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7th European Regional Meeting in Budapest Balancing flexibility, stability and security in European labour markets

Policymakers all over Europe are facing the crucial challenge of regulating a rapidly evolving labour market in the context of the globalized economy. Will they listen to calls made for greater flexibility to overcome what have often been characterized as the region's labour market rigidities: employment protection and legislation, union bargaining power, generous welfare systems and high labour taxation? Or can they place their trust in a "flexicurity" model: new ways of balancing flexibility and security in relation to employment, income and social protection? "Flexicurity" is one of the main issues to be discussed at the forthcoming European Regional Meeting of the ILO in Budapest on 14 to 18 February. ILO Online spoke with ILO employment experts Sandrine Cazes, Alena Nesporova and Peter Auer.

Article | 16 February 2005

ILO online: Has employment become more flexible in Europe?

Sandrine Cazes: Research by the ILO and others refutes the claim that, as labour markets become more flexible, stable jobs are becoming a thing of the past, at least in Western Europe. The employment relationship is more stable than is commonly assumed in the industrialized world. Indeed, job stability, as measured by average job tenure and reflected in the figures for European countries as a whole, has hardly changed in recent years, despite the large differences between these countries and the persistent segmentation between well-protected core groups of workers in permanent employment and those in flexible forms of employment who enjoy less protection.

Some of the larger countries, such as Germany and Italy, have experienced a growth of more flexible forms of employment, while in France, Spain and the United Kingdom the growth of flexibility has been outpaced by the growth of "standard" forms of employment.

ILO online: Does flexibility pay?

Peter Auer: Analysis of the situation in Western European countries shows that, while they still have a relatively high level of stable jobs, job tenure is not necessarily synonymous with a perceived sense of employment security. Indeed, many of the countries with the longest average job tenure are not those with the best results in terms of decent work, which combines elements such as good wages, perceived job security and participation in training.

These countries, including France, Germany, Greece, Italy and Spain, appear to have lower employment rates than the more "flexible" countries, such as Denmark, Finland and the Netherlands. While this may stem from many factors, including women's employment rates and the sectoral distribution of employment, flexibility also plays a role.

The interesting fact emerges that a number of countries in Western Europe have achieved a high quantity of jobs without sacrificing job quality. These countries have the highest employment rates (including youth employment), low unemployment, high rates of participation by women in the labour market, a good record in relation to the transformation of temporary jobs into permanent ones, and among the best records of job quality and perceived security.

Flexible countries have high employment rates for youth as well as a high rate of transformation of temporary jobs into permanent jobs. Over a period of three years, around 65 per cent of temporary jobs in Denmark and 55 per cent in the Netherlands were transformed into permanent jobs.

ILO online: Does employment stability pay?

Peter Auer: It is often overlooked that a certain degree of stability in labour markets, that means a certain amount of long-term jobs, is good for productivity and is also at the base of workers' security. However, it would appear that, if workers have the confidence to leave their jobs and benefit from a high level of protection during their transition to another job, they feel less "locked in" in jobs and have greater choice of employment, which in turn leads to better matching of labour supply and demand. It follows that more than just job stability is needed to achieve good employment quality and quantity, but that job stability should be at the base of all employment systems.

It is thus likely that a reasonable combination of longer and shorter term jobs, combined with labour market institutions which provide income, social and employability protection during transitions, creates a greater sense of labour market security than stable jobs in an uncertain environment.

ILO online: Does this also apply to countries in central and Eastern Europe?

Alena Nesporova: By contrast, the central and Eastern European countries have experienced strong movements in their labour markets owing to the accelerated pace of job destruction in the wake of transition and the limited scope of job creation in the formal economy. While the share of traditional forms of flexible employment, such as fixed-term and part-time jobs, and even self-employment (after an initial increase), has remained fairly stable, there has been a rise in employment based on non-labour contracts or work performed without a contract.

While the use of fixed-term contracts has increased in the majority of these countries, their share is still much lower than in EU countries - well below 10 per cent of total employment. Average job tenure in central and Eastern European countries is quite low when compared with some Western European countries.

Nevertheless, these forms of labour market flexibility have not, in general, served to improve mobility in the formal labour market. An acute perception of job insecurity, in a context of generally weak labour demand and unemployment protection, appears to be making workers hesitant to leave less productive jobs voluntarily and move on to more productive ones. This may have important negative effects on productivity developments.

Moreover, Hungary and Poland, the two countries which have progressed furthest in deregulation, are also among those with the lowest labour force participation and employment rates in the 25 member States of the EU. This shows that deregulation is not the solution for poor employment performance.

ILO online: To what extent are the social partners involved in labour market reform at the national level?

Sandrine Cazes: The main point is that labour market institutions and policies really do matter. All labour market indicators appear to be affected positively by active labour market policies and a greater intensity of collective bargaining. Policies to stimulate employment promotion and reduce unemployment, rather than pure deregulation, should clearly be on the agenda of the former transition countries, with the aim of protecting transition to new jobs.

Of course, there is no single optimal institutional setting for any specific country, since all countries differ in terms of national experience, culture and circumstances. Each country must therefore consider a wide choice of policy options for creating labour markets which offer both flexibility and security. In this respect, social dialogue is undoubtedly the best tool for testing the acceptability and efficiency of the proposed changes and securing broad support for them.

ILO online: Should governments' labour market and social policies focus on work rather than welfare?

Peter Auer: If a system for ensuring labour market security in transition between jobs is to be sustained, high employment rates are needed, and the system must be based on work rather than welfare. Such a system is not without costs, and places a premium on individual responsibility, such as the obligation to participate in activation measures, which have slowly become standard in many parts of Europe. But if the public benefits of such a system of "protected flexibility" are widely shared, the costs would appear to be acceptable.

ILO online: What action can the ILO take to further promote the concept of "flexicurity" at the national and regional levels?

Alena Nesporova: "Flexicurity" requires, but also promotes, high employment rates. Without competitive enterprises which are able to adjust their workforces to market conditions, employment performance will be poor. However, as already explained, high levels of labour market flexibility per se cannot solve the unemployment problem, unless workers enjoy sufficient employment and income security, through intensive re-employment assistance, active labour market programmes and income support, to motivate them to accept higher mobility and flexibility, and facilitate their adaptation.

Dialogue between governments, workers and employers on policy choices is the foundation of the "flexicurity" approach.

The ILO "flexicurity" project covering Bulgaria, Croatia, the Czech Republic, Hungary, Lithuania and Poland, puts this approach into practice and illustrates the different policy responses of the central and Eastern European countries to employment challenges.

Note 1 - Managing transitions: Governance for decent work, Report of the Director-General, vol. II, Seventh European Regional Meeting, Budapest, February 2005. Chapter 3: Balancing flexibility, stability and security in European labour markets.