Assessment Submission Form – HRM 20030
Student Name
Colin Ratcliffe
Student Number
11362941
Assessment Title
Do 'free' labour markets yield better jobs?
Module Title
People at Work
Module Co-ordinator
Professor John Geary
Date Submitted
05-10-12
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Do 'free' labour markets yield better jobs?
In ‘Work In the New Economy’, Chris Benner defines labour market flexibility as the speed
with which labour markets adapt to fluctuations in society, the economy and/or production.
Economists consider a labour market flexible when wages are set by the forces of supply and
demand, and not by non-market factors (such as pressure from unions, minimum wage laws
etc).
Standard neo-classical economists believe high European unemployment rates are due to
labour market rigidity; the price of labour cannot adapt to economic shocks. They believe in
reducing the power of trade unions, having fewer rules that protect labour and lowering
minimum wages. The improved mobility of labour leads to lower unemployment. The
economy becomes more attractive to inward investment and can respond more effectively
and efficiently to economic shocks. The labour market becomes more flexible. Countries
with flexible market economies like this include USA, Canada, Ireland, Great Britain and
Australia.
However, flexible market economies have their disadvantages. Short-term employment
contracts lead to job insecurity. Employees may have less confidence in their employers.
Short-term contracts may also lead to a lack of training for employees. Perhaps more
worryingly, some studies show that flexible labour markets may be linked to the growth of
poverty rates and the reduction of labour productivity growth.
In contrast with free labour markets, co-ordinated market economies protect labour and
promote employment security through channels such as giving more power to trade unions
and regulating minimum wages.
So what constitutes a ‘good’ job and do free labour market yield better jobs than coordinated market economies?
In ‘Job Security and Job Protection (2005), Andrew Clark and Fabien Postel-Vinay argue that
job security is seen to be one of the key determinants in job quality. The flexible labour
market system often depends on rapid adjustments to the size of the workforce meaning job
security is low. In contrast, CMEs depend on a specifically trained workforce and place an
emphasis on labour retention meaning job security is high.
Similarly, the process of ‘up-skilling’ is essential to job quality. Workers who feel like they are
constantly learning new skills are more content in their jobs than workers who do not. In
flexible labour markets, employees are often over-skilled due to the generalisation of work.
In CMEs however, the industry-specific and knowledge-specific nature of work means
employees improve their skills on a continual basis.
Job control is another essential element of job quality. Workers who have more control and
responsibility will, on average, be more content than those who do not. The skill-based work
more common to CMEs is more difficult for management to monitor or direct so employees
are generally entrusted with more control and management take a ‘laissez-faire’ approach.
The generalised work in flexible labour markets is much easier to supervise and employees
have much less responsibility.
Alfred Kleinknecht, Professor of Economics of Innovation at TU Delft conducted a study in his
native Netherlands on the link between the use of flexible labour and labour productivity
growth. He found that more ‘flexible’ firms (with many temporary contracts, manpower
agency workers or a high labour turnover) pay, on average, lower wages. Moreover, flexible
workers earn lower hourly wages.
When all elements are taken into account, I believe that ‘free’ labour markets do not yield
better jobs than co-ordinated market economies. The features of work I have listed
throughout this essay are some of the main factors to be considered when measuring job
quality and what makes a ‘good’ job. The CME approach seems to satisfy each of these
factors more readily than its flexible labour market counterpart and thus yields better jobs.
References:
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Benner, C. ‘Work in the New Economy: Flexible Labour Markets in Silicon Valley’
(2002), Los Angeles: Wiley-Blackwell
Clark, A., Postel-Vinay, F: ‘Job Security and Job Protection’ (2005) Germany: IZA
Kleinknecht, A., R.M. Oostendorp, M.P. Pradhan & C.W.M. Naastepad: 'Flexible
labour, firm performance and the Dutch job creation miracle', in: International
Review of Applied Economics, Vol. 20 (2006), pp. 171-187