Complements or Substitutes? Taxation, Social Welfare and Labour Market Regulation: An Industrial Relations Perspective on the ‘Five Economists’ Plan

The purpose of this paper is to critically appraise the assumptions and proposals put forward in the Five Economists' plan to change the balance between social welfare, taxation and labour market regulation. The core theme developed here is that the proposal is based on questionable assumptions about the nature of employment relationships and labour market processes. An alternative framework is advanced. Using the Dutch case, it is argued that a more appropriate balance between these policy instruments, which requires an account of the distribution of risk between workers, firms and the state, provides a better theoretical basis on which linkages between taxation, social welfare and labour market regulation can be recast. ‘Let me say, at the outset, that you should be sceptical of anyone who suggests that there are any easy solutions. Solutions which most economists would agree could enable a return to “full employment” or very low unemployment, are either socially or politically unacceptable, or we do not know how to Implement them. The best solution is to achieve a large increase in the rate of economic growth.’ (Dawkins 1996: 16)