Good article. I think there needs to be a wider exploration of what “reducing red tape and bureaucracy” in all departments would entail – the police being freed up to spend more time cracking skulls on the street than filling in forms, doctors being freed up to operate on patients without having to fill in the paperwork, and so on. Everyone says they would make massive “efficiency savings” if they were elected – strangely, this never happens. Maybe there is a good reason for it?

I am wondering how you are defining labour market regulation here. You acknowledge that France and Germany are sclerotic (we’re all agreed on that) and then point to other countries, including Denmark, as an example of a regulated country that does well anyway. But I was under the impression that in key areas, Danish labour regulation is more flexible than ours!

For example, take this policy analysis from Cato: http://www.cato.org/pubs/pas/pa-603.pdf

“Both the Nordic nations and America have relatively open markets. Indeed, if the “size of government” factor is removed from the Economic Freedom of the World indicators, Nordic nations score an average of 8.35, ranking above the 8.25 score for the United States. Other measures indicate the Nordic nations have sound institutions and progrowth policies in areas other than fiscal policy. The World Bank publishes comprehensive rankings of national business environments. The United States is near the top of the list, ranked third, but all the Nordic nations rank among the world’s most open economies for business activity. Finland has the lowest ranking, but is still 14th out of 175 nations.

The World Bank rankings are not an outlier. Reviewing 11 different competitiveness scorecards, the United States has an average ranking of 6.6, compared to 10.6 for Nordic nations.38 America scores slightly better, but
the United States and the Nordic nations are all considered among the world’s most competitive nations. There are even some areas where Nordic nations score above the United States. In the first international ranking of property rights, for instance, the United States trails the four Nordic nations in the survey.39
Norway is number one, Sweden and Denmark are tied for third, and Finland ranks number 11—all above the number 14 ranking for the
United States.”

So at least when it comes to Denmark (I am not sure about the other states) you seem to be riffing off a bit of a darling of neo-liberal institutions. In which case, congrats, we’re agreed. More economic freedom it is. As I have said before on this topic, you can get away with surprisingly high taxes (and resulting service provision) so long as they are evenly enforced with no special favours, and you stay out of the way of businesses actually trying to make money. Not invading other countries is a good move too in terms of saving on public expenditure, which the scandinavians are pretty good at avoiding, us and the US not so.

The standard argument is that increased labour market flexibility makes employers more confident about taking on workers, because they can get rid of them more easily if they’ve cocked things up. More opportunities therefore become available,a nd you’ve got yourself a nice little virtuous circle.

And the evidence generally supports this over the last decade: look at the employment rates in ‘flexible countries’ such as the UK, US, or Denmark and they are invariable higher than those in ‘Co-ordinated Market Economies’ (to borrow from Soskice and Hall/ VoC theories).

You’re right that unemployment has performed better than many feared at the start of the recession – the biggest difference between now and the 1990s being that pay in the private sector has gone through the floor, whereas real wages increased by 7.3% per hour in the 1990s due to inflation. Firms have also learned that sacking people and then bringing them back 6monthsl ater is very expensive. It has very little to do with regulation (can the NMW or part-time workers regs encourage people not to sack people – no!). All explored in great detail in the most recent BoE Quarterly Bulletin.

However, I’m distinctly worried about future job growth. Productivity normally soars during a recession – it’s crashed this time due to labour hoarding. Productivity builds up capacity to take on more staff – not happening this time round. So will unemployment linger – that’s a real worry.

So, a sensible set of minimum standards are a good thing: NMW, Working-Time (with opt-out), discrimination, redundancy plus unfair dismissal etc. But once you start going much further than that it makes the decision to employ people that much harder – the agency regs being a case in point, increasing the cost of the average temp by about 10%.

Minimum standards, enforced better than we do today and job’s a good’un. Flexible labour market supporting employment (not jobs); minimum standards preventing exploitation.

I see that Nick has answered the Denmark point. They have lots of flexibility – the main difference is that they have higher security than us as well.

This is good for employment levels – it encourages workers to take risks/ move jobs/ creates a more dynamic labour market because of the high safety net – but is also quite expensive. Which is a very interesting debate in itself.

Very different debate to labour market regulation though.

Howard Reed. If small employers or the self employed are deterred from taking on employees because of the cost and complexity of red tape , then we have a problem in this country. Growth in the economy will come from the growth of wealth creating companies . Increases in employment will largely come from the expansion of of SMEs. Where there are small companies requiring specialised skills, then people who leave for maternity or paternity leave may not be easy to replace. Most of the high tech companies are in S England. If a high high tech company is set up in the industrial parts of the UK how easy would it be to obtain say someone with a masters from IC/Cambridge/UCL/Manchester/Oxford plus 5 yrs experience. Not only are most of the top univerities in S England, but also many research establishments .

