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How ‘structural reforms’ of labour markets harm innovation

Paul Mason pointed out recently that the dire state of wages growth in the UK meant that it was cheaper to have people in low wage dead end jobs like washing cars than having a machine do it. Poverty level wages with no way out.

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This research report from Alfred Kleinknecht examines that fact in the light of “structural reform”pursued in many countries since the 1980s.  Structural reforms of labour markets frustrate the diffusion of labour-saving technologies. Moreover, they damage the functioning of the ‘creative accumulation’ innovation model that depends on the long-run accumulation of firm-specific knowledge. It is not by accident that the champions of ‘structural reforms’ of the 1980s (i.e. the US, the UK, Australia or New Zealand) show persistently lower rates of labour productivity growth when compared to countries in ‘Old Europe’ and have problems competing in classical industries.

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