Employment Flexibility: Policymakers Reluctant to Respond to Market Needs

LFMI // 9 January 2020

The Lithuanian Free Market Institute and its partner organisations have published the third annual Employment Flexibility Index which ranks 41 EU and OECD countries by ease of employing people.

The Employment Flexibility Index 2020 shows that the US, Japan, New Zealand, the UK, Canada and Ireland provide the highest degree of freedom to negotiate with employers, while France, Luxembourg and Mexico rank the lowest in terms of flexibility of employment.

The 2020 index suggests that policymakers are reluctant to respond to evolving market needs. Analysis of the data shows little to no change in national regulations for the last year. However, the countries which already enjoy relatively flexible labour markets continue to strive for greater flexibility, while those below the average seem to stagnate in terms liberalisation. This only widens the already significant differences in the level of state intervention in the labour markets.

Due to technological and demographic changes the European labour market is becoming more dynamic and diverse. A growing need for more flexibility is evident. Worker mobility is increasing, as is the ability to choose jobs that match workers’ skills and interests. Importantly, growing economic and geopolitical tensions are posing a risk to the global economy, leading to a slowdown in economic growth. Greater flexibility in employment regulations would enable market players to adapt to those changes more efficiently.

The top countries are diverse in the sense of their legal systems, yet they are similar in terms of employment flexibility. For example, those countries have the most flexibility in regulating fixed-term contracts, premium rates for non-standard working hours, and in negotiating overtime, night work and rest days. In order to ensure greater flexibility and attractiveness to both local and foreign investments policymakers in the countries with lower rankings could consider revising regulations.

The study thus suggests that changes in the labour markets are happening faster than legislation is able to reflect.

Forms of employment are changing and workers are becoming more mobile. As the European Commission observes, this creates a need for more flexibility of regulations. Labour laws must not get stuck in times of an economic slowdown. Flexibility becomes particularly important. Unfortunately, extremely rigid regulations are justified on the ground of worker protection but these can have the opposite effect of reducing economic competitiveness and investments. If we want more jobs, higher salaries, better working conditions and more bargaining power for employees, we need investments and business.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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