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WP498: A Comment on Oulton, "The UK Productivity Puzzle: Does Arthur Lewis Hold the Key?"

Bill Martin

In Version One of his new paper, Oulton merges supply-side and demand-side theoretical models as a means better to understand why, since the financial crisis that broke in 2007, the UK’s productivity growth has not only been negligible but also a very poor outlier judged by international experience. Drawing on Arthur Lewis’s famous model of development, Oulton concludes, "rapid rates of immigration in conjunction with low rates of growth of export demand in the aftermath of the Great Recession can explain the UK productivity puzzle". According to Oulton, the UK's relatively poor productivity performance is attributable to a combination of the export demand constraint and of the continued growth of labour supply, which led to capital shallowing - a reduction in the rate of growth of capital services per hour worked. Bill Martin concludes, alas, that Arthur Lewis does not hold the key. The dominant, proximate "explanation" of the UK's relatively poor performance is relatively weak Total Factor Productivity (TFP), not relatively weak capital intensity. Moreover, the UK was not relatively more exposed to export demand shocks but delivered relatively worse output growth outcomes. Oulton nevertheless articulates the profound idea that full-employment capacity has adjusted to weak effective demand arising from adverse global developments. If this deep insight is correct, TFP would be a "measure of our ignorance" of the mechanisms that drove productive capacity to align with low aggregate demand.

WP497: A Human Is Not a Resource

Ewan McGaughey

The language of "human resource management" treats people as a means to an end. Three core tenets of human resource literature are that it is desirable to have (1) labour "flexibility" and "mobility" in a peripheral workforce, (2) individual (not social) responsibility for employment searching, and (3) a manager’s right to manage, without collective accountability. This article explores the cutting edge evidence, which show human resource theory harms productivity and human development. It explores the effects of "HR" in the UK, EU and international regulation on atypical work, full employment, and union voice. Where human resource beliefs have pervaded the most, the outcomes are the worst: lower productivity, higher unemployment, more inequality, less growth. To advance prosperity, economic risks must be distributed to the organisations best placed to bear them, people must have security to plan for the future, and people must have real votes at work through collective bargaining and corporate governance. Many people who themselves work in "HR" strongly disagree with the essential elements of their discipline. They support equality, security and democracy at work. Just as international law once affirmed that "labour is not a commodity", for social justice in the 21st century there must be a conviction that a human is not a resource. "HR" must change in name and substance, to advance human development and human rights.

WP496: Will Robots Automate Your Job Away? Full Employment, Basic Income, and Economic Democracy

Ewan McGaughey

Will the internet, robotics and artificial intelligence mean a ‘jobless future’? A recent narrative says tomorrow’s technology will fundamentally differ from cotton mills, steam engines, or washing machines. Automation will be less like post-WW2 demobilisation for soldiers, and more like the car for horses. Driverless vehicles will oust truckers and taxi drivers. Hyper-intelligent clouds will oust financial advisers, doctors, and journalists. We face more ‘natural’ or ‘technological’ unemployment than ever. Government, it is said, must enact a basic income, because so many jobs will vanish. Also, maybe robots should become ‘electronic persons’, the subjects of rights and duties, so they can be taxed. This narrative is endorsed by prominent tech-billionaires, but it is flawed. Everything depends on social policy. Instead of mass unemployment and a basic income, the law can achieve full employment and fair incomes. This article explains three views of the causes of unemployment: as ‘natural’, as stemming from irrationality or technology, or as caused by laws that let people restrict the supply of capital to the job market. Only the third view has any credible evidence to support it. After WW2, 42 per cent of UK jobs were redundant (actually, not hypothetically) but social policy maintained full employment, and it can be done again. Unemployment is driven by inequality of wealth and of votes in the economy. Democratic governments should reprogramme the law: for full employment and universal fair incomes. The owners of the robots will not automate your job away, if we defend economic democracy.

WP495: The Use of Quantitative Methods in Labour Law Research: An Assessment and Reformulation

Simon Deakin

This paper considers the potential and limits of quantitative approaches to labour law research. It explores the methods used to construct and validate indicators of labour regulation (‘leximetrics’) and those used in the econometric analysis of the effects of labour law rules on employment, productivity and inequality. It is argued that while there is a risk of the misuse and misappropriation of legal indicators, they can provide new evidence on the nature and effects of labour law rules, and thereby contribute to labour law theory as well as to the resolution of some practical issues of regulatory policy.

WP494: Unexpected Corporate Outcomes from Hedge Find Activism in Japan

John Buchanan, Dominic H. Chai and Simon Deakin

Hedge fund activism has been identified in the USA as a driver of enduring corporate governance change and market perception. We investigate this claim in an empirical study to see whether activism produced similar results in Japan in four representative areas: management effectiveness, managerial decisions, labour management, and market perception. Experience from the USA would predict positive changes at Japanese target companies in these four areas. However, analysis of financial data shows that no enduring changes were apparent in the first three areas, and that market perception was consistently unfavourable. Our findings demonstrate that the same pressures need not produce the same results in different markets. Moreover, while the effects of the global financial crisis should not be ignored, we conclude that the country-level differences in corporate governance identified in the varieties of capitalism literature are robust, at least in the short term.

WP493: How the Economics Profession Got It Wrong on Brexit

Ken Coutts, Graham Gudgin and Jordan Buchanan

A wide range of reports from official bodies and academics have estimated the impact of Brexit. These influenced the outcome of the Brexit referendum and remain influential in informing views on the potential long-term consequences of a range of Brexit trade arrangements. This paper builds on a previous CBR working paper in examining the most influential of these reports, from HM Treasury, and the OECD. In this paper the work of the LSE’s Centre for Economic Performance is also included. Each of these reports base their analyses either on gravity models or a computable general equilibrium models. The addition in this paper a review of the link between trade and productivity, which plays an important role in these reports. We also examine three reports which take a direct approach to measuring the impact by assessing the likely prices increases across a large range of commodities due to the imposition of tariff and non-tariff barriers, and using elasticities to estimate the potential changes in the volume of trade. We find important flaws in both the application of gravity model results to a Brexit context, and in the knock-on impacts from trade to productivity. The flaws always have the result of exaggerating the negative impact of Brexit. The direct approaches involve partial rather than full equilibrium models but provide an important check on results from more complex models. However, the choice of elasticities can result in widely different results from ostensibly similar approaches. The paper starts by looking at the view, supported in the academic literature and widely repeated in the financial media, that accession to the EEC/in 1973 improved the economic growth performance of the UK. The evidence suggests that this view is incorrect.