Flexible Labour Markets

Flexible Labour Markets  means that the labour markets quickly adjust to a competitive equilibrium. Flexible labour markets involve factors such as:

  • Easy to hire and fire workers
  • Labour is occupationally and geographically mobile
  • Government intervention does not distort the market

Characteristics of Flexible Markets:

  1. Skilled workforce which can adapt to changing requirements
  2. Flexible hours and working contracts e.g. more temporary employment or working from home.
  3. Self-employment where workers and firms can be more flexible in how and when to work.
  4. Greater flexibility in pay arrangements

Why has there been an increase in labour market flexibility?

  1. Globalisation has opened the UK  to more international competition therefore to remain competitive firms have to keep labour costs relatively low
  1. Technological change has made it easier to have flexible labour markets. For example the internet has increased the provisions of information better and makes it easier to work from home.
  1. Changing social environment e.g. increased female participation in the labour force, women are more likely to favour part time flexible work.
  1. Core periphery model. This states that firms are making more use of a core workforce but also part time temporary workers who are more flexible.
  1. Privatisation. Private firms have sought to increase profitability by cutting excess workers
  1. Reduced power of trades unions such as banning closed shops and limitations on the right to picket.
  1. Harder to get unemployment benefits.
  2. Growth in self-employment – more people classed as self-employed rather than employed
  3. Increased migration, e.g. workers from Eastern Europe coming to UK to fill labour shortages.

Impact of flexible labour markets

unemployment-total

  • Helps to reduce unemployment. Post 2009 recession, unemployment fell quicker than after previous recessions. Many attribute this to more flexible labour markets. See UK Unemployment mystery
  • Lower wage growth. More flexible labour markets can help firms keep wages low.
  • More job uncertainty. Greater flexibility can lead to more zero hour contracts where workers have no guarantee of weekly hours, leading to underemployment.

How flexible is the UK Labour Market?

UK Labour market regulation
Source: CER Feb. 2016

The UK has relatively light labour market regulation compared to European countries, such as Germany, Spain and France.

Related

Recent changes in UK Labour markets

Advantages and Disadvantages of Flexible Labour Markets

Flexible Labour Markets and Immigration