World Economic Forum: Is the UK Labour Market Really More Flexible than the US?

The UK has one of the most flexible labour markets in the world, according to the World Economic Forum.

In fact, Britain can boast that its job market is in the top 10 of the WEF's global competitiveness rankings when it comes to its ability to adapt to fluctuations in the economy.

But, probably most surprisingly of all, the international financial organisation also ranked little ol' Blighty above the world's economic powerhouse, the United States, in labour market flexibility.

What is labour market flexibility?

The economic phenomenon is very important for a successful economy.

It is essential for employers to have the flexibility to shift workers from one economic activity to another rapidly and at low cost, according to labour market economists Rita Almeida and Pedro Carneiro.

So what has been going on in the UK labour market to make it more adjustable than the job market across the Atlantic, and can Britain really boast that it has more flexibility than the US?

"The UK has been shifting toward a more US style form of labour market flexibility for several decades," John Philpott, a labour market economist at The Jobs Economist, told IBTimes UK.

"The UK's most obvious relative strength, as identified by the WEF, is in the area of cooperative employment relations and the beneficial impact that this has had on wage flexibility.

"This clearly reflects the pattern of wage and employment growth seen in the UK during and since the recession, and represents a remarkable change compared with earlier decades when the UK's once highly unionised labour market was often unfavourably compared with the US."

Look at the methodology

But it is important to note than the UK only comes (with a score of 5.3 out of 7) one place higher in the ranking on labour market flexibility than the US (with a score of 5.2).

The report's methodology is also open, like any research, to critical analysis.

For example, the WEF received around 600 responses from business people in the US, but only around 100 responses from business people in the UK.

"Too much should not be made of the difference between the US and UK as they are unlikely to be statistically significant," Geraint Johnes, director of thinktank The Work Foundation, told IBTimes UK.

The WEF report also revealed that the UK scores well in co-operation in labour employee relations and flexibility of wage determination.

"Few would consider the first of these to be a bad thing," Johnes, who is also a professor of economics at Lancaster University, added.

"The second [flexibility of wage determination] is a mixed blessing. The impact of wage flexibility has been seen in the way that wage increases have failed to keep up with inflation in recent years."

The real wage drop

Indeed, real wages (pay packets adjusted for Consumer Price Index inflation) have fallen by around 8% between 2008 and 2013, according to the National Institute of Economic and Social Research.

Johnes argued that this phenomenon has enabled unemployment to stay lower than it would otherwise have been.

For example, the UK jobless rate has rapidly fallen to 6.4% in the three months to June, according to the Office for National Statistics.

But it also means, according to the labour market expert, that people face what some have termed a "cost of living crisis".

"These issues have been very well rehearsed in public debate, and it is possible that UK respondents to the survey are therefore more likely than their US counterparts to indicate that wage determination is flexible," said Johnes.

"Notwithstanding that, the results of the survey appear plausible."

It therefore means that the WEF report should be taken with a pinch of salt.

It is, as Johnes argued, plausible that the UK labour market is more flexible than the US.

But it is also worth considering the number of respondents the WEF received.