If there are only 4 or less people in the company replacing one of them is a big risk. What if the company is at critical point of developing a new product/entering a new market and the is competition from other companies?

“the biggest difference between now and the 1990s being that pay in the private sector has gone through the floor, whereas real wages increased by 7.3% per hour in the 1990s due to inflation”

Interesting to note the positive effect of tax credits here – people are more able to accept a wage cut because their tax credits increase to cushion the effect.

Don,

“Interesting to note the positive effect of tax credits here – people are more able to accept a wage cut because their tax credits increase to cushion the effect.”

Well no, not without evidence. How many people have claimed tax credits to cushion wage cuts? To show the positive effect, you need the figures (as you may guess, I’m sceptical).

@5 Charlie2: “how easy would it be to obtain say someone with a masters from IC/Cambridge/UCL/Manchester/Oxford plus 5 yrs experience. Not only are most of the top univerities in S England, but also many research establishments .”

Your geography and knowledge of top Universities appear to leave a lot to be desired! I haven’t done the actual calculation, but I’d be willing to bet that the majority of Britain’s best Uni’s are outside the SE (whether you look at Russell Group members, or international league tables).

If a company sets up in the North, and then can’t attract suitably qualified candidates, then it isn’t trying hard enough!

One of the problems with the UK is that it is over-centralised in the SE. It’s the same as the old red herring about Scotland and the industrial North “spongeing” off the go-ahead, new technology South – the fact is too much government spending (all those government departments, MoD establishments that could be anywhere, spending on transport infrastructure etc, etc) is concentrated in the SE.

IR35

@2: ” You acknowledge that France and Germany are sclerotic (we’re all agreed on that) and then point to other countries, including Denmark, as an example of a regulated country that does well anyway.

It all depends on what kind of regulatory intervention is applied, doesn’t it? There’s a pervasive but stupid tendency to assume “free” markets produce optimal results and to measure the extent of regulation by the numbers of regulations. This surely explains the (ridiculous) recent Conservative policy of requiring the abolition of an existing regulation for every new one.

In fact, there’s a stream of economics literature going back at least to around the beginning of the 20th century focused on how and why markets can fail. A recent and applauded book is this: John Cassidy: Why Markets Fail (Allen Lane 2009). Even Adam Smith held this:

“The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.” The Wealth of Nations (1776), Book 5, Chapter 1, Part 3.

As for the continuing economic success of Denmark and other Nordic countries, despite high tax burdens and regulatory interventions, try: Globalisation and the reform of the European social models, prepared by André Sapir for the think-tank Bruegel and presented at the ECOFIN Informal Meeting in Manchester on 9 September 2005, which argued that there is not one European social model, but rather four – the Nordic, Anglo-Saxon, Mediterranean and the Continental:

• The Nordic model (welfare state, high level of social protection, high level of taxation, extensive intervention in the labour market, mostly in the form of job-seeking incentives)
• The Anglo-Saxon system (more limited collective provision of social protection merely to cushion the impact of events that would lead to poverty)
• The continental model (provision of social assistance through public insurance-based systems; limited role of the market in the provision of social assistance)
• The Mediterranean social welfare system (high legal employment protection; lower levels of unemployment benefits; spending concentrated on pensions)
http://www.euractiv.com/en/socialeurope/eu-debates-european-social-model/article-146338

An executive summary of the paper by André Sapir is here:
http://www.afi.es/FundacionCajaDueroAula/pdfs/2006/3_05.pdf

Try also: Bent Greve: What Characterise the Nordic Welfare State Model
http://www.scipub.org/fulltext/jss/jss3243-51.pdf

Of course, it is what kind of regulation that matters. But what that summary misses out is that the success of the Nordic model also involves free and open markets. More free than ours in some respects.

But it is in your link:

‘the labour markets of the Nordic countries are significantly more flexible than the
labour markets of the Continental countries without compromising equity. Therefore, the popular portrayal of labour market reform in Continental and also Mediterranean countries as one of efficiency versus equity is probably flawed at a fundamental level.’

Bear in mind that there is a cost to all that equity as well. Nordic countries could be growing even faster than they are, if they had lower taxes. But it looks like this is a trade-off that people on here are prepared to make. The point is labour market regulation buys you nothing and costs you quite a bit. High tax, low regulation gets you a bit of the best of all worlds.

“Well no, not without evidence. How many people have claimed tax credits to cushion wage cuts? To show the positive effect, you need the figures (as you may guess, I’m sceptical).”

