EU employment report puts the spotlight on ‘flexicurity’

As well as providing an annual review of labour market developments, the ‘Employment in Europe 2006’ report, published in October 2006, looks in detail at the topical social policy issue of flexicurity’. The report examines how some national labour markets are combining flexible contractual employment arrangements with the provision of improved security for employees through lifelong learning, active labour market policies and high levels of social protection.

The European Commission’s report Employment in Europe 2006 (Summary, 282Kb PDF) provides a useful and timely review of the latest research and policy orientation on flexicurity, with Chapter 2 (782Kb PDF) focusing specifically on this issue. It notes that the topic has moved rapidly to the centre of debate at European level, with the European Commission arguing that the pressures of globalisation and demographic change demand greater flexibility in labour markets. At the same time, the Commission concedes that any moves in this direction should be accompanied by measures to improve workers’ employment protection and social security. The key question addressed in the report is how much flexibility and how much security combine to make up the ideal ‘flexicurity’ strategy.

Flexicurity in practice

The report examines flexicurity by looking at the main characteristics of the two economies – Denmark and the Netherlands – that are normally cited as prime examples of flexible labour markets while also providing workers with relatively high levels of security. Looking first at the Netherlands, the report identifies, as elements of flexibility, the ease with which employers can do the following:

• hire and fire workers or employ them on fixed-term contracts;

• adapt the quantity of labour in the organisation, through moving employees or changing working hours;

• alter work organisation through multi-tasking and other initiatives;

• control wage costs in response to economic conditions.

In terms of security for the employees, the report pinpoints four important elements, namely:

• the extent to which employees feel secure about their current job;

• the ease with which employees can find alternative employment;

• the level of income protection for unemployed people;

• the ability of employees to combine paid work with other private or social activities.

With regard to Denmark, the report highlights the three main points of what is sometimes referred to as the Danish ‘golden triangle’. This encompasses relatively loose employment protection legislation, general provision for unemployed people and high levels of spending on active labour market policies.

Flexicurity and employment protection

Furthermore, the report explores recent research assessing the impact of different policies that make up the flexicurity package. First of all, it concedes that the evidence on employment protection legislation (EPL) is inconclusive in terms of the overall impact on unemployment. In other words, higher levels of protection cannot be conclusively linked to higher levels of unemployment. However, the report maintains that ‘there is ample evidence that stringent EPL tends to worsen the employment prospects of those groups that are most subject to problems of entry in the labour market, such as young people, women and the long-term unemployed’.

The report also found that despite the pressures of globalisation and perceptions of greater employment instability ‘the average job duration in Europe has been relatively stable over the last ten years’. Research indicates that ‘stringent EPL does not seem to be systematically associated with lower job re-allocation’ nor does it present a major obstacle to an economy responding to technology or demand shocks.

Moving on to a specific example, the report considers the impact of introducing greater flexibility in an economy through greater use of fixed-term employment. This occurred in Spain in the early 1980s, leading to mixed results. While, according to the report, the Spanish economy continued to grow, less desirable effects also materialised, such as ‘inadequate investments in human capital, higher wage pressures, lower labour mobility and higher wage dispersion’. In terms of getting the right balance between more relaxed employment protection and higher levels of provision for unemployed people, the report suggests that the best combination would depend on the skill structure of the population. Having more flexible employment legislation while making unemployment benefit more generous is ‘politically more feasible where educational attainments of the workforce are relatively higher’.

With regard to Denmark and the Netherlands, the report notes that these two leading examples of flexicurity ‘seem to have emerged from a particular set of favourable historical circumstances, namely corporatist systems of collective bargaining with a long tradition of cooperation, coordination and mutual trust between the social partners and the government’.

Further information

In October 2006, the European social partners met to discuss the topic of flexicurity at an informal tripartite summit in Lahti in Finland, which shed light on the social partners’ conflicting interpretations of what constitute flexicurity measures (EU0611039I).

Sonia McKay, Working Lives Research Institute for AWWW GmbH ArbeitsWelt – Working World