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

Peter Auer *


One major shortcoming of most of the literature on flexicurity is however the silence on the importance of the regular stable employment relationship for productivity and security. In the understanding of flexibility that I subsume here, flexibility is the possibility for protected transitions between jobs and between other situations and jobs. While by definition one is protected when in a regular employment relationship, the periods without employment should in many instances be protected. This could be situations of unemployment, in active labour market policy measures, in further training, on maternity and parental leave, etc. But while it is not difficult to imagine that one stays in transit or is “lost in transit” (Brzinsky-Fay, 2006) and accumulates long periods of rotation between only temporary positions, this is no desirable situation from the point of view of security. What have to be developed are good transitions to regular jobs and in a life-time perspective as many as possible should benefit from participation in the regular labour market on regular jobs. Therefore the end-point of a good transition is a regular job of some longevity.

The empirical observation that employment stability overall is maintained in Europe is by itself remarkable if put in contrast with the fears that all stability is gone and the long-term job belongs to the past which is both a popular perception and an academic speculation (Rifkin and Heilbronner, 1995; Beck, 2000). Many studies have looked at the stability argument from different angles recently and most reach the same conclusion: despite the perception that employment relationships became volatile and that globalisation gives a mortal blow to the long term job, it seems well to survive. Employment is more stable than usually assumed and in 2005 in average around 41% of all Europeans have been more than 10 years with their present employer, about the same share (but higher in absolute numbers) than in 1992.

While there are many changes (like declining tenure for men, compensated by rising tenure for women) the fact that overall stability in the employment systems is maintained needs more attention of those researching flexicurity. One axis of research should be on the effects of employment stability for the economy and the labour market. Our own research has found a paradox that confirms observations coming from the OECD (2004) and other researchers (Clarc and Postel-Vinay, 2005), cited also in the chapter on flexicurity of the EU's employment in Europe report 2006. While the length of tenure could be interpreted as an expression of better “objective” employment security, it does apparently not result in better “subjective” (perceived) employment security. Clarc and Postel-Vinay qualify this finding in adding that the negative relationship between longer tenure and more insecurity concerns the private sector but not the public sector: in the latter the relationship is positive and objective and subjective employment security coincide.

There are many hypothetical reasons for the paradox, one being that in today's economy and labour markets, constantly changing and adapting, seeing mergers and acquisitions, firm death and creation, press announcements of mass lay-offs, relatively high unemployment rates in some countries etc. even holding a long-term job does not trigger a feeling of security. In fact elapsed tenure, which is a good objective predictor of future tenure (Farber, 1998) seems not to be a good predictor of subjective employment security. A case in point is Japan, which has one of the highest ranks in elapsed average tenure but also the highest share of people feeling insecure about their future employment tenure. Security perceptions vary also with the business cycle.

However, the incongruence between objective and subjective measures of security should not be interpreted as indicating that stable jobs are not important for workers security. One cannot imagine an absence of stable jobs and a total shift of security towards public unemployment and employment schemes; only a new balance with somewhat more of the latter and somewhat less of the former is imaginable. Furthermore subjective indicators are probably biased and the type of question posed, as well as the context of the question posed, is important. The relationship found is based on aggregate country data comparisons, which are analytically weak and some of the relationships found are statistically not significant, so much more research is needed to establish a robust link between objective and subjective data. So far one can only conclude that maximisation of employment protection seems not to be the way to maximise workers, perceived security and that it needs more than tenure for matching objective and subjective employment security.

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When the relationship between tenure and productivity is considered, we face another paradox if we assume that high mobility, flexibility expressed in low tenure are unequivocally positive for productivity as the US-Europe comparison suggests. In an econometric study we found a positive relationship (an empirical optimum between tenure and productivity was in the range of 14 years of tenure for an aggregate of 13 European countries during 1992-2002). Such an increasing return for long tenure, decreasing only for very long tenure but also for short tenure is also confirmed on the micro--level and confirms former micro-economic and human capital literature, which stated that it needs tenure to recoup training costs. The fact that many firms search to retain their (skilled) workers, rather then to lay them off, could be another indication of the beneficial effects of tenure/stability.

