Redundancy and the great recession

Labour hoarding by organisations during the great recession is forwarded as one possible explanation of the UK’s ‘productivity puzzle’. Productivity growth tends to be pro-cyclical, reflecting lower factor utilisation during periods when aggregate demand is decreasing. At this point in the economic cycle, organisations are unable to dispose easily of potentially redundant capital. Instead, their focus is often upon making labour, the so-called ‘flexible’ factor of production, redundant. That many organisations chose not make labour redundant during the years of the recession, opting instead for alternative adjustment strategies, is argued to be one reason why productivity in recent years has not returned to its pre-downturn trend. This paper contributes to the discussion on labour hoarding by examining its obverse viz. redundancy. It analyses responses made to two questions in the management questionnaire of the 2011 Workplace Employment Relations Study. These questions are:  “ ...... can you tell me to what extent your workplace has been adversely affected by the recent recession?” and  “ .... I would now like to focus on the impact (of the recent recession) on your workforce. Which, if any, of these actions were taken by your workplace in response to the recent recession?” The principal focus of the paper is upon the relationships between whether a workplace was affected ‘a lot’ by the recession and three policy actions denoting redundancy viz. whether redundancy was compulsory; whether it was voluntary; or whether redundancy was an action taken, irrespective of its type. Bivariate probits of the relationships between whether a workplace was affected ‘a lot’ by the recession and each of the other policy actions identified are also estimated. Predicted probabilities are calculated from these estimations and these are used to illustrate how redundancy as a policy action increases in relative importance when a workplace is affected ‘a lot’ by the recession. Finally, in a seemingly unrelated bivariate probit model, the ‘non-redundancy’ policy action options are incorporated as additional explanatory variables into the estimation of whether redundancy is adopted as a policy action to examine the nature of their inter-relationships with redundancy. The results of this estimation suggest that the adoption of non-redundancy policy actions are complements to the use of redundancy rather than alternatives to its use. JEL Classification: M51 M54