Deregulation in the labour market has worsened the economic crisis

The economic policy during the crisis, in particular labour market issues, was the theme for a seminar held in Stockholm on October 15, with many prominent participants from the field of economy.
LO chief economist Lena Westerlund was one of the seminar organisers. In her remarks she reminded that the current difficult times require a continuous updating of our economic-political approach and that exchange of views with Swedish and foreign researchers and institutions is a good way of doing it.

The neo-liberal approach, claiming that countries with a deregulated labour market are less vulnerable to economic crises and show a more considerable increase in employment, was turned down by the renowned economists taking part in the seminar. Countries with less regulation in the labour market have not coped with the crisis any better than countries with more regulation in the labour market, many of the speakers confirmed.

According to the well-known economist Richard Freeman, countries having applied deregulations have been even more affected by the crisis. Owing to, inter alia, insufficient employment protection, companies carried through large-scale lay-offs at an early stage, with rapidly increasing unemployment as a result. Freeman maintained that the financial crisis was far from over, adding that he had daily, on his way to work in Boston, been passing by numbers of closed business premises.

We are facing a long and tough period. It will take 3-4 years before unemployment decreases to more reasonable levels, if then. After the Swedish crisis during the early 1990s, unemployment remained at a higher level than before. There is a risk that this will happen in many countries, as the financial crisis ebbs away. What we need is an effective labour market and welfare policy, Freeman claimed.

It is not problems in the labour market or lack of flexibility that caused the ongoing crisis, he stated. It is the crown jewel of capitalism – the financial market – that must be controlled! But resistance among financial market actors is considerable, and there is a risk that no decisions on regulation will be made.

The economists Ronald Schettkatt from the University of Wuppertal in Germany, and Raymond Torres, ILO, took also part in the debate on the topic: Macroeconomic policy to stabilise the labour market – what has to be done?

Ronald Schettkatt was very critical towards the neo-liberal agenda that has dominated the economic policy since the 1970s. Representatives of neo-liberalism consider that unemployment is not a sign of underutilised production resources, it is a sign of incorrect incentive and regulation.

Today we know that labour market deregulation has not generated any expected positive effects. On the contrary, it led to increased gaps and slower growth.

Ronald Schettkatt advocated a new global growth model with green jobs, good child care and equal job and study opportunities for all, with a particular focus on immigrants and other vulnerable groups. He hoped that the EU would adopt such a model next year.

Raymond Torres pointed out that the measures taken in order to save the global financial system are the most extensive in history. Some countries have put up to a quarter of their GDP on the financial recovery packages. Totally, 1.7 per cent of the world combined GDP has been concentrated on fiscal policy stimulating measures, since the crisis blew up in the autumn of 2008. It almost equals the 2 per cent level recommended by the International Monetary Fund (IMF). But are these measures the right ones? Torres is hesitant.

There is not enough focus on creating jobs and reinforcing social safety nets, he says. Countries put much more money on tax cuts than on social security systems and proactive measures to deal with unemployment.

If nations continue to neglect the serious employment crisis, there is a risk of decline in consumption, house prices fall and social unrest, he warns.

Labour market policy during the crisis and lessons for the future were another topic of the seminar. The speakers were professor Paul Gregg, University of Bristol, Peter Fredriksson, the Institute for Labour Market Policy Evaluation (IFAU) in Uppsala, and Anna Thoursie, chief economist at the Swedish Municipal Workers’ Union.

Paul Gregg pointed out that a constantly high unemployment rate is costly in terms of social and economic consequences. The long-term unemployed have low income and they face an economically vulnerable situation. Moreover, their health situation and life quality are worse, compared to other groups. A high unemployment rate involves also the risk of the creation of a secondary labour market, with worse conditions, to which immigrant workers, young people and other disadvantaged groups are forced to turn to in order to find their means of living. What is needed in the labour market in many countries is a deal between the government, union organisations and employers to assume the responsibility for jobs.

Peter Fredriksson presented an ongoing study from the IFAU, which looks into what groups were most seriously affected during the economic crisis in Sweden in the 1990s. It also provides an evaluation of the labour market policy initiatives taken during the same period. The finding of the study is that it was those aged over 50, those born outside the Nordic countries as well as those with low educational level that were most affected.

Anna Thoursie took up the reasons why unemployment among young people, aged 15 to 24, is higher in Sweden than in other countries in the EU. To some extent this can be explained by the fact that those who are in full-time studies are also job-seekers. However, there are strong reasons why it is important to address the issue of unemployment among young people. An essential effort would be to provide educational measures for those who lack upper secondary school exam.

The LO President, Wanja Lundby-Wedin also attended the seminar. In her remarks she emphasised the importance of the interplay of unions and researchers all over the world, in order to find ways how to fight unemployment and to create more jobs. The key message of the seminar was that security in the labour market is a prerequisite for economic growth and employment, not deregulations and insecurity. This is precisely what has been the key issue for union movement in all times. Wanja Lundby-Wedin concluded that she is convinced that the union movement can now continue pursuing its demands for justice and security in the labour market with all the more self-confidence.