Draft, 25.07.2008
Peter Auer, ILO
Flexicurity and Labour market security: what are the issues?
For some time now a new term has been coming to the fore in the European debate on labour market reforms: flexicurity. This oxymoron, a combination of two words that have hitherto mostly been seen as being in opposition, flexibility and security in labour markets, has gained increasing recognition as a win-win reform agenda. It is at present integrated in larger strategies, such as the European Union’s Lisbon agenda and also discussed within the framework of the ILO’s global employment agenda and decent work. In the European Union it has a framework for implementation and follow up (e.g. the so called “open method of coordination” which proceeds by setting targets and formulating guidelines and using benchmarking and peer reviews for reaching targets). Labour market reforms in terms of flexicurity will increasingly be funded under financial instruments that the European Commission has at its disposal: the European Regional Development fund, the European Social Fund, a new fund for mitigating the negative effects of globalisation and other sources of financing, e.g. research funds. Whether you like it or not, once a reform agenda has reached that level of institutionalisation, it gets difficult for major stakeholders such as the social partners not to join the game, in particular since they have also be involved in the process. However, while the general proposition that labour markets need both flexibility and security is a valid one, but there might be better ways, more aligned with the traditions in labour economics and the industrial relation professions and more acceptable in terms of the political economy that surrounds the term flexicurity, to describe and do labour market reforms.
What is flexi-curity all about?
As a European answer to the “flexibility of labour markets will bring about economic and employment growth” mantra of a neo-liberal kind, associated to former US employment successes, flexicurity proponents do not thing that economic and employment growth will be an indirect and automatic consequence of flexible labour markets but have to be targeted directly through adequate policies. The flexicurity approach is much more balanced as it gives in principle equal weight to labour market flexibility (capacities of firms and workers to adapt to change) and to worker’s employment, employability and income security. Flexicurity contains the following core elements, put together by an Expert Group on Flexi-curity, set up by the European Commission that states that “the Commission and the Member States, drawing on experience of previous work, have reached a consensus on a definition of flexicurity which comprises four components”:
· Flexible and secure contractual arrangements and work organisations, both from the perspective of the employer and the employee, through modern labour laws and modern work organisations.
· Active Labour Market Policies (ALMP) which effectively help people to cope with rapid change, unemployment spells, reintegration and, importantly, transitions to new jobs – i.e the element of transition security.
· Reliable and responsive lifelong learning (LLL) systems to ensure the continuous adaptability and employability of all workers, and to enable firms to keep up productivity levels.
· Modern Social Security systems which provide adequate income support and facilitate labour market mobility. This includes provisions that help people combine work with private and family responsibilities, such as childcare.
As a process variable this definition includes:
· Supportive and productive social dialogue, mutual trust and highly developed industrial relations are crucial for introducing comprehensive flexi-curity policies covering these components. [1]
By and large these are also the core elements in the definition adopted by the European Council of Ministers in December 2007 in Lisbon as the “Common principles of flexicurity: more and better jobs through flexibility and security” (EU Commission, 2007). However, the council resolution added some other elements like a gender and a life cycle dimension, a prescription for country specific solution (no-one-size-fits-all) and a requirement for finding financially sustainable ways of combining flexibility and security so that today one speaks of the eight common principles.
These ingredients seem now accepted with variations by all different “schools” of labour market reforms that search for socially and economically balanced solutions for labour market problems. In all we see the main ingredients, in particular in the flexi-curity “school” per se (Wilthagen and Tros, 2004), a strand of research and advocacy that is also searching for “deliberately” increasing flexibility in the labour market. The transitional labour market school (Schmid, Gazier, 2002, Auer, Schmid, 1998) focuses principally on labour market dynamics for allowing (protected) transitions for individuals between different situations –job to job, unemployment to job, training to job, etc.- in labour markets, and the Danish flexi-curity approach (Madsen, Joergenson, 2007), which uses the particularities of the Danish “golden triangle” of loose employment protection, generous benefits and strong activation as a best practice case for labour market organisation. They all apply the substantive and the procedural elements described above.
In the political arena, positions are less clear: within the unions there is a large divide on the subject with some seeing it just as “flexibility in disguise” and some others as a pragmatic agenda for negotiations. Employers usually are more flexicurity friendly but stress the flexibility part as being the most important, while unions see the security part as their main negotiation item. We will develop these points further below.
And despite differences in the underlying analysis of labour market developments (do we have already enough/too much or rather not enough flexibility and in both cases for whom and what kind of flexibility) or the theories of social choice and justice applied, many share the observation that globalisation and new technology have made labour demand more volatile and that this entails a (partial) shift towards security based on broader shoulders than that of stable employment contracts within a single firm. In the EU terminology this reads as: “the main trust of the EU recommendation on flexi-curity is to encourage a shift from job security towards employment security” (page 8 of the chapter on Flexicurity in Employment in Europe 2006).
