Managing uncertainty in the labour market – Signposts for the future

Although uncertainty is part-and-parcel of market economies there is a range of governance mechanisms to manage it. These are becoming more important in the light of the recent economic crisis. The GUSTO research project is studying the relationship between flexibility and security in labour markets and social policy during these uncertain times. Unlike previous research in this area, it does not just focus on industrial relations and human resources, but considers a wide range of policy areas such as immigration, welfare and sustainability.

In response to the belief that workers’ security had to be traded off against measures to improve labour flexibility, flexisecurity strategies were developed in the mid-2000s to optimise both flexibility and security of the workforce. Recent economic crises have brought new sources of uncertainty and insecurity, requiring new forms of research into these changes and the possible responses.

The GUSTO (Governance of Uncertainty and Sustainability: Tensions and Opportunities) project brings together academic teams from ten European countries and Canada (which provides a useful, large non-European comparator). This three-year project is studying the impact of economic uncertainty and policy responses in a broad range of areas, such as pensions, immigrant workers, collective bargaining and regional governance.

Pensions

There had been increasing privatisation of pensions from 1981 to 2008, with governments encouraging individuals to take responsibility for retirement saving. The recent economic crisis has caused a reduction of this trend due to financial pressure on individuals and the institutions that administer pensions. Ongoing strategies to encourage people to take out private pensions received a particular set-back when people started to fear that their assets might not be safe.

Paradoxically, it appears that the more governments encourage private pensions the more they become involved in regulating them due to the vulnerability of pension schemes to stock-market crises. Instead of allowing the state to withdraw, the move to market mechanisms has given it new duties and obligations that go against the market signals that were their supposed advantage. There are now stricter rules on pensions regarding supervision and restriction on investments.

Migration

By taking on temporary work, migrant workers in the EU act as a buffer to employment uncertainty. GUSTO has investigated the extreme case of the construction sector in Spain and the UK where, until the last recession, foreign workers made up 30% and 10% of the construction industry, respectively.

Spain has attempted to limit self-employment and agency work but this has produced more undeclared work. The UK has opened up legal employment to foreign workers but restrictions on Romania and Bulgaria has led to high self-employment of workers from these countries. A big issue is health and safety. Foreign workers tend to be concentrated in dangerous jobs and high turn-over means less familiarity with local conditions. In Spain, fatal and serious accidents tend to occur more frequently for migrant than national workers.

Trade unions have taken up different issues in the two countries. In Spain there has been inclusive political action and information centres, whilst British unions focus more on organising foreign workers to keep them in the formal economy.

GUSTO is also studying mobility of migrant workers in Spain, the UK and Canada. This indicates slow promotion for immigrant workers in Spain and the UK who appear to be assimilated into the labour force (i.e. achieve similar wages and contracts to national workers) after twenty years. In Canada, a selective immigration policy for highly skilled workers means that assimilation is much quicker (four years). This suggests that certain combinations of immigration, welfare and employment policies can result in fewer immigrant workers and longer times for them to assimilate into the labour force.

Collective bargaining

Through statistical analysis, GUSTO has analysed the responses of collective bargaining mechanisms to the economic crisis in the private sector of the EU-27 since 2008. The role of collective bargaining in uncertainty varies markedly across countries and sectors. For workers, there is often a trade-off between uncertainty of job loss and uncertainty of wages. Uncertainty over job loss has been addressed by implementing statutory short-term work and partial unemployment schemes, and enhancing the employability of those made redundant. However, this can come at the expense of greater fluctuation in wages. For employers, uncertainty has been addressed by short-term cost-saving and flexibility measures as well as measures aimed to retrain skilled workers. Employers tend to have a trade-off between cost-cutting and maintaining skilled labour in anticipation of the next upswing.

Which measures are adopted, depends on the nature of industrial relations institutions and public policy measures. For example, under multi-employer bargaining (where several employers are involved, often in the same sector) there is better coverage of different types of workers than in single-employer bargaining. Multi-employer bargaining is more common in Northern European countries, together with France and Italy. The UK tends towards single-employer bargaining but has a clear negotiation framework so coverage is relatively high compared to Central and Eastern European countries. Public policy has played a role through implementing statutory short-term and partial employment schemes which allow more workers to stay in employment.

Industrial relations institutions and public policy measures also play a role in the variation between sectors. For example, the agreements in manufacturing have entailed a trade-off between employment guarantee and employee concessions, whereas in services, employment guarantees feature much less. This could be because trade union organisation is higher in manufacturing and short-term public policy schemes are adopted to a greater extent.

Regional governance

Overall it appears multi-employer bargaining provides the most likely framework in which collective bargaining will address uncertainty, although it does not exist in certain sectors such as services. In general, there is an organised decentralisation of public policy, which is shifting from national to local level. Through interviews and document analysis in Italy, France and the UK, GUSTO has identified two ways in which this is occurring. Firstly, through proactive measures which reduce uncertainty, such as economic and social regeneration, and secondly, passive instruments that maintain economic wealth through insurance. Policies are shifting from companies to places and territories and there is scope for local entrepreneurs, such as mayors, to lessen uncertainty by combining or co-ordinating policies from different fields such as environmental sustainability and social cohesion. However, it must be ensured that decentralised organisation does not merely redistribute uncertainty. For example, although regeneration programmes may reduce economic uncertainty in the short-term, if the financial support is not continued for an adequate amount of time the uncertainty may return. To insure against a redistribution of uncertainty local policies must be monitored and evaluated by national governments.

The GUSTO project is due to end in 2012. It will continue to study the above areas as well as analysing individual responses to uncertainty through national labour statistics and the European policy response. In particular, it will investigate the possible paradox that EU law created to govern insecurity can be a source of insecurity itself, in that Member States vary in how they implement EU legislation at the level of national labour law and social protection law. If there is a wide variation in the national interpretation of EU legislation then the outcomes on the labour market may be unpredictable and possibly insecure.

GUSTO – Meeting the challenges of economic uncertainty and sustainability through employment, industrial relations, social and environmental policies in European countries (duration: 1/3/2009 – 28/2/2012) is a Specific Targeted Research Project funded under the 7th Framework Programme for Research of the European Union, Thematic Priority 2 – Combining economic, social and environmental objectives in a European perspective.

See: http://www.gusto-project.eu

Contact: Professor Colin Crouch, c.crouch@warwick.ac.uk; Colin.Crouch@wbs.ac.uk;