About 5 million people claim working and/or child tax credits. Here’s one example of how it works, from USDAW:

“Janet is single and works in a supermarket for for 39 hours a week.
She earns £245 a week.
Janet can claim £3.85 a week in tax credit.

If Janet reduced her hours to 30 hours a week, her wages would go down to
£189 a week but her tax credit would increase to over £25 a week.”

Galen 10. If you look at the top 5-10 science , engineering , maths, technology and medical departments and the organisations which employ these people in a technical capacity, they are largely in S to SE England apart from Manchester .
H McRae has pointed out that the economy of Cambridge via Oxford to Southampton has most of the UK high tech’s economy. MRC research centres are vital for medical advances of which Kings has more than any other establishment.

Will Hutton has spoken about the need to create ideaopolis ‘s where the knowledge based economy can grow. Examples are Sillicon Valley and Bangalore . Sillicon Valley is close to Stanford, Caltech, Berkely. The pharameceutical companies are largely based around London and have easy access to Imperial, UCL, Kings , Imperial, Oxford and Cambridge. Look at where companies have their R and D labs.

Much science and enigineering R and D requires advanced facilities ; it is not just pottering about on the lab bench. What is is important to attracting highly educated people are pleasant conditions to live and work plus good schools. People often end up living where they went to university .
Manchester is an excellent science and tehnology university, it’s that we just need more of them of the same standard in all the former industrial parts of the UK.
Italy has been very good at developing small cmpanies into larger ones. Look at at all their fashion and white goods companies.

@13: “The point is [? Nordic] labour market regulation buys you nothing and costs you quite a bit.”

With relatively high GDP per capita in Nordic countries, high labour productivity, and their low measures of income inequality through income redistribution and welfare support, I’m not clear just what those claimed high costs are supposed to be.

When I last looked, Denmark had one of the highest labour market participation rates of adults in western Europe. What I did read somewhere was a claim about Sweden that’s its low unemployment figures were achieved by repeatedly signing those who become unemployed on to retraining schemes to upgrade personal skills. In the case of the Netherlands, I read a claim years ago that the long-term unemployed were reclassified to the Dutch equivalent of incapacity benefit to reduce the headline unemployment rate.

Tax burdens in OECD countries prior to the financial crisis, as measured by tax revenues as percentages of national GDP, can be judged from the OECD chart:
http://lysander.sourceoecd.org/pdf/factbook2009/302009011e-10-04-01.pdf

But note a caveat about Britain carrying a relatively large structural fiscal deficit at the time, which means that Britain’s reported tax burden is somewhat arficially low.

I’ve long believed that one of Britain’s continuing labour market problems is this:

“Up to 12 million working UK adults have the literacy skills expected of a primary school child, the [HoC] Public Accounts Committee says. . . The report says there are up 12 million people holding down jobs with literacy skills and up to 16 million with numeracy skills at the level expected of children leaving primary school.”
http://news.bbc.co.uk/1/hi/education/4642396.stm

‘With relatively high GDP per capita in Nordic countries, high labour productivity, and their low measures of income inequality through income redistribution and welfare support, I’m not clear just what those claimed high costs are supposed to be.’

I am agreeing with you! I am just saying that Nordic countries, according to your own references, have flexible labour markets. Ergo, whatever else we go for, we should probably stick with flexible labour markets.

17: “I am agreeing with you! I am just saying that Nordic countries, according to your own references, have flexible labour markets.”

But the wonder is about how Nordic countries manage to maintain labour market flebility in spite of relatively high tax burdens and generous welfare systems. We need to understand better what the magic mix is – binary classification isn’t illuminating.

Gerhard Schröder spent his last year in office as German Chancellor, before losing out in the 2005 election, chipping away at welfare benefits to reduce incentives to stay out of work. For example, because unemployment benefits depended on previous earnings, including any bonuses, it was possible to get more by staying unemployed than by returning to work when bonus payments were no longer being paid. Prostitution was made a legitimate and tax-paying occupation. The fine print of income tax and welfare schemes matters.

Tax has comparatively little to do with flexibility, nor does welfare benefits (so long as they aren’t tied to being in or out of work). It is about the ability to hire and fire people as market conditions require, set wages/salary, relatively few statutory controls on working hours, and ability to give people new functions within an organisation.

Afraid I don’t have the stats to hand, but the Danish system is generous (i.e. almost completely replaces your previous wage, whatever it was) for as long as it lasts – but is time limited.

That plus I’ve seen people arguing that they have greater social solidarity – not sure how you inculcate this, or arguing that it is entirely compatible with liberalism – and therefore they don’t like to be seen to be claiming for it.

But they’ve definitely got flexible labour markets to go with – and therefore little red tape!