From job to employment security and beyond
Is it accurate to describe the shift as one from job to employment security? True, the Commission has in mind that there is no lifetime job anymore and life-time security must be triggered by a sequence of jobs held in different firms and the protection of transitions between these jobs and other labour market situations. But in the terminology of the former generation of labour economists and members of the industrial relations school (for example the internal labour market “school” –Doeringer et Piore, 1971) job and employment security, were related as follows: job security is narrowly defined as the security of performing a specific task (or a narrow family of related tasks) with a specific skill, like car body welder or so. Here the qualification and the job go together, triggering a specific kind of professional identity.[2] The internal labour market, which was characterised by many job classifications, was also related to the external labour market via the unemployment benefit system. For example in economic downturns in the USA, firms used “temporary lay-offs”[3], whereby temporarily dismissed workers would receive unemployment benefits for a while and when the business cycle improved, be recalled by their firm to the same job and according to strict rules of seniority[4]. The rather rigid but coherent system of job security existed also in many European labour markets and, for example, the Italian workers statute of the 70s was (in)famous for being rigidly based on job security, forbidding internal and external flexibility.[5]
These were complicated and rather inflexible systems: job classification proved to be inflexible in regards to new needs of polyvalence and multi-skilling in new types of goods and service production. Accordingly the job security rule was either abandoned or at least significantly reduced and often replaced by employment security that guaranteed an employment with the firm, but not on any particular job. This went together with a dramatic reduction of the number job classifications, a certain shift from qualification to competence, more polyvalence and new forms of work organisation allowing for much more internal flexibility.
Thus, in the 80s, the Japanese internal labour markets became the model for (internal) flexibility and security because there was not much job-, but much employment security. From this time dates the idea that there is a trade-off between internal and external flexibility, or between job and employment security: The elements of the trade-off were security of employment provided in exchange for an enhanced capacity to adapt quickly through changes in the internal organisation of work, often in conjunction with changes in working time and job/task changes. The system of qualifications paralleling the employment system was one of firm specific internal promotion and mobility, which in the Japanese case included geographical mobilty.
The announced shift from job to employment security in the EU based literature on flexi-curity is indeed inadequately defined: this shift occurred in the middle of the 80s in many firms and was a shift from an internally rigid system towards an internally flexible system that however maintained employment security and long term jobs with the single firm.
This is then an old story. The newness in the present shift is not one from job to employment security, but from employment to labour market security as it implies a new combined security (some degree of employment security within firms going together with social protection –mostly in the form of active and passive labour market policies, but also social rights such as maternity and parental benefits- outside the firms) which covers both (some) employment security in firms and security in transitions and mobility. It concerns the labour market seen as a totality of workers flows and not employment security triggered by a rather stable employment relationship. While the Commission describes apparently the same phenomenon that we describe as labour market security, it does give it a misleading name: employment protection suggests indeed that employment is protected, when in reality employment is only protected as long as in employment. In the transition phase (which in an optimistic scenario ends again in employment) it is income and employability that may be protected but not employment per se. The graph below illustrates the shift schematically along a time axis[6].
Figure 1[7]:
Time à
Job security1) employment security 2) labour market security3)
1) Protection of a specific job/task
2) Protection of employment but multiple jobs/tasks
3) Protection of employment +labour market policies+social rights (flexi-curity)
This shift concerns in particular external forms of adjustments, transitions from one firm to another or also shifts between employment status (to and from unemployment, to and from training, to and from parental leave, etc.), a trend that has been observed by the transitional labour market “school” (Schmid and Gazier, op. cit.). It has to be added that there is never total substitution of earlier forms of security by later forms, but that former types are integrated in later forms. There is still some job security[8] and employment security is at the core of any labour market security, but the latter is only triggered by combining employment with social protection.
Flexicurity for labour market security?
Labour market security is indeed similar to flexicurity or is even–depending on whose flexicurity we talk about- synonymous. However, one could also see it as a means to an end: in that case flexicurity would be the means to reach the end: labour market security. The latter term would probably go undisputed. It is a labour relations issue as it deals with employment contracts, labour law, collective bargaining and with the labour market related parts of social protection such as unemployment benefits and active labour market policies and establishes a relationship between these elements. The concept includes different types of security that accompany flexible labour markets. And most importantly any new equilibrium between flexibility and security is usually (or at least should be) negotiated by the social partners, making it a genuine labour relations issue. Labour market security is not seeking flexibility “deliberately” but just reckons that labour market have changed, both on the supply and the demand side and that there are demand side and supply side reason for flexibility, stability and security.
Labour demand has a tendency to become more volatile as the uncertainties for doing business increase with the opening of markets, although market opening yields benefits for dynamic firms. A sign of a more volatile demand structure is the rise in temporary and part-time jobs, although a (smaller) part of the rise is also due to changed workforce behaviour of people, preferring job switches to stable employment in particular periods of their working life or preferring the integration of family and working life over just work life or family “careers”. The latter example shows that there are indeed also labour supply drivers of change, most importantly the increasing labour force participation of women.
However, while there seems to be more volatility in the employment systems there is also stability (Auer, Cazes, 2003, Huff Stevens, 2005). Industrial/labour relations have taken this stable contractual relation as the norm, at least in industrialised countries. From the stable employment relationship, still most other social rights derive (health insurance, maternity protection, health and safety, pensions and even unemployment benefits).
As the employment relationship changes towards more volatility, the social protection system has to adapt to trigger protection. While reforms seem up to now marginal rather than radical (see Boeri, 2005, for a deeper analysis of these questions in the OECD) and the long term employment relationship stays the norm, this might change. However, the good thing is that there can’t be a total shift from employment protection to social protection, because this would neither be desirable from a worker’s point of view, nor from an employer’s point of view. While the former need the protection deriving from job stability, at least in certain periods of their professional career - the latter need workers motivation and effort, which is deriving from employment stability.[9]