The Wrong Way to Boost Jobs and Incomes

In the early 1990s, with rising unemployment and widespread economic recession, the Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) began to analyse unemployment, job growth, and labour market policies, and to push a rather malicious theory which they call the ‘jobs/unemployment trade-off’ in order to justify all kinds of regressive policies and reforms. These analyses became central to the spread of neoliberalism in the advanced capitalist countries and the agenda of ‘structural’ labour market reform.

In a series of ‘Jobs Study’ reports, published over the past ten years, the OECD has consistently argued that employment performance would improve as soon as governments reformed their ‘unfriendly’ labour market institutions.

The unemployed, the OECD claimed, have only themselves and too strict labour laws and unions to blame for their predicament. With technical progress rocketing, workers and the less skilled have to become more ‘flexible’ and accept lower wages and more part-time employment if they want to work. This is the only way employers will hire them in the ‘new economy.’

In real terms, this theory might be far better seen as the ‘less pay or fewer jobs-for-the-suckers-trade-off.’ The rich get more. The majority of workers get the dregs, and they can take it or leave it. But just to make sure they accept their lot in life, governments should do all they can to roll back a century’s worth of labour and social policy in order to make sure workers make the proper ‘choice’ of less pay.

It 1994, the OECD made 10 policy recommendations, including making wage and labour costs more ‘flexible’ by restricting unions or significantly restructuring or reopening collective agreements; as well as reworking employment standards and employment protection laws in order to increase the flexibility of work-time. It also argued that wider trade and investment deals would promote competition and investment.

The 2006 OECD Employment Outlook

Twelve years later, the OECD has recently reassessed its original recommendations and their impact. In its 2006 Employment Outlook report ‘Boosting Jobs and Incomes,’ released in Toronto June 15-16, it examines the labour market performance of leading advanced industrial countries (including job growth and unemployment), and develops a comprehensive listing of the changes countries have made to their labour market policies and institutions over the past decade. This is supplemented by reports analysing whether or not countries have fully implemented, partially implemented, or ignored OECD recommended reforms.

The report then goes on to make further recommendations or ‘refinements’ of earlier policy recommendations. These include a number of common neoliberal economic prescriptions.

Among the key recommendations are tax cuts and social security reductions to ‘increase the rewards from work and encourage labour market participation,’ as well as ‘lower public spending to ensure fiscal stability.’

It also claims that work-for-welfare, two-tier minimum wages, and the ending of mandatory retirement will make more people work and work longer, and improve the economy.

On the surface, ‘Boosting Jobs and Incomes’ appears to make ‘common sense’ arguments that are intended to appeal to all and offend none. Couched in high sounding rhetoric, it makes a number of draconian policy recommendations sound innocuous, beneficial, and reasonable. It also tames a number of its sharper edges by underlining the importance of training, and saying that there is no ‘one golden road’ to success.

But the underlining theme throughout the report is that unemployment is due to ‘protective’ labour market institutions, like ‘generous’ unemployment benefits, employment protection laws, and trade unions, and that job growth will only improve if governments reform their ‘unfriendly’ labour market institutions.

This follows in the footsteps of a large body of mainstream liberal economics that has long claimed labour markets will only ‘clear’ and workers will have only more ‘incentive’ to work, if there are no unions, unemployment insurance, or minimum wages. In addition, the report operates on the assumption that removing legislation that protects workers from being easily fired will only improve employer incentives to invest and hire new workers.

The Limits of Neoliberalism

The OECD study goes on to claim that neoliberal deregulation and reforms in labour market institutions and policies over the past ten years account for almost two-thirds of the recent fall in unemployment. But as a number of scholars and union researchers have pointed out, this is highly questionable conclusion.

What makes the analysis most problematic is that nowhere does it mention the benefits of public services to workers or to the economy. Nor anywhere does it recommend investing in public services instead of privatizing them.

The report also avoids any mention of the causes and consequences of falling unionization in the ‘market reliant’ countries of the USA, the UK, and Australia such as low-wage work, more inequality, and worsening public services. And while it discusses inequality, it fails to address how the declining influence of unions has allowed employers to get away with record profits, while paying their employees less.

Much better solutions like suggesting people be given a living wage or be provided with more opportunity to unionize – each of which would also substantively raise the money in people’s pockets – do not appear anywhere in the report’s final recommendations.

It is also hard to see how the neoliberal model of attacking union rights, cutting unemployment benefits, workfare, and slashing social assistance can in anyway be called a ‘success’ for working people. Poverty has increased, public services jobs have been lost, and more people than ever are working in bad, part-time jobs.

In Canada, for example, job growth has increased over the past decade. But 32 percent of all jobs are now ‘flexible’ part-time or self-employment. 42 percent of women work in poor, low-paid jobs. Over a third of new immigrants – who now make up the bulk of new workers – are stuck in low-income positions.

No Single Model of Labour Market Policy

However, what makes the 2006 report different is its recognition that there is no single model of successful labour market policy. Unlike the earlier 1994 analysis, ‘Boosting Jobs and Incomes’ also acknowledges that there have been two successful sets of labour market packages: those of the ‘market reliant countries’ (as used in the Australia, Canada, New Zealand, Switzerland, the United Kingdom and the United States) and ‘other successful performers’ (by which they mean the social democratic countries of Austria, Denmark, Norway, and Sweden).

