Job Creation: The Role of Labor Market Institutions

Citation

Salverda, W. (1999), "Job Creation: The Role of Labor Market Institutions", International Journal of Manpower, Vol. 20 No. 5, pp. 1-4. https://doi.org/10.1108/ijm.1999.20.5.1.1

The book is the spin‐off from an international conference on “job creation” held in Barcelona in June 1997. It contains seven chapters, including an extensive introduction to the debate on employment and institutions offered by the editor at the start of the book. There is no clustering of the chapters into parts, but one could argue that three more general chapters are followed by four with a more specific focus. The contributors are from sociology as well as economics. Stephen Nickell, the labour economist with a strong interest in the macro‐economy, finds himself in the company of others who mostly have a background in industrial relations or industrial organisation. Naturally, this is reflected in the book′s treatment of institutions. The role of labour market institutions is a popular subject of study but the present book manages to capture a niche as it attempts to open up the black box of the firm in this respect.

In his introduction (Chapter 1), Jordi Gaul starts with a summary treatment of the trends affecting jobs: technological change and globalisation, and the modification of their effects “within a given economic area” by institutions. Going beyond to the usual treatment of the institutions of the labour market proper (minimum wage, unemployment insurance, collective bargaining and job security provisions), he points out the importance of other, non‐labour‐market institutions, such as product and service market regulations and the educational system. In addition to the part of institutions, he emphasises the key role of enterprises in the job creation process. Evidently, their demand for labour is affected by the institutions but that is not the point Gaul wants to make. It is of great interest how enterprises react to the above trends, how they adapt their internal organisation and what impact this has on labour markets. Equally important is that this, in turn, reacts on the institutions. Gaul′s is not the recipe, held by many, that simply doing away with present labour market institutions will automatically benefit job growth. Instead he argues, from American evidence, that the organisational revolution calls for improved human resources management practices. New employee‐employer relations, for example through increasing the participation of employees, team work and profit sharing, may contribute to finding the appropriate measure of productive flexibility and innovation. This will need a follow‐up in institutional change, which should ease the adjustment of firms and the adaptation of individuals, cushioning the consequences of change for the latter.

Thus the editor announces the main message of the book, which is consistently argued in the contributions by Dennis Snower, Paul Osterman, Vivente Salas and also Anthony Ferner. But before they set sail, Nickell charts the general role of labour market institutions (Chapter 2). On his way to the wider and even more subtle perspectives developed since with Richard Layard for the forthcoming third volume of the Labor Economics Handbook, he concludes that especially employment protection may have an impact on unemployment, enhancing its persistence. However, he also explains that this may not be a bad thing per se as, for example, it can also prolong the employment benefits of a “good” shock.

The debate on the significance of the organisational revolution gets a flying start in Snower′s contribution (Chapter 3), which almost reads as a manifesto. With a few lines he presents the need for a profound decentralisation of decision making in enterprise and the ensuing breakdown of the traditional one‐to‐one correspondence between employees and occupations. Naturally, this has important implications for labour market institutions such as collective bargaining, unemployment benefit systems and job protection. It can, however, also augment market failures of investment in training. In his conclusions, the author advocates the adaptation of institutions, not their abrogation, and repeats his earlier proposal of creating individual “unemployment and training accounts”. Osterman and Salas take over with two country chapters. With a facile hand, Osterman (Chapter 4) gives a detailed empirical account of the changing organisation of work in the USA. He altogether leaves out job creation, stating that the USA has no problem there, and focuses on the two‐faced nature of modern job growth: although part of improved work systems, the new jobs are at the same time more insecure. The old institutions seem to be gone, and Osterman assures us that something new will certainly take their place ‐‐ “a truly unbridled market is not politically or socially acceptable”. However, it remains unclear to him where all of this will go and consequently what the options open to society are. Salas (Chapter 5) presents a detailed study of the Spanish labour market, discussing how a change in the workings of internal labour markets will affect the market external to the firm. He adds interesting detail to Gaul′s remarks on the lessons that can be learned from the American organisational revolution. A total deregulation of the labour market would be the wrong answer. Instead, he advocates strengthening the position of workers in intra‐firm decision making and improving the provision of training by the employers. Ferner (Chapter 7) focuses on the “relocation” of employment within multinational firms as exemplified and triggered by Renault′s closure of its profit‐making Vilvoorde plant in Belgium and Hoover′s earlier transfer from France to Scotland. His analysis adds further to the message on organisational change that the book is conveying. Ferner argues that although the impact is less than often believed, it merits concern. Changes in technology and co‐ordination are increasing the risks of not only splitting off the low‐skill parts of the production process but also shifting away higher‐skilled jobs.

Finally, Colin Crouch′s contribution (Chapter 6) on labour market regulations, social policy and job creation occupies a particular position in the book, stuck between chapters spelling out organisational change. It is a passionate critique of the “deregulationist thesis” as advocated in the OECD Jobs Study. The proposition is that to avoid the negative consequences of globalisation for employment countries should strongly deregulate their labour markets. Starting from a neo‐institutionalist perspective, Crouch discusses the connections of employment to regulation in an international comparison of dynamics (tenure) and segments (age, gender, part‐time, sectors). He particularly objects to lumping together all European countries in a broad‐brush comparison with the USA and Japan.

The above summary may have blurred the feeling somewhat, but the message of the book seemed less clear‐cut to me at first sight than it appears in the end. The book makes a refreshing contribution to the debate on institutions because of its focus on the firm, its detail, and the sympathetic and much‐needed nuancing of the ardent objections raised to existing labour market institutions. It does so with hardly any formalism. It needs, however, some digging below the surface to get the message because not all contributions are equally convincing or easy to read. Particularly, Crouch′s critique of deregulation reads as a long and rather unstructured litany against the jobs study. I am certainly no friend of the study with its political and ideological elements, but some resolute editing would have benefited the reader. Also, it should be said to the benefit of the OECD that it has since managed to embrace new insights, particularly on low pay. Osterman′s lucid text is at the other end of the spectrum. It should be read, however, in its own right as a contribution on organisational change as it pays little or no attention to the core topic of the book: institutions and jobs growth. Also, the empirical underpinning dates back to the early 1990s, resting primarily on Osterman′s own 1992 National Survey of Establishments and making little reference to recent contributions, particularly on contingent jobs in the USA. The latter could have provided some counterweight against the optimistic inferences from American developments made by Gaul and Salas. They seem to assume implicitly that the well‐known increase in inequality is unrelated to the internal organisation of enterprise. It would also have shown that Crouch (pp. 149, 160) erroneously relates American employment performance to a high incidence of part‐time work, especially among men. In the USA, part‐time work has little to do with short working hours (average annual hours worked are high and increasing according to OECD data) but all the more with inferior terms of employment (e.g. no company‐paid medical insurance) as the UPS strike amply illustrated. Another not unimportant detail concerns Snower′s view on collective bargaining, which is only half the story. As a consequence of the organisational revolution, the uniformity of pay rules may indeed be at odds with the growing individualisation of jobs. However, the significance of the market failures in training will also grow. In terms of the employer‐employee relationship, these are a “hold‐up” problem for which collective negotiations may offer a solution (see Teulings and Hartog, 1998).

Summarising, the book contributes a number of valuable insights and, as a whole, conveys an important message.