Labour market flexibility

As we seek to ride out the recession and the government seeks to ameliorate the worst effects for as many as possible, it is worth reading this leader at The Economist on the global jobs crisis. As the article notes:-

Politics dictates that governments must intervene energetically to help. That’s partly because capital has taken such a large share of profits for so many years that the pendulum is bound to swing back and partly because, having just given trillions of dollars to the banks, politicians will be under pressure to put vast amounts of money into saving jobs. But help cannot be measured in dollars alone. Badly designed policies can be self-defeating. After the recessions of the 1970s and early 1980s, Europe’s rigid labour-markets kept unemployment high for decades.

But note the warning. The Economist then cautions in respect of policies, such as for example the 9 day fortnight:-

These are sensible measures, so long as they are time-limited; for, in the short term, governments need to do all they can to sustain demand. But the jobs crisis, alas, is unlikely to be short-lived. Even if the recession ends soon (and there is little sign of that happening), the asset bust and the excessive borrowing that led to it are likely to overshadow the world economy for many years to come. Moreover, many of yesterday’s jobs, from Spanish bricklayer to Wall Street trader, are not coming back. People will have to shift out of old occupations and into new ones.

That is part of the problem. We need new jobs in new sectors. That requires upskilling. It also is likely to mean improved productivity.

The concluding paragraphs make clear the hard truths that will have to be faced, not today, but in the near future for the longer term benefit of all.

Over the next couple of years, politicians will have to perform a difficult policy U-turn; for, in the long term, they need flexible labour markets. That will mean abolishing job-subsidy programmes, taking away protected workers’ privileges and making it easier for businesses to restructure by laying people off. Countries such as Japan, with two-tier workforces in which an army of temporary workers with few protections toil alongside mollycoddled folk with many, will need to narrow that disparity by making the latter easier to fire.

The euphemism for that is “flexibility”. The bare truth is that the more easily jobs can be destroyed, the more easily new ones can be created. The programmes that help today, by keeping people in existing jobs, will tomorrow become a drag on the great adjustment that lies ahead. As time goes by, spending on keeping people in old jobs will need to be cut, and replaced with spending on training them for new ones. Governments will have to switch from policies to support demand to policies to make their labour markets more flexible. That is going to require fancy political footwork; but politicians will have to perform those steps, because if they fail to, they will stifle growth.

This is where John Key needs to be focussing now. This where Andrew Little and Helen Kelly and Phil O’Reilly should be focussing. Little in particular needs to park his prejudices and recognise that change is inevitable. People talk about the unfairness of the US labour market, but is has been and probably will continue to be a major jobs machine. Unlike the legalistic framework here and in Australia, but Australia is rescued by mineral wealth. Many of the shibboleths of our labour market will need to be cast aside and flexibility embraced if we are to rebuild successfully.

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