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.