in ways which adversely affected labour costs, productivity and jobs' (para 2.4). Given that ` unions tended to push up the earnings of people they represented' (para 2.4) allied with the view that 'excessive pay increases...hit jobs' (para 3.1), there is a tendency for unions to reduce employment. It was argued that workers who are displaced from the union sector will tend to put downward pressure on wages in the non-union sector. As a result, non-union wages may compare unfavourably with unemployment benefits and unions will have ended up increasing unemployment (see Hayek, 1980; Minford, 1983). The government has thus seen its industrial relations legislation as, in part, an attempt to curb the power of unions to push up wages. On this view, legislative success would have effect of reducing the so-called 'non-accelerating inflation rate of unemployment' (NAIRU), and will consequently assist in the battle against inflation.

The 1988 White Paper repeated the argument of the 1981 Green Paper in asserting that in the 1970s restrictive practices were a barrier to the creation of new jobs, to growth and to investment' (para 2.1). As evidence for this view, it pointed to studies (Blanchflower et al, 1988; Metcalf, 1988) which claimed that during 1980-84, '... managements who recognised and negotiated with trade unions were less likely to experience job gains and more likely to suffer job losses than managements who did not' (para 2.4). The implication is that industrial relations legislation designed to encourage the reduction of restrictive working practices should lead to employment being higher than it would otherwise have been. …

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