Transcending the Flexibility Debate? Deregulation and Employment in Britain 1979-1997

Over the last ten years, the debate on labour market flexibility has increasingly become polarised between two distinctive and potentially irreconcilable viewpoints. On the one hand, concern over high levels of persistent unemployment and low levels of employment in Europe has led some to argue that the 'European social model', based on systems of social protection and collective employee representation, has obstructed the operation of labour markets, limiting necessary adjustments to changing demand, hindering innovation, and restricting job creation. On the other hand, critics of the deregulatory strategy point to associated social risks and question whether the deregulation of the labour market is necessarily an inherent component of increased flexibility. This paper seeks to assess the case for and against labour market deregulation by evaluating the British experience in recent years with specific reference to the economic impact of changes in employment law and social security. The growth of inequality and the failure of the labour market policies of the 1980s and early 1990s to deal with social exclusion might, in themselves, give pause for thought even if it were accepted that these reforms had enhanced efficiency. However, the British experience suggests that the nature of the link between flexibility and efficiency is itself open to doubt. It is increasingly being recognised that an under-regulated (or, more accurately, ineffectively regulated) labour market is one in which there is under-investment in 'capabilities' such as those associated with training, labour mobility and job security. This perception may open the way to a new agenda for labour market policy which transcends the flexibility versus rigidity debate.