In chapter after chapter, the economists of the report are forced to grudgingly admit that neither an extensively unionized workforce, nor good benefits, nor strong public services and employment have been in way ‘barriers’ to employment growth or economic performance over the past twenty years.

Sweden and Austria, with among the most unionized workforces and comprehensive systems of unemployment insurance and retraining, averaged annual rates of unemployment between 2-8 percent (1980-1999), comparable to the lowest rates of the United States, and also averaged rates of economic growth 2-2.5 percent (1995-2002) that were again the same as those in the USA.

Sweden and Denmark were also distinguished by much higher levels of employment among unskilled workers of 70 and 68 percent respectively. By contrast, despite low levels of unionization and minimal employment protection laws, Canada and the United States did not exhibit particularly better levels of employment among unskilled workers, with only some 55-57 percent of workers with less than high school education working in jobs.

In addition, in most Nordic countries, rates of employment (the percentage of the working age population in employment) have remained at over 75 percent for both women and men. This is due to public policies that facilitate women’s employment.

Many Nordic countries use individual taxation rather than household taxation, which reduces the disincentives that high marginal tax rates impose for two-income families. These countries have also introduced generous parental leave insurance schemes, and expanded public child care provision. Likewise, the expansion of public sector employment has promoted female employment.

As a consequence, the report also includes a few more progressive recommendations. These include better polices to support women, including more suitable parental leave and childcare services; more training and more lifelong learning, and the involvement of employers and workers in training design and implementation (a variation of Sweden and Denmark’s active labour market policies); and better tax policies that tax individual incomes rather than families, boosting family income.

Nonetheless, the OECD report tries its best to ignore much of its own evidence, and downplay more progressive policies. Instead, it looks to uphold to the economic nostrums of a now standard neoliberal line that emphasizes the importance of the ‘free market’ and the need to do away with the ‘rigidities’ of collective bargaining, employment standards, and the welfare state.

Capitalist Competition and Labour Market Insecurity

Sadly these economic policies and the OECD’s version of ‘modern’ social democratic reforms are becoming the new ‘normal.’ This is a tragedy for working people.

Because for the majority of working people, even in countries such as Sweden and Denmark, the reality of the ‘trade-off’ is one of losing good jobs for lower wages; losing secure jobs for more ‘flexibility’ and part-time employment; and giving up wages and benefits for greater business profit.

Faced with intensified competition, employers around the world are seeking to do away with unions, employment standards, and redistribution. Threatened by multi-nationals and capital flight, governments now routinely attack ‘labour market rigidities’ (by which they mean everything from collective bargaining institutions to public sector workers) as the cause of slow economic growth and unemployment.

As a consequence, what we are witnessing is a systematic ratcheting down of wages, labour rights, and social distribution, and the growing success of those who own capital and financial assets – the ‘less pay or fewer jobs-for-the-suckers-trade-off.’

Union Alternatives

To counter these dynamics, unions need a good deal more than simply a better mix of employer-driven social policies and watered-down employment standards. Rather unions and progressives require more comprehensive plans and new forms of political mobilization that will sustain an effective form of egalitarianism appropriate to our global world.

Workers have to devise plans that will give them a degree of political control over the global movement of capital, goods, and finance. Unions must also work toward establishing institutions that ratchet up wages, working conditions, and labour rights worldwide.

At the very least, an alternative politics will require institutions such as labour controlled unemployment insurance funds that allow workers to play a key role in social policy and distribution, and protect labour rights. Over the longer term, working people must establish political alternatives that will effectively challenge neoliberal governments and put in place democratic and social controls over investment funds and productive assets as well as the world of work.

A good place to start in making a better world is with policy arguments critical of standard liberal economic remedies and that emphasize the need to improve peoples’ lives everywhere. This can begin from the understanding that capitalism tends to produce unemployment and insecure work as part of the processes of economic growth, especially so in a context of global production.

Sources Critical of Neoliberal Labour Market Policies

For such a critical perspective, on earlier OECD reports and the problems with ‘jobs/unemployment’ trade-off theories, see the recent work by Andrew Glyn, Dean Baker, David Howell, and John Schmitt. A number of their papers can be found at the New School website, including “Unemployment and Labour Market Institutions: The Failure of the Empirical Case for Deregulation”:…

Dean Baker also heads up the Center for Economic and Policy Research. The Center at has a number of papers critical of U.S. economic, social and labour policy.

For those looking for a highly readable and concise book on globalization and its impacts, Andrew Glyn’s Capitalism Unleashed. Finance, Globalization, and Welfare. Oxford University Press, 2006.

For a Canadian perspective on jobs, employment, unions and the labour market, Andrew Jackson’s Work and Labour in Canada. Canadian Scholar’s Press, 2005

The OECD report “Employment Outlook 2006: Boosting Jobs and Incomes” can be accessed at:

John Peters has been active in CUPE and now teaches political science at Laurentian University in Sudbury.

John Peters is an associated professor and research fellow at the University of Montreal’s Interuniversity Research Centre on Globalization and Work (CRIMT).