The Liberalisation of the Labour Market - Example

Running Head: The Liberalisation of the Labour Market The Liberalisation of the Labour Market Name Course Lecturer Date Introduction Labour market refers to the market whereby employees get paying job, employers find ready employees, and thereafter, wage rates to apply to those employees are determined. In case of liberalisation of the labour markets, the government foregoes most of its labour regulation roles, gives the labour industry increased freedom and wage rates are determined by the forces of supply and demand. As a result, private firms are at liberty to determine the wage rates to offer to their workers. In addition, employees may seek employment wherever they deem fit and firms may also employ people at the wage rates that they may consider appropriate or per the agreement between the firms and their employees. The liberalisation of the labour market in today’s economy has led to increased application of market-like systems such as pricing, isolated decision-making, competition and work-based incentives that are mainly aimed at improving program outputs (Evenett & Hoekman, 2004). Two market-like arrangements in the work-place There are several market-like arrangements that come as a result of labour market liberalisation. Different arrangements have diverse impacts on different firms. The two market-like arrangements that I will describe and that have impacted my work place are competition and work-based incentives. Competition Acording to Hood (1991, p. 3). Reduced government control roles in the labour market are considered to lead to increased competition in the industry among the participant firms. The main purpose of competition is to result into reduced prices of goods and services through enhanced levels of production as well as improved efficiency. With competition among firms for labour, each firm is determined to hire the most-skilled personnel by offering the most attractive wages. In such a case, the price of labour or wage rate keeps on changing depending on the intensity of the rivalry among the participant firms. Competition resulting from liberalisation of labour markets has had both negative as well as positive impacts on my workplace. On the positive side, our firm has been able to maximize its profits by applying the laws of supply and demand of labour in its operations. This has been made possible by choosing to employ employees such that, the marginal returns result of the final worker employed is just equivalent to the current wage rate that is being offered in the market , and which forms the marginal expenditure of the last employee. In addition, corresponding firms have been able to agree on a certain wage rate which they should offer to a certain category of workers. Consequently, our firm among other firms has to some extent been able to control the wage level in market thus preventing it from going to an extreme level. This situation is considered more beneficial as compared to a case where the government is charged with the responsibility of setting minimum wage level that should be observed by all firms in compensating their employees (Fitzgerald, 1991, p.65). On the contrary, competition has also had some negative impacts on my workplace. To start with, in deregulated or less regulated labour markets, dominant firms in a certain industry tend to use wage rates to face out less competitive firms in the market. Labour is a core factor of production to any firm that complements capital. Our firm is a medium-sized company meaning that there are more established firms in the market as compared to ours. From time to time, these big firms offer very attractive wage rates to employees. Thus, since our firm does not want to lose its employees to those big firms, it has tried to raise its wage levels to at least compare to those being offered by the established rival firms. Though it has helped our firm retain its workforce, this has resulted into high operation costs for the firm due to high expenditure on salaries and wages. Since it has not hired extra people but just increased the wage level of the current employees, decline in profits has been experienced because production remained the same while expenditure went up. Competition resulting from liberalisation of labour markets can be a very effective device which may be used by established firms to lessen rivalry in the industry. However, economic-wise, it is very harmful since it may lead to collapse of small firms. In other words, competition is not working the way it is intended but rather leading to low profitability of firms (Ho & Chuang, 2006, p.168). Work-based incentives Incentives in relation to the work done may be given either on an hourly or piece-rate basis depending on a company’s terms and conditions of employment and the type of work that is carried out. Work-based incentives are considered by many companies as a successful way of motivating and improving performance among employees. Such incentives have had a positive impact on my work place. Through them, the general performance has improved because each employee has been trying his or her best in discharging any given duty so as to earn bonus earnings. The offering of work-based incentives to employees is aimed at ensuring that employees earn salaries and wages