Progressive policymakers argue that they can reconcile greater equality and greater economic efficiency, more jobs and more job security, and rising prosperity and social justice. One of the key areas where these outcomes can be promoted is in the labour market.
This post is the third part of a series exploring, from a progressive perspective, some of the most important economic issues facing the UK in the runup to the general election. I say UK, but the broad economic arguments can be applied to other advanced economies. Following discussions of the macroeconomy and industrial strategy, today I want to focus on employment and the labour market.
I have written many times before on labour market issues, so this post offers something of a summary of some key ideas, with links pointing readers to posts containing more detail.
Labour’s proposals
The Labour Party wants to strengthen worker’s rights, particularly in disadvantaged segments of the labour market, and enhance the role of trade unions in promoting better pay and working conditions. They are also keen to create a framework in which unions work more cooperatively with business in a way that improves workplace productivity and encourages the creation of well-paid, good quality and secure jobs. The quest for the faster economic growth which should support the creation of such jobs is meant to be aided by their industrial strategy, which includes policies to accelerate the transition to a green economy. In addition, they aim to increase the quantity and quality of labour supply by providing support for the economically ‘inactive’ to return to work, and investing in skills.
Full employment
Although the UK unemployment rate remains fairly low, and job creation is often touted by politicians as an aim or achievement of policy, full employment as a specific policy goal tends to be neglected these days, particularly when compared with the post war heyday of Keynesianism in the 1950s and 60s. A job for everyone who wants one seems highly progressive, but the history of capitalism suggests that while it can be achieved, it is often hard to sustain. Robert Pollin discusses the matter in this interview.
Disguised unemployment
More recent episodes of low unemployment in countries such as the UK and US have tended to be achieved via the creation of relatively insecure, poorly paid and low productivity employment. Thus weak economic growth and rapid job creation can occur together, creating what post-Keynesian economist Joan Robinson called ‘disguised unemployment’. I posted on this issue with regards to the US record here.
Labour market regimes
Labour market institutions vary significantly between countries, with the UK and US having relatively unregulated systems with low trade union representation, and priding themselves on worker ‘flexibility’. In practice this means that workers have less bargaining power vis-a-vis their employers and are more likely to have low wages, poor working conditions and limited rights. This contrasts with institutions in parts of Europe such as Germany or the Scandinavian countries, where unions have historically played a larger role. Progressive economists have argued that there need be no trade-off between employment and productivity on the one hand, and better pay, rights and conditions at work on the other. Indeed they can potentially be mutually reinforcing. I explore the theme of decent employment and its relationship to different labour market institutions here. It is thus imperative to encourage a ‘high road’ to economic competitiveness which some have termed the high wage economy.
A high wage economy
Conventional economics can be used to demonstrate that the payment of higher wages is only made possible by higher productivity. It follows that higher wages must follow the latter. But an argument can also be made that in the presence of workplace inefficiency, higher wages can put pressure on managers to reorganise operations and improve productivity, so that the causation can run in the opposite direction. Within limits, such pressure can prevent a ‘low road’ to firm competitiveness based on cutting wages, in favour of a ‘high road’ based on improvements in products and processes and investment in skills. These kind of arguments can be found in Morris Altman’s Economic Growth and the High Wage Economy which I summarise here and here.
Trade Unions
Thus contrary to the political right’s frequent hostility to trade unions and various forms of labour market regulation, they can play a vital role in improving equality and workers rights, as well as economic efficiency. I explore arguments in favour of the positive role trade unions can play in promoting a high wage economy here.
From the labour market to public spending and taxation
It remains vital to make these kinds of progressive arguments in favour of a social democracy which works to bring together sustainable economic prosperity, efficiency and social justice. While there can be trade-offs between them, this can depend on the political, social, economic and historical context. Policymakers need to learn from international experience as well as their own domestic situation.
The final part of this series will be published next week and takes a look at aspects of public spending and taxation, particularly those which involve seemingly paradoxical policy outcomes.
The Political Economy of Development 