Labour market flexibility

Labour market flexibility

Labour market flexibility refers to the speed with which labour markets adapt to fluctuations and changes in society, the economy or production.


In the past, the most common definition of labour market flexibility was the neo-liberal definition. This entailed the ease of labour market institutions in enabling labour markets to reach a continuous equilibrium determined by the intersection of the demand and supply curve [Standing, 1989; Jimeno and Tohara, 1994] . In the words of Siebert [Siebert, 1997: 43] labour market institutions were seen to inhibit

"the clearing functions of the market by weakening the demand for labor, making it less attractive to hire a worker by explicitly pushing up the wage costs or by introducing a negative shadow price for labor; by distorting the labor supply; and by impairing the equilibrating function of the market mechanism (for instance, by influencing bargaining behavior).”


The most famous distinction of labour market flexibility is given by Atkinson [Atkinson, 1984; Atkinson and Meager, 1986] . Based on the strategies companies use, he notes that there can be four types of flexibility.

External numerical flexibility

External numerical flexibility refers to the adjustment of the labour intake, or the number of workers from the external market. This can be achieved by employing workers on temporary work or fixed-term contracts or through relaxed hiring and firing regulations or in other words relaxation of Employment Protection Legislation, where employers can hire and fire permanent employees according to the firms’ needs.

Internal numerical flexibility

Internal numerical flexibility, sometimes known as working time flexibility or temporal flexibility. This flexibility achieved by adjusting working hours or schedules of workers already employed within the firm. This includes part-time, flexi time or flexible working hours/ shifts (including night shifts and weekend shifts), working time accounts, leaves such as parental leave, overtime and etc.

Functional flexibility

Functional flexibility or organizational flexibility is the extent employees can be transferred to different activities and tasks within the firm. It has to do with organization of operation or management and training workers. This can also be achieved by outsourcing activities.

Financial or wage flexibility

Financial or wage flexibility is in which wage levels are not decided collectively and there are more differences between the wages of workers. This is done so that pay and other employment cost reflect the supply and demand of labour. This can be achieved by rate-for-the-job systems, or assessment based pay system, or individual performance wages.

Other than the four types of flexibility there are other types of flexibility that can be used to enhance adaptability. One way worth mentioning is locational flexibility or flexibility of place [Reilly, 2001; Wallace, 2003] . This entails employees working outside of the normal work place such as home based work, outworkers or teleworkers. This can also cover workers who are relocated to other offices within the establishment.

Flexibility for workers

However, labour market flexibility does not only refer to the strategies used by employers to adapt to their production/business cycles as it is in the definitions above. Increasingly the common view is that labour market flexibility can potentially be used for both workers and companies/ employers and employees. It can also be used as a method to enable workers to ‘adjust working life and working hours to their own preferences and to other activities’ [Jepsen & Klammer, 2004:157] . As companies adapt to business cycles and facilitate their needs through the use of labour market flexibility strategies, workers adapt to their life cycles and their needs through it (Chung, 2006). The European Commission also addresses this issue in its Joint Employment Report and its new Flexicurity approach, calling for an adequate methods to enhance flexibility for both workers and employers that is “capable of quickly and effectively mastering new productive needs and skills and about facilitating the combination of work and private responsibilities.” (Chung, 2008) [Chung, 2008 "Do institutions matter?"] ETUC also emphasize the importance of the development of working time flexibility as an alternative to implementing external flexibility as the sole method of increasing flexibility in the labour market (ETUC, 2007). In their report on working time, TUC has also argued that flexible working should be extended to all workers through stronger regulations (Fagen et al for TUC, 2006).

ee also

*Labour law
*Contingent work
*Corporate amnesia
*Employment Protection Legislation
*Labour economics
*Labour and employment law
*Working time


* Atkinson, J. (1984) "Flexibility, Uncertainty and Manpower Management", IMS Report No.89, Institute of Manpower Studies, Brighton.
* Atkinson, J. and Meager, N.(1986) "Changing Working Patterns: How companies achieve flexibility to meet new needs," Institute of Manpower Studies, National Economic Development Office, London.
* [ Chung, H] (2006) "Labour Market Flexibility, for Employers or Employees? A multi-dimensional study of labour market flexibility across European welfare states," Paper presented at the 2006 Annual ESPAnet Conference, Shaping Euoropean Systems of Work and Welfare, 7th~9th September, 2006, Bremen. [ paper link]
* Fagan, C., Hegewisch, A., and Pillinger, J. (2006) "Out of Time: Why Britain needs a new approach to working-time flexibility. Trade Union Congress, London." [ Out of Time report link]
* Reilly, P. (2001) "Flexibility at Work: Balancing the interests of employers and employee." Gower Publishing Limited, Hampshire.
* Wallace, C. (2003) "Work Flexibility in Eight European countries: A cross-national comparison." Sociological Series 60.Institute for Advanced Studies, Vienna.

External links

* [ Flexicurity Research Programme]
* [ CARMA]

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