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Stability, flexibility & security in labour markets? (I)

Peter Auer *


This short text will try to give an answer to the question posed in the title above. Before doing that, some definitional issues will be raised in the introduction. The next section will then critically assess the shift between job and employment security reckoned by experts and the European Commission. This is followed by a short section showing the importance of internal forms of adjustment to changes in the environment of firms. The dimension of employer vs. worker centred labour market flexibility is also discussed within this part. Finally a section demonstrates the resilience of the long term job and discusses rationales why this is so, before concluding on the question initially posed.



As a term, Flexicurity remains a bit fuzzy and there is no one-size-fits-all definition of the concept, although there is agreement on some broad trends and principles, the most important being that the terms are complementary rather than in opposition. Indeed, while there is a whole discussion on the trade-offs between flexibility and security, the new optimistic interpretation is that flexibility and security are not contradictory, “but mutually supportive” for facing the challenges of globalisation (EU Commission, 2006).

For example the recently published interim report of the Expert Group on Flexicurity, set up by the European Commission, states that “ the Commission and the Member States, drawing on experience of previous work, have reached a consensus on a definition of flexicurity which comprises four components:

• Flexible and secure contractual arrangements and work organisations , both from the perspective of the employer and the employee, through modern labour laws and modern work organisations.

• Active Labour Market Policies (ALMP) which effectively help people to cope with rapid change, unemployment spells, reintegration and, importantly, transitions to new jobs – i.e the element of transition security .

• Reliable and responsive lifelong learning (LLL) systems to ensure the continuous adaptability and employability of all workers, and to enable firms to keep up productivity levels.

• Modern Social Security systems which provide adequate income support and facilitate labour market mobility. This includes provisions that help people combine work with private and family responsibilities, such as childcare.

As a process variable this definition includes:

• Supportive and productive social dialogue , mutual trust and highly developed industrial relations are crucial for introducing comprehensive flexicurity policies covering these components.

Whether these ingredients are universally accepted or not is not clear, but the 4 substantive and the one procedural elements seem to be part of all the different “schools”. And despite differences in the underlying analysis of labour market developments (do we have already enough/too much or rather not enough flexibility and in both cases for whom and what kind of flexibility) all share the observation that globalisation and new technology have made labour demand more volatile and that this entails a (partial) shift towards security based on broader shoulders than that of stable employment contracts with a single firm. In the EU terminology this reads as: “the main trust of the EU recommendation on flexicurity is to encourage a shift from job security towards employment security” (page 8 of the chapter on Flexicurity in Employment in Europe 2006 ).


From job to employment security and beyond

But is it accurate to describe the shift by these terms? True, the Commission has in mind that there is no lifetime job anymore and life-time security must be triggered by a sequence of jobs held in different firms. But in the terminology of the former generation of labour economists and members of the industrial relations school (for example the internal labour market “school” – Doeringer et Piore, 1971) job and employment security were related as follows: job security is narrowly defined as the security of performing a specific task (or a narrow family of related tasks) with a specific skill, like car body welder or so. Here the qualification and the job go together, triggering a specific kind of professional identity. The internal labour market, which was characterised by many job classifications, was also related to the external labour market via the unemployment benefit system. For example in economic downturns in the USA, firms used “temporary lay-offs”, whereby temporarily dismissed workers would receive unemployment benefits for a while and when the business cycle improved, be recalled by their firm to the same job and according to strict rules of seniority. The rather rigid system of job security existed also in many European labour markets and, for example, the Italian workers statute of the 70s was (in)famous for being rigidly based on job security.

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These were complicated and rather inflexible systems: job classification proved to be inflexible in regards to new needs of polyvalence and multi-skilling in new types of goods and service production. Accordingly the job security rule was either abandoned or at least significantly reduced and often replaced by employment security that guaranteed an employment with the firm, but not on any particular job. This went together with a dramatic reduction of the number of job classifications, a certain shift from qualification to competence, more polyvalence and new forms of work organisation allowing for much more internal flexibility.

