Employment, Technology and Economic Needs: Theory, Evidence and Public Policy

Citation

Hogarth, T. (2000), "Employment, Technology and Economic Needs: Theory, Evidence and Public Policy", International Journal of Manpower, Vol. 21 No. 3/4, pp. 322-330. https://doi.org/10.1108/ijm.2000.21.3_4.322.2

The creation of the single European market (SEM), and then of a much more integrated European economy and society following the Maastricht Treaty and the creation of a single European currency, focused considerable attention on labour market regulation in the European Union. Could, for instance, the highly regulated, high wage labour markets of many northern European states survive the potential flood of imports from low wage producers in southern Europe following the creation of the SEM? At its most pessimistic, increased competition within the European Union was seen as a means of cost‐cutting whereby lower prices would feed through to lower wages and reduced levels of employment protection. Arguably, competition has led several European countries to increase the amount of flexibility in the labour market with respect to hiring and firing staff, use of atypical contracts of employment, and wage bargaining. Mainland Europe, nevertheless, still affords its employees a greater level of employment protection than either the UK or the USA, but suffers to varying degrees from lower levels of economic activity and higher rates of unemployment. This raises an important question as to who benefits from employment regulation: those in employment may do so at the cost of those who are either unemployed or economically inactive. From a neoclassical perspective, the unemployment problem faced by Europe requires less regulation and more market; for others it is a case of re‐regulation. Firmly from the latter camp comes this volume of papers first presented at the 1996 European Association of Evolutionary Political Economy conference which explores links between employment growth and technological change and the institutional settings that potentially foster both.

The editors of this volume, at the outset, state its lofty aim:

… to go beyond the neoclassical theory of employment and present sounder policy guidelines to solve the unemployment problem” (p. 1).

Neoclassical economics, it is asserted, has wrongly diagnosed the unemployment problem and as a consequence has prescribed the wrong solutions. Neoclassical economics sees unemployment as a result of insufficient flexibility in the labour market; what is needed is more flexibility, especially that related to wage formation. Wrong, claim the editors!Drawing from long‐wave theory associated with Kondratieff and with the theory of regulation as developed in France during the 1970s, they devise another explanation of unemployment. Historically, economic growth has been sustained by a radical change in the technological base of the economy and sustained by “an appropriate institutional framework”. Stagnation in the economy sets in when a period of technological change becomes exhausted, creating unemployment, and there is a mismatch between regulation and the economic cycle. Economic stagnation persists until such time as a new wave of technological change comes along after which there is a period of transition during which time an appropriate regulatory framework is developed.

From the above account of change in the labour market, a series of policy prescriptions are presented based around:

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  creating an environment that fosters innovation;

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  developing the skills of the workforce to facilitate the diffusion of new information and communication technologies (ICT); and

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  favouring policies that generate employment growth (Keynesian expansionary policies). The latter point is especially important given the capacity of ICT to act as a substitute for labour.

The book is divided into four sections. The first section addresses the institutions that govern employment from both a theoretical perspective and empirically – such as the UK experience of the 1980s which saw the demise of much of its manufacturing sector. It also revisits, from a comparative international perspective, the debate surrounding the level at which wage bargaining is most conducive to employment growth. The second part of the analysis addresses the impact of technological change on employment from both empirical and theoretical perspectives. Regulation is addressed in the third section, including a most challenging view of the role of environmental protection and employment growth. Finally, the fourth section of the book suggests policy responses to the current relatively high level of unemployment encountered, mainly, in the Europe Union. Of particular interest here is the possibility for a reduction in working time as a means of generating employment growth.

Michie and Reati have drawn together an interesting and thought provoking series of papers that takes the reader from an introduction of the possibilities provided by regulatory and institutional settings to generate employment growth towards a more fully realised view of how regulation and institutions can achieve that end. If one may have a slight quibble, it is that the book would have benefited considerably from a conclusion that drew together for the reader some of the many strands that run through it. Though the last section provides a series of policy responses, it is only the chapter on working time that provides a direct policy response to the threat, identified in an earlier chapter, which ICTs pose to total employment. Overall, the policy agenda section is, perhaps, a little too far removed from the generally thoughtful and provoking analyses provided in the rest of the book.

Some of the theoretical explorations of the subject area are a little esoteric, such as the chapter on labour supply and unemployment, but this is more than made up for by the chapters that present comparative cross‐country analyses. Indeed, if one is trying to identify what regulatory or institutional framework works best amongst countries facing a broadly similar unemployment problem, then comparative international research is the obvious avenue for the analyst or policy maker to explore. On balance, any weaknesses suggested above are more than outweighed by the strengths of the book as a whole. Whether or not the authors have been successful, as they say, in going beyond neoclassical theory to solve the unemployment problem is a moot point, but in attempting to do so, Michie and Reati have presented a most interesting and challenging set of views.