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Observations on European Flexicurity Policies
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Observations on European Flexicurity Policies

38 pages · 4.99 EUR
(July 2008)

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Concluding remarks:

Quite a few of the strategies that were used by several of the member states to fight structural unemployment, such as early retirement or cutting weekly working hours, have, to a large extent, proved to be failures and alternative strategies are needed. The reason for failure is that most of these strategies did not solve the fundamental problem of the labour market, which is the impossibility for outsiders to compete on equal terms with insiders. Gilles Saint- Paul (2006, 18) summarises this argument, with which many mainstream economists would probably agree: “As long as this problem remains, European labor markets will be plagued by distortions and inefficiencies, which show up not only in the form of high unemployment, but also high unemployment duration, misallocation of employment across sectors, resources wasted on ‘active labor market policies’ that could be spent more productively, and so on.”

One of the merits of the flexicurity model – if implemented, from an economics perspective, correctly – is its potential to contribute to a resolution of this characteristic problem. If the EU’s strategy can achieve this goal, this is likely to be an important step towards catching-up with the performance of the US in terms of employment and economic growth. A further merit is the potential role of the EU’s flexicurity strategy to avoid “worst case” economic scenarios in some countries where strictly interventionist “anti-market” governments may come to power. To some extent at least, the strategy may help to avoid a shift towards an old-fashioned non-activating employment policy that favours insiders in the labour market and, in effect, simply redistributes towards outsiders without increasing their opportunities and their incentives to work.

If the numerous political economy risks and the knowledge gaps that still exist regarding the implementation of the approach are taken into account, however, it can be argued that the European flexicurity suggestions will, paradoxically, lead to a further delay of the actual reforms needed, and to an aggravation of the problems in some of the member states. This may happen if an interpretation of flexicurity as extensive social security comes to the fore. Such an interpretation is supported by, for example, some trade unionsupporting analysts in Germany (Tornau 2007). It may govern the respective national decision-making processes and spread to other countries as well.

Such an interpretation, which supports, for example, rather generous minimum wages despite their well-known risks and a minimisation of external flexibility even at the risk of leaving existing unemployment problems unresolved differs markedly from the point of view on how to fight the remaining unemployment problems in Europe that is shared by European and most national employers and their associations. It also differs from the position of the majority of economists. If the view supported by some powerful trade unions becomes the orthodoxy in large parts of the EU, it may well be that, as in the first part of the Lisbon strategy the agenda, this time the adoption of “The Common Principles of Flexicurity” in order to reach employment targets will prove to be over-ambitious. A simple general flexicurity rule to ensure – other things being equal – the simultaneous creation of more employment and more security should be as follows: if, on balance, the employers’ benefits of increased “flexibility” are larger than the employers’ costs of increased employees’ “security”, employment tends to increase in functioning labour markets (and vice versa).

Such a rule may help employers and employees as well as the social partners to find mutually beneficial solutions in bargaining situations. Additionally, flexicurity pathways should not be interpreted as narrow and static as several commentators have done until now.

In the final analysis, optimal reform sequencing in the labour market may need to create certain labour market inequalities first by marginal liberalisations of, for example, temporary jobs, part-time work etc., in order to break the powerful insider cartels which put outsiders and entrants at a disadvantage.

Therefore, a more dynamic and more fruitful perspective has to bear in Observations on European Flexicurity Policies 665 mind that, in order to improve decisively the employment performance of the EU as a whole, certain tendencies of labour market segmentation have to be accepted in lagging countries, at least temporarily, before very often new national political majorities will emerge and demand fairer labour market reforms some years later. There is a clear risk of attacking dual labour market tendencies in a way that is partly independent of their causes. This is what the EC appears to be doing. In practice, the removal of such inequalities may be implemented, above all, by destroying the room for manoeuvre of marketdriven employment creation in quite a few EU countries. This is, again, because such interventionist policies are often in the interest of those current job-holders – and their representatives, the established trade unions – who are comparatively well paid and well protected, to a large extent, against dismissal. If that risk materialises, the new Lisbon strategy will not help to create lastingly higher employment in terms of hours worked nor will it achieve measurably fairer labour market outcomes than before. Thus, the opportunities of many labour market entrants will still be lower than those of the insiders.

The best the EC can do to avoid such a scenario is to put the main emphasis on a lasting increase in employment (and economic growth) when reviewing the NRPs instead of putting a strong emphasis on questions of labour market segmentation. The latter may play a function in ensuring future national employment- and justice-creating labour market reforms. The future success will also depend on the decision about which quantitative indicators will be monitored by the EC in the future. It will, again, be potentially counterproductive to put too much emphasis on equity-related – instead of employment - related – quantitative indicators, as their interpretation is more likely to lead to inadequate policy proposals. Furthermore, the EC has to ensure the completion of the single market, especially with regards to the liberalisation of services and to take better advantage of economies of scale within the Community Lisbon programme, as the latter mainly requires action from European institutions. Finally, it has to be mentioned that several lightly regulated “liberal” market economies, including the United Kingdom, still have residual social protection only and are, therefore, without all of the features of the prominent flexicurity paradigm as practised in Denmark or Sweden. Nonetheless, they often have populations that have anxieties about globalisation which are only marginally higher than those in these Nordic countries. Moreover, their populations, on average, appear to be as “happy” as the people of the Nordic countries as recent research indicates (European Foundation for the Improvement of Living and Working Conditions 2007a, Bergheim 2007). Such a result may further increase the doubts on too strong an emphasis on the flexicurity paradigm.

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Prof. Dr. Lothar Funk
Lothar Funk

war in den 1990er Jahren Wissenschaftlicher Mitarbeiter bzw. Assistent am Lehrstuhl von Professor Dr. Eckhard Knappe und ist seit 2004 Professor für Volkswirtschaftslehre, insbesondere Internationale Wirtschaftsbeziehungen, an der Fachhochschule Düsseldorf. Er ist zudem Fellow am Institut der deutschen Wirtschaft Köln, am "Institute for German Studies" des European Research Institute, Birmingham/Großbritannien, sowie Mitglied des ordnungspolitischen Beirats der Konrad Adenauer Stiftung.

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