Deregulation of the Labor Market and Chances of Employment in Great Britain

By Hillmert, Steffen | International Advances in Economic Research, February 2002 | Go to article overview

Deregulation of the Labor Market and Chances of Employment in Great Britain


Hillmert, Steffen, International Advances in Economic Research


Steffen Hillmert (*)

Abstract

This paper examines labor market mobility from an historical perspective, using the United Kingdom as a case study. Movements into and out of employment are related to the institutional developments of the last two decades. In Great Britain, the dynamics of transitions in the labor market have increased over the last two decades, but individual path dependency, that is, the transmission of risks along the life course, seems to have decreased. Women in particular have benefitted from a more flexible labor market while men's employment opportunities have decreased. Employment has also been increasingly tied to economic development. (JEL C41, J60, O52)

Introduction

The problem of persistently high levels of unemployment in many Western societies has served to revive scientific interest in how labor markets function. This brought about institutional analysis in the form of comparative labor market research [Buttler et al., 1995]. The experiences of particular countries are also simplified as economic models in public discourse and function as the basis of policy recommendations. The cooperative Rhinish model now compares unfavorably to the flexible Anglo-American model, and many suggestions concentrate on the deregulation of the labor market [Organization for Economic Cooperation and Development, 1994]. Modern economies may have to face conflicting aims, particularly between employment and equality. Increasing productivity in manufacturing no longer leads to employment growth. Expanding the public sector is incompatible with the demands of a policy that focuses on stability. The potential strategy of systematically reducing the workforce (for example, low female employm ent rates or early retirements) conflicts with financial restrictions and individual demands of participation. One solution lies in labor market deregulation, which would introduce new employment opportunities, especially by means of wage flexibility at the lower end of the scale.

The United Kingdom serves as an example of particularly far-reaching institutional changes. The period of conservative government, beginning in 1979 when Margaret Thatcher came into office, had a deep sociopolitical impact on the country: taxes were reduced, social benefits were curtailed, product and service markets were liberalized, and trade union power was weakened. This policy aimed to raise the dynamics of employment by stimulating market forces. The concept involved accepting a possible rise in collective job insecurity. The chances of reemployment, however, were supposed to increase, and this was intended to more than compensate for the former development. The employment opportunities of marginalized workers in the lower segments of the labor market were expected to improve. Not least in the context of the present discussion on economic flexibility in various countries, the question arises concerning the consequences of this policy, not only in terms of distributive effects, but also in terms of the structure of employment dynamics. This paper will further investigate these consequences on the basis of micro data. In this respect, it is largely exploratory.

What is it that makes the British labor market interesting from an aggregate perspective? Looking at the tendencies of the British labor market, a remarkable trend can be seen. Since the mid 1980s, the unemployment rate in Great Britain has tended to drop. Even during the recession, the rate did not return to its former maximum.

On the other hand, the ability of the employment system to adapt has obviously improved from around 1980 [Trabert, 1997, p. 25]. Looking at the association between economic growth and employment, up until the 1980s, employment only responded to changes in the business cycle with a time lag and then just in a relatively minor way. Since the recession around 1979, nearly parallel developments can be found with a high elasticity of employment in both directions. …

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