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Income tax varying powers and the Scottish labour market

Gasteen, Anne and Houston, John (1998) Income tax varying powers and the Scottish labour market. Quarterly Economic Commentary, 23 (2). pp. 41-47. ISSN 0306-7866

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In the 1980s, labour market flexibility came to be regarded as a potential panacea for unemployment. Greater wage and employment flexibility would reduce unit labour costs and increase productivity. Firms would become more competitive and profit margins would increase. Investment would be stimulated resulting in increased economic growth and employment. Labour market flexibility would thus trigger a supply-side generated, virtuous circle of investment, growth and employment. In the 1990s, the potential fallout from government policies which have deregulated the labour market and actively encouraged the growth of 'flexible' forms of employment is becoming apparent. There is now real concern that the undoubted increase in these nonstandard forms of employment (such as parttime, temporary and sub-contracting work) may have damaged the skills base of the economy and increased segmentation of the labour market. Additionally, there is the oftenoverlooked question of the link between the increase in (generally) relatively low-paid, flexible jobs and government finances. This article addresses the last issue in the context of the Scottish economy and the decision to establish a parliament in Edinburgh with income tax varying powers. It considers whether the present trend in Scottish labour market restructuring will provide a sustainable base for the forthcoming Parliament's tax varying powers and examines what the implications would be if a substitution of part-time for full-time work were to occur.