2.7 Labour market regulation

Why is it significant?

Labour market regulation is a necessary and important component of the institutional framework. It affects the ability of employers to offer a diverse range of employment opportunities to meet their needs and those of their employees.  It also influences the ability of the unemployed or inactive to find suitable employment.

How does the UK perform?

A survey in the International Institute for Management Development’s (IMD) World Competitiveness Yearbook suggests that the UK labour market has a regulatory environment perceived as significantly better than other major European countries, and only slightly behind the US (Chart 2.7.1).

The mark-up on wage costs faced by employers (eg social security charges) is another measure of the burden of government intervention.  US figures show that the UK compares very favourably with other G7 countries on this measure, with non-wage labour costs just under 13 per cent of total labour costs, compared with roughly 15-30 per cent for the other G7 and EU countries (Chart 2.7.2).