Industrial relations
Deindustrialization is having important implications for the nature of industrial relations. Trade unions originally gained their strength from the industrial sector, in which it was easier to organize and to engage in centralized bargaining because of the broadly similar work undertaken by large groups of workers.
Although centralized bargaining has helped to narrow the wage differentials within manufacturing (see Chapter 14), as the UK economy continues to shift towards services this form of bargaining will become more difficult to achieve as the nature of work in the service sector varies considerably across different activities. For example, the levels of skill and security of employment vary significantly between financial services and retailing. The wage differentials will be needed to compensate for these skill differences, and centralized union bargaining designed to narrow wage differentials will clearly be perceived by employers as having adverse effects on the growth of service sector productivity. The roles of trade unions will clearly have to adapt, with the diversity of the service sector making the retention of union membership more difficult and weakening the traditional systems of wage bargaining.I Conclusion
There have been profound structural changes in the UK economy since 1964, resulting in relative stagnation of industrial output and declining industrial employment, and these have transformed the sectoral balance of the economy. The causes of these changes are not agreed. We reviewed various suggestions, such as economic ‘maturity’, low-wage competition, the advent of North Sea oil, ‘crowding out’, and low productivity. Our view has been that low productivity, resulting in a substantial loss of competitiveness, has been central to the structural changes observed. Certainly no other major industrial country has experienced the fall in volume of non-oil industrial output recorded in the UK after 1973.
The consequences of industrial decline are widespread, contributing to unemployment and balance of payments problems, increasing inflationary pressures and hampering growth. Judged by the growth of output and productivity there has been an improvement in the performance of the UK economy since the 1980s. The UK has reduced the productivity gap with other OECD countries and has increased industrial output at a rate close to the OECD average. Nevertheless, UK manufacturing output in 2009/10 was actually lower in volume terms than it had been in 1973.Key points
■ Whereas the secondary sector contributed some 41% of GDP in 1964, by 2009 this had fallen to 19%.
■ Manufacturing (within the secondary sector) saw its share of GDP fall from around 30% in 1964 to 12% by 2009.
■ Over 6 million jobs have been lost from the secondary sector since 1964, with 6 million having been lost from manufacturing alone.
■ The service (tertiary) sector has provided over 14 million extra jobs since 1964, and has managed to more than match the loss of manufacturing employment.
■ Not all advanced industrialized countries have seen a decline in industrial employment.
■ Suggested causes of ‘deindustrialization’ have included maturity of the economy, low-wage competition, North Sea oil, ‘crowding out’ and low productivity.
■ UK productivity growth rates in manufacturing and in the whole economy fell behind those of its main competitors during the 1960s and 1970s but kept pace in the 1980s before falling behind again during the 1990-1995 period, but with relative productivity reviving in the UK since then. However, the absolute levels of UK productivity and capital intensity remain well below those of its competitors.
■ UK productivity per employed worker in manufacturing has grown by some 4.5% per annum since 1979. Unfortunately total UK manufacturing output has grown at a much slower rate, resulting in fewer workers being employed.
■ True competitiveness depends not only upon relative productivity but also upon relative labour costs and the sterling effective exchange rate. This is best measured by relative unit labour costs (RULC).
■ The UK is still, on average, some 40% less competitive overall (in terms of RULC) in 2009 than it was in 1976.
Now try the self-check questions for this chapter on the Companion Website. You will also find useful links to relevant websites.
Notes
1 The GDP is the total value of output produced by factors of production located in a given country.
2 Income elasticity of demand is given by:
% change in quantity demanded
% change in income
3 ‘Factor cost’ means that ‘market price’ valuations of output have been adjusted to take account of the distortions caused by taxes and subsidies. Taxes raise market prices above the true cost of factor input and so are subtracted. Subsidies reduce market prices below factor cost and so are added. ‘Constant factor cost’ means that the valuations have been made in the prices of a given base year. This eliminates the effects of inflation, so that the time series shows ‘real’ output.
4 Buying the foreign currency to pay for the extra imports would increase the supply of sterling on the foreign exchange market, reducing the price of sterling.
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