Research Studies

Study Exposes Flexibility Myths

David Coats
The Work Foundation, June 2006

The widespread conviction that low levels of employment regulation and weak trade unions are the cause of Britain's good record at creating jobs and keeping unemployment down is exposed as a myth in a study by The Work Foundation. The study also takes aim at the assumption that "being more like America" is essential if high levels of unemployment in some continental European countries are to be reduced.

"Who's Afraid of Labour Market Flexibility" argues that several European countries (Denmark, Sweden, Austria and the Netherlands) have achieved comparable or better levels of labor market dynamism to the UK – while at the same time allowing for much greater levels of "workplace justice."

These nations demonstrate that the combination of moderately tight labor laws, strong trade unions and collective bargaining, and relatively generous levels of unemployment benefits (combined with tight conditions, job search obligations and active labor market programs), are compatible with strong employment performance. The study also claims that it is wrong to believe, contrary to the orthodoxy of the last two decades, that the most lightly regulated countries are the most successful.

The study calls for a series of specific reforms, aimed at improving the level of workplace justice offered in Britain. These would enhance the quality of working life without damaging job creation or unemployment levels:

A higher level of compensation for redundancy
Reducing the qualifying period for a redundancy payment
A review of the penalties and sanctions imposed on employers who fail to properly inform and consult about threats to employment and redundancies
The development of "sector forums" in low-pay, low-skill and low-productivity industries to improve productivity and increase pay
An improvement in the level of out-of-work benefits so that the unemployed are not the victims of a catastrophic collapse in income following job loss
Increased investment in active labor market programs to get the socially excluded back to work
The introduction of an effective 48-hour limit on the average working week

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