How Two Decades of Legislation Reveal the Thatcher Revolution

Cutting-edge research from the Department of Economic History, LSE. Cutting-edge research from the Department of Economic History, LSE. When Margaret Thatcher entered Downing Street in 1979, she promised to “roll back the frontiers of the state”. Over the next decade, earnings inequality in Britain rose sharply. Historians and economists often link these trends through a few emblematic laws or strikes. In an alternative approach Maksymilian Łudziński takes Acts of Parliament as data to measure a shift from “collectivist” to “individualist” labour-market institutions, and asks how that shift affected inequality across Britain’s counties. Economic historians often describe post-war Britain asoperating under a broadly collectivist model. The government supported policies which assumed that the collective (group) has a higher value than the individual on their own, such asstrengthening the power of labour unionsormarket regulation. The Thatcher governments challenged this settlement: their programme of restricting trade union power and deregulating markets is widely seen asa turn towards individualism: a world in which markets play the leading role in coordinating work and pay. But how large was thisinstitutional change, and can we trace it systematically rather than through a handful of famous cases? In my dissertation, I answer this by using the national legislative record of the period to construct a continuous “individualism-collectivism” policy index for British labour-market policy, and relating this index to changes in earnings inequality. I start by collecting allthe Public General Actspassed by the UK Parliament between 1968 and 1990 and applicable to Great Britain. This captures not just explicit labour laws, but also legislation with indirect labour-market effects. Within this corpus, some Acts are clearly collectivist in spirit. The pre-Thatcher Employment Protection Act 1975, for example, expanded collective bargaining. Others are clearly individualist – for instance, the Employment Acts of 1982, which tightened rules on industrial action. I use these well-known laws as anchors at either end of an individualism-collectivism spectrum. I then apply two text-as-data methods –Latent Dirichlet Allocation (LDA)and aWordshoal-style scaling model– to identify the policy topics covered by the legislation and compare every other Act in the corpus to these anchors. The computer learns to recognise when a law “looks like” the collectivist model (for example, it introduces collective bargaining or representation), and when it resembles the individualist one (for example, emphasises labour-market deregulation). By aggregating these scores year by year, I construct an index of how individualist the overall policy environment is at each point in time. There’s a clear pattern over time – The index remains relatively stable and leaning towards the collectivist side until 1979. With the arrival of the first Thatcher government, there is a clear break: the policy environment shifts sharply towards individualism and stays there throughout the 1980s. This national-level picture raises an obvious question: did the shift towards individualism actually affect what people earned? To find out, I zoom in from Westminster to Britain’s counties. Using wage data from the New Earnings Survey, I find that the gap between the highest- and lowest-paid workers grew in nearly every county during the 1980s. But the crucial point is that this growth was not uniform. Some counties were more vulnerable to the new individualist rules than others, depending on how unionised their workforce had been beforehand. Using a two-step empirical strategy, I test whether counties with less unionisation in the 1970s – thereby more exposed to market-oriented reforms – saw more widening inequality. And it is precisely in those less-unionised counties that earnings inequality widened the most even after accounting for other local differences. Taken together, these findings provide quantitative backing for the claim that the Thatcher era represented a structural break from the post-war, collectivist labour-market settlement and that thisinstitutional shiftcontributed to widening earnings gaps, especially in places where workers were less unionised to begin with. They also demonstrate the potential of using legislation itself as data: by zooming out to consider almost the entire legislative output over more than two decades, I offer a broader view of how institutional change unfolds – and who is most affected by it. Maksymilian Łudziński is a Research Assistant in the Department of Management at the London School of Economics and Political Science. A recent graduate of the MSc Economic History (Research) at LSE, his work sits at the intersection of political economy, economic history, and inequality, with a focus on how formal institutions, such as laws and regulations, shape market outcomes.