that are commensurate to their work efforts. This is because; the employees are given a basic salary then bonuses are earned on the basis of how each individual employee performs. Another purpose of the use of incentives is ensuring that the productivity of a firm is enhanced by bringing a balance between operation cost and earnings. This is because; high salaries to employees imply high amount of work that is done by the same employees (Industry Commission, 1997, p. 39). Flynn (1990, p. 11) argues that, the manner in which market-like mechanisms are intended to work may vary from one firm to another. Work-based incentives are supposed to be given in relation to the amount of time that an employee saves in discharging the assigned work. The amount of time saved is gotten by deducting the time taken from the allocated time to the job. Moreover, incentives on divisible work like in the manufacturing sector are supposed to be given according to the number of product units that are produced. At the present, incentives based on hours saved or amount of production units is becoming cumbersome especially in the current business world due to advancement in technology. As a result, employee performance controls are being instituted in the firm which may be in form of profitability and quality of services rendered and which are used to award the incentives. Impact of the market-like arrangements on the quality and value of the services Competition has to some extent influenced the quality as well as the value of the services that are provided at my work place. In competing for labour, wage rates have simply been raised in efforts to retain the workforce and attract new employees as may be necessary. However, there has not been a measure for the potential competency of those employees and thus the quality of services has gone down. In terms of value, competition has made the services that are provided at my job place to be of less value because high salaries are being paid in exchange of constant production level or poor quality services. Work-based incentives have enhanced the value of services that is being offered because salary expenditure is proportionate to the amount of work done. However, some employees do their work in a hurry so as to earn extra incentives hence poor quality services are sometimes reported (CliffNotes, 2012). Retrospective commentary on labour liberalisation In my research in liberalisation of labour markets, I will give a retrospective commentary on deregulation of labour markets and the rate of unemployment in liberalised labour markets as compared to regulated labour markets. Deregulating labour markets is said to boost productivity which in turn increases economic growth and hence employment through increased use of market-like systems like work-based incentives. High amounts of incentives means that the employees have done a lot of work that generally increases the productivity of a firm. Elevated production levels are automatic boosters of economic growth because it means that, a country has enough products and services to use locally as well as some for exportation to other countries (Scott, 2001, p.252). According to Mitchell (2012), exports contribute to a high Gross Domestic Product (GDP) which is a key indicator of economic growth. High rates of economic growth open up many expansion opportunities for firms through the provision of a broad market base for their products as well as services. Once a market is available, firms would want to expand its operations by either increasing their production capacity through the purchase of new equipments or by opening new branches to serve those markets (Mitchell, 2012, p.134). With new equipment, additional employees will be required to operate those equipments and once they hired, the rate of unemployment is reduced. More so, the opening up of new business outlets involves the transfer of employees from old outlets to the new outlets as well as employment of new personnel so as to effectively run the new outlets. The employees on transfer will need to be replaced by new workers. As a result, unemployment rate is reduced since a percentage of unemployed people are offered jobs by the firms that bare undergoing business growth and expansion. On the contrary, viewing the situation from a different perspective, increased productivity resulting from the liberalisation of workforce markets may not reduce the level of unemployment in a country. Under market-like mechanisms like competition, wage rates are actually controlled by member firms in a particular industry alongside the forces of demand and supply. During a time when labour supply is low, wage rates are likely to be very high and only those firms that offer the most attractive salaries and wages will be able to acquire some employees to work for them. In such a case, the rate of leaving low-paying employer for one with a better way by employees is normally very high. For that reason, if the economic growth of a country goes up and some firms want to expand their business activities, this does not imply that there will be a reduction in the extent of unemployment (McCartney, 2005, p.45). This is because; the workers to be absorbed by the expanding business organizations may be employees of another firm whose remuneration package is low as compared