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Ian Brinkley
Economic Advisor
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Ian Brinkley

Labour Day 2013

Authors: Ian Brinkley Ian Brinkley

01 May 2013

As much of the world celebrates the traditional Labour Day, many may feel they do not have too much to celebrate with widespread unemployment, falling real wages, and growing insecurity at work.

As ever, the reality is more mixed. In the UK, the number of people in work has been much higher than we would have expected from historical experience given the state of the economy. And unemployment has risen less than in the past. Moreover, more people are staying active in the labour market than before. In the workplace, there are signs of modest improvement in the way the workforce has been managed and most people remain strongly committed to their organisations.

There are of course big downsides. It is of no comfort to redundant workers or those seeking work for the first time to know that the overall position is better than in previous downturns. Unemployment is still high and may well go higher over the next twelve months. The young are always one of the most vulnerable when unemployment rises and youth unemployment remains a huge challenge.

Moreover, there may be more work on offer, but too often it is temporary and part-time. The number of people in part-time work that would like a full-time job is at a record high. Large numbers in temporary jobs would like permanent work. Better these jobs than no jobs may be right in the short -term, but the more these trends persist the greater the danger that skills erode, workers become trapped in precarious employment, and productivity suffers.

The rise of zero-hour contracts is of particular concern because amongst all forms of flexible work contracts, its imbalance between the interests of employers and employees is probably the greatest of all. At their worse they almost encourage employers and workers to minimise their obligations to each other – the opposite of good employment practice.  Zero hours should only be used in exceptional circumstances, but recent calls to ban the practice feel more like political knee-jerk than a thought out response. Rather than treating them as works of the devil in all circumstances, we should take a more considered look at what practical steps can be taken to get a better balance of interest and spread good practice where that exists.

The continued falls in real wages have also increased pressure on households. Again, the fact that wages took the strain rather than jobs in the recession was the better choice from a social welfare point of view. But persistently falling real wages once the recession is over is not a sign of economic or labour market health and this is hampering the recovery.

And what of organised labour, who after all are the traditional focus for May Day celebrations? Unions in the UK can fairly point to examples of social advance that would not have happened or would have happened at a much slower pace without union campaigns – the highly successful National Minimum Wage being a prime example.  Union membership in the UK has declined, but is still higher as a share of the workforce than in many other large economies such as the US, Japan, France, and Germany.

That said, for most employers and employees in the private sector, trade unions and collective organisation are no longer present or never existed. Latest figures for 2011 show that only 17% of private sector employees are covered by collective agreements. Most studies suggest unions have little impact on aggregate wages, and governments no longer feel obliged to make deals to control inflationary pay deals. Regulation of the labour market has shifted decisively to supporting the individual at work rather than strengthening collective bargaining.

Some have questioned whether unions really have a significant role in today’s labour market. Unions can still exert influence for the public good as responsible social partners in the workplace and in labour market institutions – as they do in many Northern European economies and as the work of the Low Pay Commission demonstrates in the UK. Recent rhetoric about general strikes from some unions is not helpful in convincing others that this is a model that should be adopted in Britain.