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 (noone-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 1 www.ose.be/files/RECWOWE/DIAC/InterimRepFlexisecurityApril2007.pdf 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 seniority4. 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 2 This does not totally exclude mobility, as there was also what Marsden (1999) and others call occupational labour markets that allowed workers to access similar jobs in different firms based on their qualifications. However, as firms want to retain this qualified workers in offering long-term jobs, even in these systems internal labour markets are important. 3 And also permanent lay-offs, which today seem to form an increasing part of lay-offs. 4 Last in/first out for dismissals and first in for those last out (the most senior) for the recall 5 However, for numerical external flexibility Italian firms used a specific unemployment scheme (cassa integrazione guadagni) which allowed temporary lay-off of workers (over sometimes long periods) despite strict dismissal regulation. 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 axis6. Figure 17: Time 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) 6 To all systems along the line fit specific configurations of the education and training system and of industrial and work organisation. 7 Note that the term labour market security here is not the same as the one employed in the volume “Economic security for a better world” (ILO, 2004). There it is in fact full employment that would equate with a high degree of labour market security (or as it is said “where supply approximates demand”see page 113). Our definition is not based on the result side of the labour market, but more on the existence or not of labour market institutions for “protecting transitions” together with employment security still at the core: although the working of these institutions (whose aim is to integrate people in the labour market) should in turn result in high employment levels, in a system of labour market security as defined above a considerable number of people will also transit (from job to job, from jobs to training, from job to inactivity etc.) at any point in time. People “in transition” will however receive some kind of benefits and active help should they need it. 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 security8 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 For example the German labour code reckons a “termination for variation of contract“ (Aenderungskündigung). Special rules need to be applied (such as maintenance of former wages and fringe benefits) in cases where employees change jobs and working conditions internally, with the contract of employment maintained. 8 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 However, employment security alone is not sufficient any more in competitive and open labour markets of the globalized economy and a slow movement of de-linking security from the employment relationship has clearly started. Now, if the fading security of an employment relationship would be entirely compensated for by security that is outside of this relationship, then there should be no problem for workers and their firms, except for the political economy problem that changes are sometimes opposed no matter what the (future) gain would be as people prefer acquired rights to future and therefore uncertain promises. The fact that security outside the employment relationship will indeed seldom compensate for the totality of the income, employability and other economic and social security that were formerly provided by employment security, opposition to change has rational grounds.10, While this statement could be interpreted as being pessimistic, it is not fatalistic. Indeed with the idea of labour market security (or flexicurity) a formidable negotiation agenda opens, with still uncertain outcomes. Bargaining the feasible security for all under the constraints of today’s doing business conditions is the challenge, not the return to strict employment protection based on firms and the public sector or the total shift of employment protection towards social protection. Although it is tempting to search for big bang solutions like a more radical de-linking between employment relationships and social rights (e.g. Supiot’s social drawing rights that would endow individuals with rights that could be realised throughout their working life), this seems not advisable for the totality of social protection rights. For example one needs lay-off taxes for preventing employer moral hazard as well as job search criteria and activation policies for preventing worker moral hazard. The political economy of labour market reform Another element to make labour market security a study object is the issue of “the political economy of reforms” (PER). PER in general can be described as “the way in which political and institutional factors influence the design, decision making process, adoption and implementation of reforms.” (OECD, 2008). Indeed there is hardly any reform that is adopted without conflicts of interest and labour market reforms that impact on the direct interests of the social partners are a particularly important object of study. Studying the Political economy of labour market reform (PELMR) touches therefore directly the discipline(s) of labour relations. True the analysis of PELMR 9 Studies have found a positive relationship between labour productivity and tenure as predicted by much micro-economic and industrial relations literature (e.g. Storm and Naastepad, 2007). 10 It should be mentioned however, that the termination of an employment relationship is also often of voluntary nature –in the developed world at least- and relates to quits rather than discharge. often serves a functionalist purpose of overcoming resistance to reform11 but in a somewhat less functional way PELMR hints also to the necessity of the social dialogue, collective bargaining and “social partnership”. In such a way it is not only about overcoming resistance against already decided reforms, but more a genuine roadmap on how to design and implement successful and balanced reform. The PELMR of flexibility and security is indeed important, if one aims at introducing successful reforms in a sort of win-win game. Conflict abounds: for some the shift from employment to labour market security/flexicurity is seen as onslaught on worker’s protection. For others it is a necessary reform and some see even a chance that workers acquire more power and freedom when well protected outside (and not exclusively inside) the firm. Some best practice examples (e.g. the Danish model) do exist and show how reforms can be conducted with a minimal level of conflict. But, while flexicurity may have become the major labour market reform agenda in the European Union, it is not undisputed. While employers usually support it, unions have more contradictory opinions: from outright rejection as a term that “in reality” hides an employer driven agenda for labour market flexibility12 to cautious and pragmatic acceptance. See below some citations on the subject from European social partners: “Flexicurity is an appealing concept because it offers a way to restore a positive link between competitiveness and social protection. Globalisation and technological progress require responsiveness to deliver their full benefits, and hence finding new ways to combine social protection and economic flexibility is fundamental to more and higher-productivity jobs.” (M. Stocker, advisor to Business Europe, in Euro Activ, September 2007) “The real agenda hiding behind 'flexicurity' simply seems to be the dismantling of job protection, thereby giving employers even more power to press for lower wages and reduce workers' flexibility. R. Janssen, from ETUI “(Euro-Activ, September 2007). “To prevent « flexicurity » to become « flexploitation » the Commission should take responsibility for shaping a strong social dimension to the internal market, guaranteeing worker’s rights and worker’s security” (John Monks, ETUC president, interview at the EU’s Portuguese presidency conference, Sep. 2007) “The EESC (European Economic and Social Council: the social partners main policy advisory body on the European level) stresses that the basis of all flexicurity models is a welfare state able to guarantee high levels of social protection and a stable legal framework for collective bargaining and social dialogue”.(EESC draft opinion on flexi-curity 1.6. 2007) It should also be noted that governments are keen to underline that there should not be “onesize-fits-all” model of flexicurity –as stated in the common principles-, which can be interpreted as a sign that subsidiarity principles (e.g. national regulation before European regulation) are important. This conforms to the EU policy that social policy is a matter of In the case of PER an OECD Ministerial council meeting’s chair summary concluded “ Several ministers underlined the importance of building domestic coalitions for reform and of using peer pressure and international organisations to inform the public about the need for and the benefits of reforms, particularly in the case of politically diificult issues. This is where organisations like the OECD can be helpful: the OECD should be invited to study the success stories and failures of reforms undertaken by countries” (OECD, 2008 p.2) 11 12 the author has experienced a street demonstration against flexicurity staged by one of the Portuguese unions during the European Union’s Portugal presidency in front of an international conference on the subject. Slogans were: “the government is lying : flexicurity=dismissals” or “no development for Portugal with flexicurity”. national policy.13 The advantage is that path dependency in the development of national welfare states and their reform is observed, the downside being that the implementation of the common principles might be deluded in 27 national solutions with low communalities. A case in point is the recent French agreement on “flexicurity” that contains both these aspects. Concluding remarks Flexicurity has gone from a buzzword to a policy agenda, which is not unanimously accepted by the major stakeholders. However, as it has been integrated in the European Lisbon and Employment Strategies, disposes of common principles, guidelines and monitoring and budgets, so that one may predict that because of this institutional environment, flexicurity is here to stay for some time. Research on the area abounds and will increase and, both the “political economy” side as the results of reforms side will be an interesting object of further studies that the economics, socio-economics and industrial and labour relations profession might take on board. The political economy debate as a barrier to reform exists in the EU, but is “overpowered” by the fact the flexicurity policies are institionalised within the Lisbon agenda and have guidelines, reporting systems and funds. Debates outside the EU, in country or regional frameworks without the institutional capacity of the EU, show a more prudent (and sometimes hostile) reception of the term. This –as well as the general question of “transplanting” a discussion and policies on labour market reform from one institutional context to another- are interesting subjects of further research. This includes also the development of alternative concepts that are much better aligned with an academic “path dependency” in labour economics, industrial/labour relations and labour law such as labour market security, which has been shortly discussed here. The possible “political economy” discussion that may arise from such a concept should be less adversarial as with flexicurity. May be there is much in a name and although employers might miss the word flexibility it is implied in the proposition that a labour market is only optimally flexible when good adjustment institutions yielding labour market security, do exist. Indeed,the labour market in developed welfare states is both internally and externally flexible when individuals and firms are “embedded” in a network of negotiated employment and social protection that ensures flexibility, stability and security. Selected Bibliography: Auer, P. (2007) In search of optimal labour market institutions, in H. Joergenson, P.K. Madsen, Flexicurity and Beyond: Finding a new agenda for the European Social Model, DJOF Publishing, Copenhagen, pp.67-98. and Schmid, G. (1998) „Transitional labour markets: Concepts and examples in Europe” in: New institutional arrangements in the labour market, European Academy of the Urban Environment, Berlin. and Cazes, S. (2003) Employment Stability in an age of flexibility, International Labour Office (ILO), Geneva. Boeri, T. (2005) Reforming Labor and Product Markets: Some lessons from two decades of experiments in Europe, IMF working paper WP/05/97, Washington. Doeringer, P. and Piore, M. (1971) Internal Labour Market and Manpower Analysis. Heath Lexington Books, Lexington. 13 However, the European Amsterdam treaty paragraphs on employment see the latter as a matter of “common concern” rather than the individual concern of each member state. EU Commission. (2006/2007) Employment in Europe reports, Brussels/Luxembourg. Huff Stevens, A. (2005) The more things change, the more they stay the same: Trends in long-term employment in the United States, 1969-2002, NBER Working Paper 11878, Cambridge, MA, Dec. Joergenson, H. and Madsen, P.K. (2007) Flexicurity and Beyond: Finding a new agenda for the European Social Model, DJOF Publishing, Copenhagen. OECD. (2008) Enhancing the OECD’s contribution to the political economy of reform. Note by the Secretary-General, C (2008)61/REV1 30.4.2008 Marsden, D. (1999) A Theory of Employment Systems: Micro-foundations of Societal Diversity, Oxford University Press, Oxford. Schmid, G. and Gazier, B. (2002) The dynamics of full employment.Social Integration through transitional labour markets, Edward Elgar, Cheltenham. Storm, S. and Naastepad, C.W.M. (2007) Why labour market regulation may pay off: Worker motivation, co-ordination and productivity growth, Economic and Labour Market Papers, 2007/4, ILO, Geneva. Wilthagen, T. and Tros, F. (2004) “The concept of flexicurity-A new approach to regulating employment and labour markets”, Transfer, 10 (2) pp.166-187.