Deregulated labour market

The more deregulated the labour market, the more unstable the pattern of employment, the more income inequality and the more marginalized unskilled workers, particularly males, become, with all the associated social consequences; the more regulated the market, the more the opposite holds. Both systems have suffered from a parallel fall-away in economic growth. All industrialized countries, whether their welfare and labour laws were minimalist or not, have suffered rises in unemployment in the 1980s and 90; hence the claimed relationship between low social cost and low unemployment also breaks down.

The market is in a continual and unstable process of experimentation in which there are any number of feasible combinations of output and employment associated with the pattern of demand – which itself is continually changing. The rationale for deregulation is that the market for labour is like any other – with the supply of labour fully employable only if wages, the price of labour, can fall sufficiently to persuade employers to hire all the job-seekers. The theory is that system tends to a single best equilibrium which regulation can only obstruct.

The 65 years up to the first world war in the UK was a period of price stability and wholly deregulated labour markets; there was no trade union movement, state spending was minimal, budgets were balanced, there was no employment protection and no welfare system. Employers were free to lower wages to whatever they considered the economic level. These years had violent annual oscillation in the unemployment rate from virtually full employment to over 10 percent.

Compared with Europe, the deregulated labour market of the USA has created vast numbers of unskilled, low-paid jobs in the service sector, which are held mostly by women. If the numbers of adult men aged between 25 and 54 who declare themselves economically inactive are added back into the unemployment statistics, the average US unemployment rate over the 1980s of some 5 percent more than doubles to over 12 percent (France and Germany with highly regulated labour markets having comparable rates of 9 percent and 12 percent). The combined rate of the unemployed and non-employed in the deregulated UK is just under 15 percent.