It's the Workers Stupid!

It being good to start the new year on a positive note I thought I might share the conclusions of a recent article with you. The article's title, "Labor Market Regulation and Productivity Growth: Evidence for Twenty OECD Countries (1984-2004)", pretty much gives away the content. The paper looks at the relationship between a range of labour relations indicators and labour productivity growth in 20 OECD countries which fall into three distinct groups: Nordic (N), Continental Europe (CE) and Anglo-Saxon (AS). The author report that

"Differences are particularly strong between AS countries and all other countries in earnings inequality, tenure, degree of wage bargaining coordination, employment protection and the management ratio."

Somewhat unexpectedly (for those of us deafened by neoliberal rhetoric) they conclude:

"we find that labour productivity is higher in countries featuring relatively regulated labor markets. This directly contradicts the claim that 'excessive labour market regulation' or 'rigid labor markets' are a major cause of slow labor productivity growth.."

The authors go on to caution that further deregulation may lead to deteriorated productivity performance. And why?

"Because it fails to effectuate the contribution that workers can make to the process of organizational and technological innovation which raises productivity."

In their review of the literature the authors identify a number of reasons for this claim, for example

"worker cooperation, commitment and participation depend to a large extent on the trustworthiness of employers in honoring their commitments to long-term employment and fair productivity gain sharing "

and , guess what, the most solid foundation for that trust is the ability to enforce those commitments (authors' emphasis). And strangely employment security by providing workers with some insurance against wage risk stimulates worker investment in education which in turn has a positive impact on productivity growth.

So it appears that employment security does matter after all and that workers are not commodified automatons.

See: Storm and Naastepad (2009)"Labor Market Regulation and Productivity Growth: Evidence for Twenty OECD Countries (1984-2004)" 48 Industrial Relations 629-654.(Unfortunately New Zealand is one of the 10 OECD members not surveyed.)