“Tax has comparatively little to do with flexibility, nor does welfare benefits (so long as they aren’t tied to being in or out of work).”

Taxes and welfare benefits impact on the willingness of employees to (a) work productively, (b) take days off on sick benefits, and (c) to search and relocate to preferred jobs at relatively low personal and family cost. Agreed that labour market flexibility also depends on the option for employers to sack employees – for whatever reason – at relatively low costs to employers.

“A new TUC report …… finds almost no support for the idea that deregulation increases employment or makes the economy grow more quickly.”

I’m sure they looked at this issue with no preconceived agenda in any way whatsoever. Any organisation with such a potential conflict of interest but whose claims didn’t happen to fit your prejudices would have you screaming blue murder.

——————–

Regulation costs business’ money making it more expensive to employ people and so, all else being equal, they will employ fewer of them than without these regulations in place. It may well be that the benefits to society as a whole outweigh the costs, (in fewer jobs), of these regulations but pretending that they have no cost at all is decidedly odd.

Dear Falco – we are not saying that all regulations have no costs – but we are setting out a strongly evidence refutation of the orthodox position that any labour market intervention is bad, and are calling for a balanced and pragmatic approach to labour market policy, which recognises that it is possible to achieve successful economic outcomes (low unemployment, high employment participation and growth) with strong social and workplace protection. You can read Howard’s 196 page literature review here: http://www.tuc.org.uk/extras/flexiblewiththetruth.pdf.

16. Bob b. I think you have hit the nail on the head . Approximately 25% of the total population and probably close to 30% of the working population do not have the literacy and numeracy to enter to enter mid to high value wealth creating employment. In place such as Austria and the Nordic countries probably only 5-10% of the total population do not have the skills to enter mid to high value wealth creating employment. Until the UK reduces the unskilled and semi- skilled percentage of the population to similar levels of the Nordic Countries and Austria vast amounts of tax will be spent on welfare payments and no mid to high value wealth creation will be achieved by the bottom 30% with regard to skills/education.

Often highly skilled craftsmen are flexible.It was the Cornish tin miners who migrated all over the UK to start the coal industry and also I think to other parts of the English speaking World. A journeyman was the name given to a craftsman who travelled to find work. In fact the completion of a British apprenticeship , especially from such places as the GWR at Swindon, enabled craftsmen to travel the World finding work. A cabinet maker would make a scale model , of say a writing bureau and present to prospective employer as proof of their skills. Craftsmen had to travel if they were to be employed building large housess, churches , cathredrals , schools etc, etc.

I would say it is the lack of training and education which make people inflexible. Good craftsmen never stop learning .

Birmingham endured the 80s recession better than Coventy because the former had more craftsmen who could upgrade and adapt their skills; whereas the latter suffered because it has a much higher proportion of unskilled and semi-skilled who could not upgrade their skills. Eric Heffer pointed out that a major problem for Liverpool was that the majority of it’s working class was unskilled with employment related to the docks. A highly skilled electrician who has an understanding of control systems can always move to find well paid employment, be it in a factory or on a construction site installing control systems for a lift.

Even more Red Tape?

“The Conservatives announced yesterday that the party would introduce a requirement for local authorities to win approval from the council’s full board before paying any salary over £150,000.”
http://www.timesonline.co.uk/tol/news/politics/article7083763.ece

Bring it on, I say.

I run a small Company employing 14 people. We supply and maintain Fire and Safety Equipment. In order to secure business we have to have an accredited IS9001 Quality System in addition to BAFE Registration, Lloyds Register Approval, and DNV Approval. Because we also deal with offshore clients we have to be registered with First Point Assessment and because we also deal with utility Companies we have to be registered with UvDB Verify.
This week a local authority advised thet they want us to register with Construction Line to continue using us. Each of these ‘ Bodies’ charge between £400 and £1000 per annum for inspection / registration.Whilst we fully support the need for an approved quality system and invest substantially in training our staff, these additional registration requirements place an extra burden on our Company and offer no additional value to the services and product we supply.

@26:

I have much sympathy for the predicament of SMEs seeking new markets in the public sector and with big business. In both cases, procurement executives face a challenge in offering new business to SMEs which have no prior track record with the prospective customer.

The safe personal course for procurement executives is to deal only with large companies or with businesses they have had some prior experience of dealing with – and that would be unfortunate, not least because the safe prudential course limits the extent of competition.

The problem is how can SMEs seeking new business with public or private sector customers provide effective assurances that they are able to meet the standards of work required? This is a real problem. The existing solution of requiring SMEs to register with all sorts of standards institutions and trade bodies is bureaucratic and costly and obviously acts as a market entry barrier. I suspect any government would welcome suggestions about workable and less costly alternatives.