It is important to keep in mind, however, that this finding, based on an econometric model, is the average tenure for the 13 European countries between 1992 and 2002. Per sector or country, these estimates would vary; but more importantly at the individual level, it cannot be stated that this represents the appropriate length of time to retain a worker. In other words, while an “optimum tenure” may exist, when that point is cannot be stated precisely. It is merely evident from the empirical exercises that in general, short tenure (less than one year) and long tenure (particularly above 15 and 20 years) can have negative productivity effects. However, the finding that longer tenure and thus some rigidity in labour market institutions is beneficial for productivity has been confirmed by recent research (Storm and Naastepad, 2007).

But the series of paradoxes would not be complete if we would not add that in terms of labour market performance, we acknowledge a positive relationship between labour market flexibility and labour market performance, that extends to a certain degree also to productivity.

A shortcut intermediary conclusion would be that one needs both stability and flexibility in labour markets for productivity and employment and that there is a balance to be searched between both.


The solution of the paradox: flexicurity?

To further complicate the story, in both the ILO and OECD research cited, and in the present report, the positive relationship between (expenditure on) labour market policies (both active and passive) and worker's perceived employment security is highlighted. There is ample empirical evidence that the flexible countries, with medium degrees of employment protection but ample protection by labour market policies do better in terms of decent jobs. This result underpins concepts of flexicurity as it suggests that a certain degree of mobility, when “protected”, is desirable for worker's security and delivers better results than either “unprotected” mobility or too much employment stability. Again this is based on country comparison rather than in depth analysis on a country by country basis.



In fact all these apparent paradoxes might be solved if one intelligently designs labour market reforms that take into account the need for stability, flexibility and security. On the process side an effective social dialogue is needed to reforming the regulatory and policy framework for arriving at “optimal” or “win-win” combinations. Omitting one of these elements will produce suboptimal results either for productivity, employment performance or workers' security. However, there is no one-size-fits-all “model” for combining the three and therefore it depends on the particular context that countries are in, on the institutions they have and on their existing actual combination of flexibility, stability and security. For example, while Portugal looks “rigid” when analysed through the Danish lenses, there is no way to introduce the Danish model as such in Portugal. For example, it would need an effective social dialogue in a climate of trust between the partners and strong institutions of support for reshuffling employment policies towards a flexicurity framework.

This leads us with others to be prudent in proposing a particular system as reference for reforms: there is much idiosyncrasy in different “models” which are all “home grown” and have developed over years in their particular institutions with their particular agents. One has to suggest many ways to Rome and no one-size-fits-all solution. The best one can do is to propose some common elements that are basically in line with the definition of the expert group on flexicurity cited above:

• medium level employment protection through innovative employment contract as a necessary, but not sufficient ingredient of worker's security

• plus a high degree of internal flexibility in high performance work systems

• high social protection by activated LMPs, including training and retraining

• social rights like maternity, parental and training leave, possibilities to shift between part and full-time, etc.

• complementarity between worker and firm oriented flexibility

• an effective social dialogue.

If these principles are observed and the various interactions between these elements are exploited for economic and social performance, “performance flexicurity” combined with “access flexicurity” can result in what we termed labour market security in the beginning of this article. Developing, maintaining and enhancing such a system implies also a functioning social dialogue that allows the two sides of industry and the government to bargain over possible trade-offs, responsibilities and costs of the system.

What are alternatives for reforms of employment and social protection, if one departs from the flexicurity paradigm? One is “doing business as usual”, which would mean to leave the employment cum social protection systems that we have intact. While this solution is feasible for some (precisely those who already have flexicurity systems) it is less so for others. It would be a drawback for negotiated solutions: it could be that a return to more adversarial systems will profit to some in the short-term, depending on the power balance between employers/employer organisations and workers/trade unions and possibly the political colour of the government. As flexicurity tries to transform a trade-off into a complementarity and bring together diverging interests, the building up requires negotiation between the social partners. They might be complex, lengthy and tiresome and having their conflicts, but both from the substantive as well as from the procedural side, if a spirit of cooperation ist to be maintained, there is not much alternative for searching to balance flexibility, stability and security.


* 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)

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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 : Flammarion, Paris.

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

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Clarc, A. and Postel-Vinay, F. (2005) – Job Security and Job Protection, CEP Discussion Papers DP678, Centre for Economic Performance, LSE (London School of Economics), updated version 2006.

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.

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Link em nova janela Different employment systems in EU-15 producing different outcomes

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