Thus, in the 80s, the Japanese internal labour markets became the model for (internal) flexibility and security because there was not much job-, but much employment security. From this time dates the idea that there is a trade-off between internal and external flexibility, or between job and employment security: The elements of the trade-off were security of employment provided in exchange for an enhanced capacity to adapt quickly through changes in the internal organisation of work, often in conjunction with changes in working time and job/task changes. The system of qualifications paralleling the employment system was one of firm specific internal promotion and mobility.

The announced shift from job to employment security in the EU based literature on flexicurity was therefore formerly seen as a shift from an internally rigid system towards an internally flexible system that however maintained employment security and long term jobs with one company.

The newness in the present shift seems therefore to be one from employment security to a new combined security (some degree of employment security within firms going together with social protection – mostly in the form of active and passive labour market policies-outside the firms) which covers both (some) employment security in firms and security in transitions and mobility. It would be wrong to call the new system “employment security”; it should rather be called “labour market security” as its providers are not only firms, but also the social protection system and new social rights.

The graph below (ver/see "Time axis") illustrates the shift schematically along a time axis.

This shift concerns in particular external forms of adjustments, transitions from one firm to another or also shifts between employment status (to and from unemployment, to and from training, to and from parental leave, etc.), a trend that has been observed by the transitional labour market “school” (Schmid and Gazier). It has to be added that there is no total substitution of earlier forms of security by later forms, but that former types are integrated in later forms. There is still some job security and employment security is at the core of any labour market security, but the latter is only triggered by combining employment with social protection.

Indeed the setting up of a system that shifts some of the adjustment costs from firms to the larger shoulders of a social protection system bears costs: the chapter on flexicurity in the “Employment in Europe 2006 report” attempts an illustration of what would be the costs if spending on LMP similar to three highest spending countries in the EU (per unemployed) would be applied to all and comes to sums that average 4% of GDP. While this seems to be high it could be money well spent when it effectively ensures the risks inherent in the labour market. As can be shown, such expenditures could have a positive macro-economic function as they act as automatic stabilisers in downturns and might therefore be seen as investment rather than a cost in state budgets.


Internal and external adjustments

Firms have indeed a choice between internal and external types of adjustment. However, from literature we know that such choices are “framed” by labour market institutions and by custom and practice. Such practices concern for example a preference for wage flexibility through the variation of the flexible part of the wages (bonus) rather than for dismissals in Japan. Also in Germany internal forms of adjustment – mostly a variation in working time – are preferred to external ones, and are also supported by such schemes as short-time work. Recent research based on the enterprise panel of the Institute for work and training (IAB) shows that around 80% of all adjustments to variations in the business cycle of German firms are internal, with slight variations according to sector and firm size (Hohendanner and Bellman, 2006). In the US, to the contrary, external numerical flexibility (lay-offs) is the preferred option (Abraham and Housman, 1995).

An important question in the debate is also whether one can balance the flexibility needs of individuals, stemming from their individual choices (for parenting, training, time-off, etc.) and the needs of the employers for efficient operation of their business. Both determine the balance of stability/flexibility and security. The good news is that preliminary research has shown that in flexicurity countries employer oriented and worker oriented flexibility are complementary.


* Peter Auer

Doutor em Ciências Sociais e Económicas. Director no Departamento de Investigação, Estratégia e Análise Laboral na Organização Internacional do Trabalho, Genebra. Foi investigador sénior do Centro de Ciências em Berlim (WZB). Foi Director do Observatório Europeu do Emprego e co-fundador e Director do Instituto para a Sócioeconomia Aplicada, em Berlim.


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Bibliography (referências bibliográficas)

Abraham, K. G. and Houseman, S. N. (1995) – “Labour Adjustment under Different Institutional Structures: A case study of Germany and the United States”. In F. Buttler – Institutional Framework and Labour Market Performance: Comparative Views on the
U. S. and German Economies. Routledge: London.

Agell, J. (1999) – “On the benefits from rigid labor markets: norms, market failures, and social insurance”. Economic Journal , vol. 109.

