From the TUC

Labour market deregulation: When the facts change…

08 Apr 2015, by in Economics

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…”

One Response to Labour market deregulation: When the facts change…

  1. Postkey
    Apr 9th 2015, 8:34 am

    This was reported in 2006.

    “Then in 2006, the OECD Employment Outlook entitled Boosting Jobs and Incomes, which claimed to be a comprehensive econometric analysis of employment outcomes across 20 OECD countries between 1983 and 2003 went further. The study sample for the econometric modelling included those who adopted the Jobs Study as a policy template and those who resisted labour market deregulation. The Report revealed a significant shift in the OECD position. OECD (2006) found that:
    There is no significant correlation between unemployment and employment protection legislation;
    The level of the minimum wage has no significant direct impact on unemployment; and
    Highly centralised wage bargaining significantly reduces unemployment.
    These conclusions from the OECD in 2006 confounds those who have relied on its previous work including the Jobs Study, to push through harsh labour market reforms; retrenched welfare entitlements; and attacks on the trade unions. It makes a mockery of the arguments that minimum wage increases and comprehensive employment protection will undermine the employment prospects of the least skilled workers.
    OECD (2006) found that unfair dismissal laws and related employment protection do not impact on the level of unemployment but merely redistribute it towards the most disadvantaged – including the youth who have not yet developed skills and have little work experience.
    In the speech launching the Report, the OECD Secretary-General Angel Gurría made the following extraordinary statement:
    … most mature economies are growing at a pace that is insufficient to reduce unemployment significantly … As the capacity of fiscal and monetary policies to further support the recovery runs out, a new emphasis on structural reforms is the only way to boost growth and job creation.
    In fact, unemployment continues to rise overall.” more-14153