Flexible labour market orthodoxy could be another victim of the recession
There is a very interesting piece in today’s FT about how labour markets have reacted to the recession. The neo-liberal orthodoxy of recent years has always been that easy hire and fire allows for the most efficient allocation of labour and therefore benefits the wider economy – a price worth paying for the insecurity suffered by individual employees. In a recession companies that found it easier to get rid of staff would survive and then prosper again as they could also easily take people on in the recovery phase knowing they could easily sack them again.
Some of us have never bought this idea, and it has not been the experience of this recession. As the FT says:
Something weird is happening to labour markets in the rich world. The link between depth of recession and rise in unemployment is broken. And for the first time in a generation, Europeans can bask in the knowledge that their unemployment would have to rise in order to approach US levels.
In some countries – the US stands out – the decline in output has not been so terrible but the employment shake-out has been brutal. Many more American jobs have been lost than in other countries – and many more than in the past.
The main criticism of the orthodoxy has always been that people cannot be treated simply as factors of production in the same way as raw materials. Work is a social process. Employers depend on the experience, knowledge, organisational memory and teamwork of their staff. These are easily lost when staff are sacked, but very hard to rebuild.
This is why the short-term job subsidies common in the rest of Europe, and advocated here by the TUC – though rejected by the Government – make sense.
And while you would expect the TUC to say this, the OECD – normally home to a reliably pro-labour market flexibility view of the world – is, the FT reports:
…modifying its view. “We have been promoting flexibility, not for the sake of it, but for economic performance and for workers to get into new jobs,” says Stefano Scarpetta, the OECD’s head of employment analysis.
This motivation is allowing a change of view. “Judging from the outcomes so far, short-time working schemes seem to have been rather successful in containing the job haemorrhage,” he says, adding that even his organisation is “a little bit more positive on public works programmes: we argue that as part of a labour market approach, they might be worthwhile”.
While this is not a wholesale repudiation of the OECD’s former views, it reflects the fact that, according to the organisation’s own analysis, the gains in employment flexibility of recent years have failed to protect employees from the economic crisis. “There do not appear to be any clear grounds for concluding that workers, generally, are any better or worse prepared to weather a period of weak labour markets than was the case for the past several recessions,” the OECD concluded in its latest Employment Outlook.
As ever, Harvard’s Richard Freeman (who has advised the TUC) is on the ball:
Microeconomists and policymakers spent much too much time fiddling with the work incentives of poor people. “If the unemployed person or the welfare mother . . doesn’t do quite as much work as we would like them to do, or as they should, that’s a very small cost to society; when a big banker takes excessive risks, it can bring the whole system to a disaster . . so we took the eyes off the ball of the really risky part of capitalism.”