Labour market outcomes in the UK, NZ, Australia and the US: observations on the impact of labour market and economic reforms

Abstract

There is no doubt that large changes in government policy towards economic reform are vitally important: some two decades ago Myanmar (Burma) was among the Asian nations with the highest per capita income but, by turning away from economic reform, government policy prevented the economy from opening to the world, accepting foreign investment and developing a free enterprise culture. As a result Myanmar has not shared in the rapid rise in income in Asia. China is another example. Once economic reform began and international trade and domestic product markets were liberalised, economic growth began to proceed quite rapidly. But how much influence do less radical shifts in economic reform policy have on the macro economies of mature democracies with a high standard of living? Do increases in the pace of reform deliver a noticeable increase in the rate of economic growth in countries such as New Zealand, Australia and the UK? Once the task of assessing the impact of economic reforms is begun a number of important lessons are learnt very quickly. Perhaps the most important is that assessment is not a straightforward exercise. The isolation of reform impacts is a difficult problem that is often handled by construction of a computer model of the pre-reform economy that is then subject to the reform change and the reform results simulated. The obvious inadequacy with this approach is that the model is often designed to deliver good results from the reforms. The arguments for reforms and the design of the model are based on the same theoretical view of the economy. The counterfactual problem therefore will always remain. In this paper we focus on labour market and economic reforms and their impact on economic growth, employment and wage outcomes in the longer term. To make the task more manageable we describe the economic growth experiences of four English speaking countries. We look at the impact of the Thatcher reforms in the UK, the Douglas reforms in New Zealand, and the Hawke Accord period and subsequent labour market reform in Australia. The US is taken as a comparison country that has not been subject to substantial shifts in government introduced labour market and economic reforms except, perhaps, in the area of immigration and very recently in the area of welfare reforms. The welfare reforms are substantial but it is too early for them to impact significantly on our comparisons. We adopt a very aggregated approach. The focus is on four series taken from the OECD Economic Outlook data base: the analysis is based on measures of (i)output produced for the residents of each country (GDP per capita) (ii)the proportion of the population employed (the employment-population ratio) (iii)the changing living standards of the employed population (the rate of growth of real compensation per employee); and (iv)the changing distribution of full time weekly earnings. It is important to present the macro data because it helps set the framework for other chapters in this volume. The major advantage of this aggregative analysis is that it provides a macro framework that acts as a constraint on exaggerating the losses and gains that may be identified from a more piecemeal assessment. The disadvantage, of course, is that the diversity of experience within the aggregates is lost