Fashionable flexibility?

In November 1997, the general secretary of the UK's Trades Union Congress gave a speech arguing that flexibility has become too much of a "fashionable buzzword", with very little thought given to its meaning or the policy implications of its use. This feature explores the issue.

Since the 1980s, intense product market competition among the industrialised countries has led to a search for new products and new methods of production. At the same time, new technology is changing the ways that labour markets work and UK labour institutions have increasingly come into question. The UK in particular has experienced a sharp decline in the coverage of collective bargaining and of unionisation. Most of these developments have either been the consequence of, or the reason for, increasing flexibility. Yet what is "flexibility", what does it mean and what is it doing?

In a speech delivered on 26 November 1997, the general secretary of the Trades Union Congress (TUC), John Monks, warned that flexibility has become too much of a "fashionable buzzword" which encourages "sloppy thinking" and hinders "debate and real insight" (, John Monks, Jim Conway Lecture, 26 November 1997). Mr Monks stated that the trouble with flexibility is that it can help to cut unemployment, raise living standards and create a more balanced and fair society, but at the same time it can cover for bad practices and "the worst kind of spiv employers".

With the UK's current responsibility for the EU Presidency over the first half of 1998 and for the May 1998 G-8 summit in Birmingham focusing on employment, flexibility is firmly back on the agenda yet again. The TUC is therefore arguing that it is more important than ever to look at the real debate and the real question of what flexibility is.

What is flexibility?

The TUC rightly points out that fashionable buzzwords often obscure more than they illuminate. Flexibility can be used as a "macro" term to embrace economy-wide issues or as a "micro" term referring to sectors, companies and even individuals. Some prefer to talk of internal versus external flexibility and others functional versus numerical flexibility. Furthermore, there can be flexibility of contracts, flexibility of pay, working time flexibility and even flexibility of work organisation and skills. It is no wonder, then, that there is such confusion over the term.

Macro flexibility

From 1979 in the UK, successive Conservative governments' economic policy was based on a fundamental belief in the effectiveness of unregulated flexible markets. In the case of labour markets, there was an emphasis on deregulation and the importance of creating employment and economic growth. This was mainly based on introducing numerical and pay flexibility, a low level of established employment rights and the avoidance of minimum standards. The theoretical basis of the Conservatives' argument was rooted in competitive wage-setting theory in which wage rates and levels of employment are set by the forces of supply and demand and not by collective bargaining. Policies were thus aimed at labour market reform and focused on trade union activity, social security, employment rights and minimum wage protection.

In contrast to the previous administrations, the Labour Government elected in May 1997 has expressed support for basic minimum standards at work, but its underlying analysis of the labour market does not seem to differ significantly from that of the Conservatives. In its election manifesto, Labour said that it believed in flexibility of labour markets and that it would campaign to extend flexible labour markets to the rest of Europe (UK9704125F).

Micro flexibility

The uncertain economic climate and unstable product market demand of the 1980s and 1990s led management to look at different ways of utilising labour in order to cut costs. Experiments in different kinds of flexibility became popular in many organisations and were given extra emphasis by the growing literature on the success of Japan ese work practices and concepts such as "total quality management" (UK9705113F). The model of the "flexible firm" also became very influential within government, and other circles promoting flexibility. This model argued that employers were organising around a "core" and "periphery" workforce. The core was made up of full-time employees who were functionally flexible - or multiskilled - whereas the periphery was numerically flexible and made up of workers on short-term or temporary contracts who, as such, were subject to the vagaries of market forces. Despite the apparent popularity of the model, other research indicated that it was a flawed description of reality (see "Collective bargaining and flexibility", J Arrowsmith, MW Gilman and K Sisson, Report for the ILO (1997)).

The policy implications

The policy implications of the kind of labour market approach outlined above all often involve a simplified approach to the solving of critical matters. For example, the fashionable view is that USA-style flexibility, as followed by the UK, is responsible for solving some of the employment problems of these economies, while the rest of Europe is portrayed as inflexible. This leads to the assertion that markets should be made a lot more flexible. Yet, as the TUC highlights, 30% of the population of OECD Europe works in labour markets with lower long-term unemployment levels than the USA. Moreover, many of these labour markets are classed as being highly regulated either formally or informally through collective bargaining. The TUC states that recent research shows that the following factors have little impact on unemployment in Europe:

  • employee protection;
  • high labour market standards legally enforced;
  • high unionisation; and
  • generous unemployment benefits (although if these are not linked to active labour market policies, they may add to unemployment).

Furthermore, the TUC adds that economic performance is likely to be influenced by government willingness to influence outcomes of collective bargaining and by the degree of integration of social partner organisations in economic policy making. The degree of responsibility that the social partners take for the long-term success of the economy will play a large role in its performance. One development which the TUC states is certain is that in the UK a significant contribution to the rise in wage inequality has the decline of collective bargaining coverage. The TUC states that there is a solid body of UK evidence that the most successful firms are likely to be unionised and that unionised workers are more likely to participate in training and less likely to have accidents at work.

Commentary

While the UK proudly boasts about making labour markets more flexible, a recent study by the Cranfield Institute cited by John Monks in his speech shows that the UK comes the top of "league tables" in terms of two indicators: the ease of hiring and firing employees; and excessive hours worked by employees. In terms of arguably more important measures of flexibility, such as the ability of organisations rapidly to introduce new products and the level of workers' skills, the UK's position was highly disappointing. This highlights that the differing interpretations of flexibility can be very important. Furthermore, flexibility is not just about individualising work relationships, as in the case of the UK, but can also involve collective measures, as in some other European systems. The fact that the present UK Government is aiming for both types emphasises the need for much consideration of what is meant by flexibility. (MW Gilman, IRRU)

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