Summary

• An efficient labour market adjusts quickly and effectively to change in the global and domestic economies, reallocating workers from declining to expanding sectors.


• An important reason for Britain’s slow growth in productivity and output since the financial crisis is the increasing reach of labour market regulation, which has gummed up this process of adjustment.


• This has been the result of new employment laws, the extension of existing laws through Employment Tribunal decisions, and the spread of occupational regulation.


• Wage adjustments play a major part in reallocating people between jobs, but wage signals are now distorted by government fiat.


• Around 20 per cent of all employees have their pay directly or indirectly determined by the minimum wage, while in the public sector powerful trade unions distort pay rates and structures.


• Tightened legislation on unfair dismissal inhibits firms’ ability to change their employment patterns and slows the process of creative destruction.


• Movement between jobs is increasingly restricted by occupational regulation, with 22 per cent of all employees now requiring a government licence, up from 13 –14 per cent in 2011.


• Expansive interpretation of equal pay legislation means that many jobs have to be paid the same even though market conditions differ, creating a mismatch between supply and demand.


• In addition, other aspects of the economy – tax and benefits, education and training policy, housing shortages – have restricted the opportunities and altered the incentives facing workers and made it difficult for them to respond rapidly to changing employment opportunities.