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23 March 2011

Link between deregulation and growth questioned

The presentation of the UK budget has been an opportunity for actors and observers to discuss the link between reducing red tape and job creation. The UK government had been announcing that its main objective was to use the budget to boost economic growth, (see "Plan for Growth") and various measures are presented or viewed as reductions of administrative burdens, for instance:
- exempting very small firms (with fewer than 10 employees) from all new red tape for three years while the stock of regulationis being reviewed;
- a moratorium on "new domestic regulation" from April.
Opponents stress that most of the cuts affect social legislation (examples training, or maternity leave rights), thereby reducing guarantees to employees. The Trade Union Congress (TUC) has published a pamphlet entitled "The Red Tape Delusion". Some observers point out that "cutting red tape isn't a strategy for growth" (Left Foot Forward). A discussion where we would need a few economic demonstrations rather than catchy phrases or unsubstantiated promises.

1 comment:

  1. The TUC's pamphlet questions whether less regulated labour markets produce more jobs: a fair question to ask. The UK's National Audit Office has also questioned the link between deregulation and productivity, as have we in our own review.

    The sample of countries the TUC points out as outperforming the UK, however, is a little suspect. Small, wealthy countries can implement most regulations better than large wealthy ones or poor ones and therefore get better value for money (or value-for-burden) from regulation. No surprise there.

    A more pan-European review can be found here, and it suggests the opposite effect: http://www.ifo-dresden.de/pls/guestci/download/CESifo%20Working%20Papers%202008/CESifo%20Working%20Papers%20October%202008%20/cesifo1_wp2421.pdf

    One insidious effect of regulation on the more restrictive labour markets in Europe that may be lost on people looking only at headline unemployment figures is that by protecting incumbent workers vis a vis new entrants to the labour market it increases youth unemployment and seriously delays emancipation: http://anafernandes.name/insecuritye.pdf I suspect this is part of the reason why 56% of Greek men aged 25 to 34 live with their parents: http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-08102010-AP/EN/3-08102010-AP-EN.PDF