Essay: Deregulation of the labour market resulted in improved productivity and performance

Introduction
The following essay will be divided into different sections, firstly, the introduction of the essay setting the basis of argument, secondly, the examination of the research highlighting the extent to which deregulation of the labour market improves productivity and performance whilst referencing theory and relevant examples from across the EU and lastly, the conclusion which summarises evidence and proposes recommendations. Within this essay, the view that the deregulation of the labour market improves firm’s productivity and performance will be considered.
Deregulation of labour market is the process of removing collective bargaining, legislation and employment insurance (measures of labour market regulation) both internally and externally with the aim of reducing intervention from employers towards matter concerning employees. Within these regulations there are subsidiaries of labour market regulation which are as follows, legislation to protect the rights of employees within the workplace, statutory minimum wages to ensure they match the current standard of living and lastly, training to ensure employees are up to date with current practices and are equipped to perform their role efficiently.
Within this essay we will examine factors which influence firm’s productivity and performance to understand the full extent of effectiveness in influence it. These are the following factors, employment, income and productivity. For employment, this concerns examining the implementation of regulations and the ramifications towards productivity and performance. For income, we examine the distribution of wealth in terms of wages to measure standard of living between higher earners and lower earners. Lastly, we measure productivity on a macroeconomic scale where we consider the increments of aggregate demand being (consumption + investment + government expenditure + net exports).
Throughout the essay the argument that the deregulation of labour market improves productivity and performance will be considered. The following reasons supporting this view is that considering removing employee initiatives such as collective bargaining within labour markets weakens the positions of employees when trying to increase wages and furthermore, there is a provision of a implemented framework which enables firms to maximise labour migration according to the economic cycle (i.e. in an economic boom where demand for labour is higher or recession where companies are keen to streamline with redundancies where appropriate). These initiatives can only be implemented effectively, and productivity/performance influenced positively likewise within a strongly deregulated labour market where competition and free-movement is allowed to flourish which the examination of research will further justify.
Examination of research
Employment
Lawler (2005) stated that employers no longer offer job security to their employees and that there are now a range of retention and development methods used to retain and develop the best talent such as extensive training programmes. Unemployment can be used as an effective measurement in terms of how positive or negatively productively and performance has been influenced. Unemployment describes a situation where able individuals are seeking work but cannot find any, where emphasis will be placed on the time spent unemployed which significantly affects labour productivity and performance with valuable workers unable to work, seen through legislation and the welfare state in labour regulated markets.
Within labour regulated markets, legislations affect time period of unemployment, as with more legislation brings longer time in unemployment. Labour market institutions such as trade-unions are key to increase time unemployed when a number of strikes take place productivity and performance decreases as it prevents employees from performing their roles effectively. However, in a highly deregulated labour market we view employment to increase thus enhancing productivity and performance as a result. Bertrand et al., (2007) speaks about the effects of the deregulation of French banking in terms of efficiency and resource allocation. French banking reforms of 1985 increased bank competition and fostered a more efficient banking sector that targeted credit flows which improved allocative efficiency through asset and job reallocation, largely due to firm entry and exit. These changes increased employment, reduced average wages, and increased outsourcing. These forms of legislation implemented by the French in 1985 allowed firms to become efficient in cost-minimising and profit-maximising, employment levels were higher due to sheer competition as opposed to the opposing scenario in a regulated labour market.
Minimum wage influences productivity and performance, in that the higher wages increase the quantity of labour supplied naturally as more would like to work under better pay, however, having minimum wage can increase unemployment if the price is above the labour demanded as supply doesn’t meet these expectations. An example of this is seen in a market where a single buyer of products can also influence wages paid, this is otherwise known as a monopsony. Michael Porter’s (1979) five competitive forces model considers the power of buyers in the market, if there is a sole buyer in the form of the NHS for the labour of doctors, the NHS can therefore determine wages paid as there is no imminent competition bound to counter offered wages, which may lead to an increase in unemployment.
The redundancy costs affect the level of productivity and performance which in turn can increase unemployment. For example, European Union employment law protects the rights of workers across the EU covering aspects such as conditions of employment for different types of workers. (Szyszczak, 1995) stated the in 1994 the case of Webb v EMO Air Cargo (UK) Ltd where pregnancy discrimination case can’t be defended when a man absent for the same amount of time as a woman would have been treated equally. The Court of Justice of the European Union clarified this invalidates EU law dismissing women after recruitment who become pregnant and compensated the four employees. Firms must consider the ramifications of redundancy in terms of losing good labour for productivity and performance but even more so when hiring employees, which may in turn increase overall employment costs as firms will hire less-skilled but cheaper labour having a greater financial bearing it has on the organisation.