to that firm. In other words, those being employed are people who are already employed and are looking for better paying jobs not jobless. Hence, unemployment level is neither lowered nor increased. Additionally, increased wage rates raise the probability of lay-down of workers by firms in efforts to cut down their operation cost through reduced salary expenditures. When this happens, the level of joblessness goes up. Comparing the rate of unemployment in liberalised labour markets and regulated labour markets, the latter is associated with high levels of unemployment. Government has a total control of the labour markets and thus it is responsible for setting minimum wage levels and regulating the supply and demand of labour. Imposing many labour regulations and employment laws forms a burden to a big percentage of small firms which provide the highest percentage of jobs to people. The regulations restrict the firms’ maximization of available resources which in turn lead to reduced production (McCartney, 2005, p.5). Barrow (1996, p. 113) emphasizes labour market strictness as being a major aspect in elucidating the poor developmental results in most countries. Employment regulation has slowed down restructuring in merger controlled public sector business establishments. This is because; labour market regulations have made it more expensive as well as time consuming for businesses to cope with the changing market circumstances and to take up new technologies since such circumstances and technologies have to be in line with the set regulations of the employment market. This has prevented most firms from enlarging their business activities. Legislation has instead encouraged businesses to stay small and casual, balancing access to proper finances and scale economies so as to stay away from the limitations of labour legislation. Employment’s legislations have prevented firms in dilapidated industries from getting rid of excess labour and have ended up amassing huge losses. In addition, the firms in growing industries are somehow hesitant to employ new employees and have chosen to replace labour with capital. The rise in the rate of unemployment in the recent years has been cited as proof for the proposition of labour regulation. Minimal growth of job opportunities in the formal sector in the past has overlapped with a raise in yearly income per employee of 3.5% along with an extensive replacement of labour with capital. From the research, I have learned that, liberalisation of labour markets may lead to a reduction in unemployment level while regulation increases the rate of unemployment. I have also learned that, the current deregulation of employment is increasing the exploitation of market-like means as a way of improving the level of output in firms. My retrospective study of labour market shows that, the rate of unemployment in free employment markets is lower as compared to that in controlled markets (Barrow, 1996, p.115). Conclusion Lessening of employment regulations has boosted the application on new methods to improve business outputs. Competition increases productivity and enhances efficiency in business operations. Competition among firms in the same industry leads to high wage rates. It also affects the quality and worth of the services that are provided by a given firm. Work-based incentives lead to high performance among employees which in turn boost the profitability of a firm the value of its services. Unemployment level is higher in regulated employed markets than liberalised labour markets. References Barrow, C. (1996). The strategy of selective excellence: Redesigning higher education for global competition in a postindustrial society. Netherlands: Kluwer Academic Publishers. CliffNotes. (2012). Labor Demand and Supply in a Perfectly Competitive Market. Retrieved May 2, 2012, from http://www.cliffsnotes.com/study_guide/Labor-Demand-and-Supply-in-a-Perfectly-Competitive-Market.topicArticleId-9789,articleId-9781.html Evenett, S., & Hoekman, B. (2004). International Cooperation and the Reform of Public Procurement Policies. Retrieved May 2, 2012, from http://www.evenett.com/working/EvenettHoekmanProcurementCEPRAugust05.pdf Fitzgerald, L. e. (1991). Performance Measurement in Service Businesses. Cambridge: Chartered Institute of Management Accountants. Flynn, N. (1990). Public Sector Management. New York: Harvester Wheatshear. Ho, L.-H., & Chuang, C.-C. (2006). A Study of Implementing Six-Sigma Quality Management System in Government Agencies for Raising Service Quality. Journal of American Academy of Business , 10 (1), 167-173. Hood, C. (1991). A Public Management for all Seasons? Public Administration , 69 (1), 3-19. Industry Commission. (1997). Report on Government Service Provision: Steering Committee for the Review of Commonwealth/State Service Provision. Melbourne: Commonwealth of Australia. McCartney, M. (2005). Liberalisation and Social Structure. Post-autistic Economics Review , 30 (3). Mitchell, B. (2012, January 11). Labour market deregulation will not reduce unemployment. Retrieved May 2, 2012, from http://bilbo.economicoutlook.net/blog/?p=17692 Scott, G. (2001). Getting the fuzzy end of the lollipop: the problems with devolved budgets in further education colleges. International Journal of Educational Management , 15 (4/5), 252-257. Read More