Flexicurity in the XXI. century

14 June 2018 // Ieva Stepanaviciute

 

As the world is undergoing a third industrial revolution with the field of computer science rapidly expanding, one aspect of the labour market is becoming increasingly important: flexibility. The Employment Flexibility Index 2018 is based on the World Bank’s data on labour regulation and the methodology used to compile the rigidity of Employment Index, with the EU and OECD member states forming the sample.

The country topping the list has no restrictions or limits on the duration of fixed-term contracts, no mandatory minimum wage, no restrictions and no premiums for night work, overtime and work on a weekly holiday. It comes together with legal redundancy dismissals, no restrictions on redundancies and no statutory notice period or statutory severance pay in case of redundancies. And although Scandinavia is usually associated with governmental interventionism and supposedly strict labour laws to create security in the job market, the country topping the list is Denmark.

As it combines both flexibility and security in the job market, the Danish model is referred to as ‘flexicurity’. It is believed widely that it is only effective due to high transfer payments. However, in reality, the key to the successful Danish model is not the guarantee of not losing your job, but the guarantee that you will easily find another one. The first pillar of the Danish model is employment protection – it is easy for employers to fire their employees with notice periods and severance payments being limited. It is note-worthy that one of the underlying reasons behind that is a long tradition of small enterprises which would find it difficult to comply if labour protection was excessive. The second pillar is the social safety net forms, with the third one being effective activation policies which can vary from information provision, to job training, to wage-subsidized jobs for long-term unemployed in private companies in order to regain professional and personal skills. Finally, Danish citizens demonstrate high perceived job security, which suggests that it is not necessarily protective labour regulation that results in workers feeling safe.

The combination of easy-to-fire, easy-to-hire and effective activation policies is especially relevant nowadays, with technological innovation causing significant changes in the job market. As old jobs are being replaced by the new ones and development of a new skillset is becoming essential for successful participation in the job market, the key to protecting workers from mass unemployment and the labour market from scarcity of work force, is increased flexibility. Fragmented centralization can’t keep up with new developments as it requires too much capital, and accordingly, local initiatives will become more and more powerful. Cross-border movement should be facilitated and people should be given a chance to react, decide, learn and act faster.

One example we should turn our eye to is Macron’s France. Traditionally inflexible and bureaucratic, the state introduced labour reforms aimed at modernizing the economy, reducing unemployment and turning France into a business hub by providing benefits for resigned workers to establish their own businesses. Activation policies have also been embraced. If France succeeds, ‘flexicurity’ might be a solution for the challenges our labour is currently facing.

Further reading:

Employment Flexibility Index 2018, LFMI

Ins-and-outs of the Danish flexicurity model, BNP Paribas

French unions and business leaders discuss Macron reforms, FT

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).