A new study says that the conviction that light employment regulation and weak unions are the key to creating jobs and keeping unemployment down is nothing more than a myth.

The controversial research by the think tank The Work Foundation points out that other European countries such as Denmark, Sweden, Austria and the Netherlands have achieved comparable or better levels of labour market dynamism than the UK while allowing for greater levels of ‘workplace justice’ at the same time.

Who’s Afraid of Labour Market Flexibility argues that these nations demonstrate that the combination of moderately tight labour law, strong trade unions and collective bargaining, and relatively generous levels of unemployment benefits (combined with tight conditions, job search obligations and active labour market programmes), are compatible with strong employment performance.

And the author David Coats, associate director of policy at The Work Foundation, says that the orthodoxy of the past two decades – that the most lightly regulated countries are the most successful – is simply wrong.

He said: “The standard view of flexibility is shot through with myths, half-truths and downright manipulation of the evidence.

“In the UK and US, the idea that deregulation equals high employment has been allowed free reign despite the overwhelming evidence that countries with very different laws and institutions have performed just as well economically, have less wage inequality and a higher quality of working life for their citizens.

“Although it remains true that countries such as France and Germany suffer from high levels of unemployment, others – notably Denmark, Sweden, the Netherlands and Austria – do not. In reality, very different models of employment can yield equally good outcomes. There is no single path to full and fulfilling employment.”

The study says that ‘workplace justice’ could be improved by offering:

• A higher level of compensation for redundancy




• Reducing the qualifying period for a redundancy payment




• A review of the penalties and sanctions imposed on employers who fail to properly inform and consult about threats to employment and redundancies




• The development of “sector forums” in low pay, low skill, low productivity industries to improve productivity and increase pay




• An improvement in the level of out-of-work benefits so that the unemployed are not the victims of a catastrophic collapse in income following job loss




• Increased investment in active labour market programmes to get the socially excluded back to work




• The introduction of an effective 48 hour limit on the average working week.

The Work Foundation has published the study as a precursor to the Organisation for Economic Co-Operation and Development’s (OECD) latest review of economic policy which is due to be published shortly.

The OECD’s 1994 Jobs Study had a huge influence on the policy choices of advanced nations and helped entrench a view that low regulation, low benefit levels with tight conditions, weak unions and low levels of collective bargaining were the only path to full employment.