Christine Lagarde speaks at the IMF 2014 meeting in Washington. Photo: IMF Staff Photograph/Stephen Jaffe
Labour market deregulation: When the facts change…
The famous remark, commonly attributed to Keynes, that “when the facts change, I change my mind…” could be about to face a stern test. The IMF is about to publish the findings of research by staff members that finds no evidence that labour market deregulation promotes growth. This will prove most uncomfortable for those right-wing politicians and pundits who promote restricting workers’ rights in the name of economic well-being, as well as the IMF itself (and some misguided centre left politicians too, if the European Commission and several continental socialist governments are anything to go by). So they’re likely to ignore it. That’s why it’s important for you to know, so you can keep reminding them what the facts are.
Global unions Washington officer Peter Bakvis reports that in an analytical chapter prepared by the IMF for the April 2015 edition of its World Economic Output (WEO) report, to be released in full on 14 April, Fund researchers found no evidence that deregulatory labour market reforms could have a positive impact in increasing economies’ growth potential. As Peter comments, the finding is significant given that labour market deregulation has featured prominently in IMF loan conditions and policy advice for many countries, most notoriously so in several EU crisis countries.
The finding is included in an analysis based on data from sixteen G20 countries that attempts to explain a predicted slowing in potential output growth in advanced and emerging market economies. The analysis identifies ageing populations, weaker investment and lower total factor productivity growth as the principal factors explaining the growth slowdown in both emerging and advanced economies. However it expects that in the latter there will be a “gradual increase in capital growth from current rates as output and investment recover from the crisis” (p 1).
An annexed analysis in the WEO chapter on “The Effects of Structural Reforms on Total Factor Productivity” finds that (p 36-37):
“lower product market regulation and more intense use of high-skilled labor and ICT capital inputs, as well as higher spending on R&D activities, contribute positively and with statistical significance to total factor productivity… In contrast, labor market regulation is not found to have statistically significant effects on total factor productivity,”
This will come as welcome news in particular to the Greek government, facing repeated demands from the zombie Troika (everyone agrees that it’s dead, but its constituent elements keep trying to call the shots) to ditch its election promises to restore the value of the minimum wage and strengthen collective bargaining. But, as I said, don’t expect these demands to be muted by evidence, any more than the Troika is likely to apologise for demanding the slashing of Greece’s public expenditure which – far from stimulating the growth that is the only real way to repay Greek debts – led to a 25% fall in GDP.
It’s more likely to be “when the facts change, I look the other way…”