Considering the points above we understand that labour market regulation has been negative influence for in terms of decreasing productivity and performance in the form of unemployment, that is, the costs associated with redundancy, minimum wage bearing and lack of overall job security due to economic cycles. When labour market deregulation has been used implemented across the EU it has enabled efficiency in productivity and performance terms but also competitive when sourcing labour, largely successfully. Regardless, we must take into account that within specific aspects, redundancy, minimum wage and legislation enables higher performance and productivity, in that higher minimum wage and stronger legislation to protect employees fosters a secure environment to incentivise employees.
Income
Training and income are linked in that over time the demand for workers with a variety of skills to satisfied demands of the changing nature of employment has fluctuated. Changes within certain industries such as financial services keener on project management skills for example has affected productivity and performance. The accessibility of training for these niche skills however grants a competitive advantage for a group of individuals who are able to access it, creating a disparity between increasing salaries for higher-skilled earners compared to lower earners. Labour market regulation decreases productivity and performance due to institutions preventing closing the gap, whereas deregulation enables this.
Skills within the workplace has transitioned, with a demand for highly-skilled workers in comparison to less-skilled labour. As such, a certain category of workers with high-skills have bargaining power which exceeds those employees with less skills. The pay for these workers with the required skills of the market increases substantially as opposed to less-skilled workers being stagnant, causing a disparity in incomes. This places the importance on firms to invest in training, Porter (1990) acknowledges the advancement of knowledge in attaining the national competitive advantage, which is what firms gain by changing aspects within the marketplace by which they operate in. Deregulation allows for labour flexibility in terms of migration, firms would not be keen to invest employees they see no such long-term future within the company decreasing overall migration levels. According to an OECD (2018) report, an increase in the share of workers causes a mechanical increase of per-capita income but may affect it even further only through deregulated labour markets.
Labour market regulation affects employment in the form of wage disparity, wage differences highlights income disparity from the top level of top earners to the bottom level of bottom earners. The productivity and performance are influenced when employees are not fairly remunerated in their roles discouraging them from working productively. Philip Booth (2005) stated that from 1979 to 2010 there was an increase from one regulator for every 11,000 people employed in finance to one regulator for every 300 people employed in finance. Within this period there was an objective to reduce intervention from internal and external regulators, allowing market forces to determine salary allows employees to be remunerated upon merit instead of wages being set.
Considering the research, labour market deregulation has closed the gap of income in terms of the highest earners and the lowest earners and increased productivity as a result seen with the migration of labour and increasing income capita per head. With that being said, the disparity has placed more pressure to lower earners to become higher earners through the means of training with the aim of equipping themselves to do a higher paid role which is not always accessible. Labour market deregulation has nullified the institutions which maintain these salaries when faced with the issue of income disparity. Labour market deregulation affects bargaining within the marketplace, where highly-skilled can demand more as opposed to lower-skilled labour with bargaining power.
Productivity
Labour market deregulation examines the following factors of productivity IT, research & development and training. The impact of the labour market deregulation on productivity involves investment in IT to ensure processes can be streamlined, investment in R&D to ensure firms retain first-mover advantage over competitors and investment in training of staff to ensure their equipped with the necessary skills to supersede expectations of their current role.
Investing prudently in an IT system allows work to be done by employees with less troubleshooting and less time away seeking solutions to errors, more specifically reducing the amount of incorrect inputs within the workplace on a day-to-day basis and to resource allocation of investing into more smart technology. O’Mahony and Vecchi (2005) use a dataset of UK non-agricultural market industries to estimate the impact of ICT capital on output growth and estimates show a positive and significant return of ICT capital on output growth placing emphasis on why deregulated markets and investment in IT increases productivity and performance. Total Factor Productivity measures improvement in resources reallocation due to significant IT investment where the contrary views decreases in productivity due to low total factor productivity.
R&D refers to knowledge, expertise and research, supporting labour, capital services refined into new processes. Investing in R&D gains the competitive and first mover advantage for firms which keeps them ahead of their competitors. The objective of R&D investment is for firms to cut their costs and increase their productivity through attaining economies of scale (increasing the volume, for an averagely cheaper price per unit) helps in terms of resource allocation to other parts of the firm which will need it more so. For example, Bartlett and Ghoshal (1989) describe the idea of the “global strategy” as that of standardised products with high integration and low responsiveness, whereby it’s the maximisation of efficiencies in order reducing overall costs, being a model that Phyzer the pharmaceutical company follows extensively. For local responsiveness, customers expect products to be adapted to meet requirements & for global integration, standardisation’s overall objective in terms of efficiency in attaining economies of scale.
