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In this essay I am going to look at the
present labour-market policies in Britain and their relative decline or
increase over the past 17 years during which the UK has moved towards an open
society and changed its line of policy. The fact that the policy still exists,
together with the imperfections arising from moving costs and language barriers
in different countries, implies that the government still has a definite role
to play, and will always have, at least until everyone is speaking English or
the transport costs become negligible.
Main line of government policy after
conservatives came to power in 1979 have been to make labour markets more
flexible and withdraw the state intervention (deregulating the markets), that
was thought to only promote inflexibility. Intervention was only allowed when
it was aimed to make market more competitive and free. There is a paradox here
as the state is interfering to ultimately reduce its share. But the state
intervention was only thought to be short-term and in long-term markets could
survive on their own.
The main areas of this interventions were
the special employment measures and training promotion. It was thought that the
training have positive externalities for the whole community (GDP and
international competitiveness rises, less burden on taxpayer) and the people
involved do not realise that. It was also cheaper to put people on state work
where they actually did something than to just pay them unemployment benefits.
The idea why government started to carry
out these policies was because of the increased international competitiveness
arising from the formation of EU (where the trade barriers were abolished and
the movement of labour is unrestricted) and the increase in output of low-wage
economies. In order for the Britain to survive and produce what it has a
comparative advantage in it must restructure its economy. It is not possible to
keep the goods coming from low-wage economies behind high trade barriers
forever.
Now it is impossible for the government to
decide what are the products that the UK has a comparative advantage in
producing. Before the state could direct the economy to produce goods that were
in shortage in UK, now the goods can be imported with almost no extra cost. So
the only thing the government invention can do is to enable the markets adopt
better to the international competition - to make them more flexible.
Fiscal measures, especially the supply side
policies are the name of these much favoured processes. First main improvement
was the cut in income tax from 33% to 25% (top rates were cut even further) and
the increase in indirect taxation. This arguably favours the inventive
entrepreneurs to adopt to more profitable areas of production and thus make
them work harder. On the same lines the poverty trap was reduced (i.e. people
do not loose so many benefits when they start working, thus marginal income
from working is higher). Benefits were linked to prices not earnings in order
to reduce their share of GDP. This policy means that the government can reduce
its share in the economy gradually. Savings were also encouraged through tax
relieves in order to provide funds for new investment. Minimum wage has also
been abolished and the EU social Chapter was not accepted in the UK.
Financial services have also been
encouraged. Although they draw labour away from manufacture and the manufacture
being major part of the GDP in England, it is argued that Asian and other
developing countries have a comparative advantage over England in manufacture,
but Britain can do better in tertiary sector.
Next major policy area have been the trade
unions. It is argued that they reduce the flexibility in markets and thus
discourage the transition of the economy that could produce more profits to all
in the long-run, but will leave some unemployed in the short run. Legislation
on trade unions have been tightened. Secondary picketing is not allowed and a
secret ballot must precede strikes. This policy has also managed to cut the
number of working days lost due to strikes which is also beneficial to the
economy (less is wasted). Wage bargaining is now carried out on a firm level.
This has the advantage of localising problems and not many working days are
lost due to industrial disputes. Also firms are more sympathetic to
negotiations when a secret ballot is successful. However it has been argued
that there are benefits to be gained from both Industrial and firm level
bargaining, UK is somewhere in between and can loose the benefits altogether.
There could be an international bargaining structure soon appearing and nation
governments will be powerless in that case.
Some have also argued that the state should guarantee
acceptable working conditions through intervention. Minimum wage could actually
improve employment as the nutrition standards of people will improve and the
marginal costs of hiring extra labour will vanish. There must be however a
coherent policy in that respect in the EU or maybe later in the whole world as
otherwise labour will move to countries with benefits and capital to places
without and imperfections would be created. State should also keep its role in
regulating the externalities and actions harmful to the society. Here again the
policy must be more uniform between countries as they globalise.
I think ultimately the local governments
may not have to regulate the labour markets as the countries will have
established the production methods most suitable for them and the markets have
trained to be flexible. However right now the economies are definitely not
"Global" enough for that to happen. I think English government has
taken a right course in trying to help the markets to reach this equilibrium.
If all governments would follow the same strategy then ultimately the national
governments could delegate their powers to a global government. However before
that the cultural and language barriers must be overcome. This could take a
very long time and it could be wise for the national governments meanwhile to
sacrifice home flexibility to better working conditions in their home country.