Auer, P. (forthcoming) – “In search of optimal labour market institutions, Economic and labour market analysis papers. ILO, forthcoming.

Auer, P., Berg, J. and Coulibaly, I. (2005) – “Is a stable workforce good for the economy? Insights into the tenure-productivity-employment relationship”. International Labour Review , Geneva, Volume 144, Nr. 3.

Auer, P. and Gazier, B. (2006) – L'introuvable sécurité de l'emploi. Paris: Flammarion

Beck, U. (2000) – Die Zukunft von Arbeit und Demokratie . Frankfurt.

Boeri, T. (2005) – Reforming Labor and Product Markets: Some lessons from two decades of experiments in Europe . IMF working paper WP/05/97, Washington

Cazes, S. and Nesporova, A. (eds.) – Flexicurity. A relevant approach in Central and Eastern Europe. ILO, forthcoming.

Capelli, P. and Neumark, D. (2004) – “External Churning and Internal Flexibility: Evidence on the Functional Flexibility and Core-Periphery Hypotheses”. Industrial Relations 43, 1, pp. 148-182.

Doeringer, P. and Piore, M. (1971) – Internal Labour Market and Manpower Analysis . Heath, Lexington: Lexington Books.

Erlinghagen, M. and Knuth, M. 2004 – In search of turbulence: labour market mobility and job stability in Germany. In European societies 6, p. 49-70

Gazier, B. (Ed.) (1999) – Employability: Concepts and Policies . Berlin: I.A.S..

Gazier, B. (2003) – Tous sublimes: vers un nouveau plein emploi. Paris: Flammarion.

Heckman, J. and Pagés, C. (2000) – The cost of job security regulation: Evidence from Latin American countries. NBER Working paper 7773, NBER, Cambridge, MA.

Hohendanner, Ch. And Bellmann, L. (2006) – Interne und externe Flexibilität. In WSI Mitteilungen 5/2006.

Huff Stevens, A. (2005) – The more things change, the more they stay the same: Trends in long-term employment in the United States, 1969-2002. NBER Working Paper 11878, Cambridge, MA, December.

ILO (1999) Decent Work. Geneva.

Korpi, T. and Tahlin, M. – The impact of globalization on men's labor market mobility in Sweden. In Gloablization, Uncertainty and Men's Careers . Cheltenham: Edward Elgar.

Kramarz, F. and Roux, S. (1999) – Within-Firm Seniority Structure and Firm Performance, Centre for Economic Performance Discussion Paper 420.

Lindbeck, A. and Snower, D. J. (1988) – The Insider-Outsider Theory of Employment and. Unemployment. Cambridge (Mass.).

Madsen, Per K. (2003) – Flexicurity through labour market policies and Institutions in Denmark. In Auer, P. and Cazes, S. (eds) – Employment stability in an age of flexibility, ILO

Marsden, D. (1999) – A theory of employment systems: Micro-Foundations of Societal Diversity. Oxford University Press.

Lopez-Claros, A., Porter, M. E. and Schwab, K. (eds) (2005) – The Global Competitiveness Report 2005-2006. World Economic Forum Geneva , New York: Palgrave Macmillan, NY.

OECD (2004, 2006) – Employment Outlook , Paris.

Schmid, G. (2002) – “Employment insurance in critical transitions during the life-course”. In P. Auer and B. Gazier – The future of work, employment and social protection, ILO/IILS, Geneva.

Supiot, A. (ed.) (1999) – Au-delà de l'emploi, Report for the European Commission. Brussels.

Wilthagen, T. (1998) – “Flexicurity: A New Paradigm for Labour Market Policy Reform?” Discussion paper FS II 98-02. Wissenschaftszentrum für Sozialforschung, Berlin.


Dados adicionais
Gráficos / Tabelas / Imagens / Infografia / Mapas
(clique nos links disponíveis)

Link em nova janela Enterprise - and worker - oriented flexibility in Europe

Link em nova janela Average employment tenure EU-15 / 1992 and 2005

Link em nova janela Time axis

Link em nova janela Job insecurity and labour market policies, 2000

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