Investing in education increases productivity in that the output of the worker increase, this correlates clearly through gross domestic spending on R&D being defined as the expenditure on R&D carried out by companies, research institutes, university and government laboratories in the UK. According to the OECD (2019), in 2015, 1.7% of UK GDP was spent on R&D compared to 3.4% in of Switzerland GDP in 2015, highlighting the disparity of investment, and in the same time periods Switzerland has seen less volatility in the economy then the UK has over time. Training increases the effective output of each worker; this is because there is access to better quality of knowledge, enabling workers to adapt to a changing economy which requires a range of different skills. HP i-Kuppam access to better quality of knowledge increasing the output of workers, HP launched the world’s first i-community or inclusive-community at Kuppam in February 2002 where the community have access to IT based solutions to everyday life situations, which have socio-economic benefits, as well, thereby helping this local market to grow faster. HP had access to infiltrate into a new market with prospective employees to hire, following Bartlett and Ghoshal’s model of responding to local responsiveness in terms of needs in the market, the intent of creating was to create an impact on the community. Even more so, it integrates a systems approach with various other initiatives such as the training centre being linked to satisfy goal enhancing employment opportunities through IT.
Considering the research, productivity has been at a decrease and stagnant due to stringent labour market regulation and the deregulation of these has led to an increase in profitability. That is, removing flexible working arrangements for example. Despite this, it must be considered that with streamlining to make firms efficient comes volatility within the workplace creating a toxic insecure environment which wouldn’t promote productivity and performance. Again, this is to be examined on a case by case basis as different organisational cultures may vary in terms of the level of volatility present.
Conclusion
The period between the late 1970’s to the conclusion of Margaret Thatcher’s premiership saw a transition towards deregulated labour markets across the EU, prompting improving in productivity and performance. These were seen in key factors which affected the following, employment, income and productivity. It is important to note that labour market deregulation is an internal and external process in the sense that it requires an internal SWOT analysis of the firm looking at various compliance functions available and equipping staff promptly as well as an external analysis to ascertain the market standard. Regarding employment, labour market deregulation is concerned with the amount of time one is in unemployment, for example, cyclical unemployment (which follows the cycle of the economy) the amount of time unemployed may significantly increase in the case of a financial crash for investment bankers, a mis-match of skills. Labour market deregulation seeks to minimise the bargaining power of institutions that perpetuate regulation in order to improve productivity and performance.
With regards to employment, regulations enable a scenario where deregulated labour markets cannot minimise unemployment, despite this, minimum wage marginalise workers not at their productive potential. Legislation protecting employees in the case of redundancies as seen above can discourage employers from hiring as the overall cost associated outweighs the benefit of hiring prospective talent. Considering this all, trade unions through the use of collective bargaining have placed the bargaining power with employees which has created income disparity and lower productivity as employees will be seen to feel as if they are not regarded highly within their specific organisations.
With regards to income, labour market regulation increases income disparity in that there is the presence of strong labour unions for example mining, high statutory minimum wages and laws to protect their employees. Labour market regulation favours the wider workforces as their concerns about unjust income is taken into account, pushing for more of an income disparity in general. As a result, higher earns increase in wages under labour market regulation is more marginal in comparison to lower earners. Labour market regulation prevents employees within the market be adept in terms to different circumstances within the marketplace, changing skills or restructuring. Evidently, the demand within recent years for workers with different skills has outweighed the supply of said workers causing disparity in the highest of earners to the lowest earners whilst increasing their bargaining power also.
Labour market deregulation is implemented to attain economies of scale, that is increase productivity whilst reducing average unit labour cost. In turn they increase the efficiency of the firms and they are able to expand and allocate resources more efficiently specifically important if they are multinational. By lowering wages and increasing insecurity removing legislation, there is a clear lower labour cost which can result in substitution of labour for capital, dropping capital intensity which harms labour productivity growth but enhances capital growth. Labour market deregulation reforms was implemented in Europe as part of a strategy that would close the gap between U.S. in terms of Foreign Direct Investment implemented abroad, what we can note is that over a steady period of time we have seen a massive improvement of European Union relative to the US. According to OECD (2019), in 2017, US GDP per capita and productivity levels are at $17,348,625.8 compared to EU’s at $18,568,705.8, within the EU following the US model of mainly deregulated markets has seen a substantial change over the years in the GDP.
Overall, considering the basis of the examination of research, it can be argued that the deregulation of the labour market resulted in improved productivity and performance citing examples in the EU. We must note that the deregulation of labour markets involved the removing of institutions and minimal internal and external intervention. Over a sustained period of time, economies of scale has allowed firms to become more efficient in terms of allocating resources in segments of the firm that need it but even more so which defines labour market deregulation, the ability for firms to align themselves according to the elasticity of demand of the market to streamline which has improved organisations overall productivity and performance.