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The economic effectiveness of the flexicurity policy in the EU.

1. Introduction

In this paper we are particularly interested in exploring the concept of flexicurity, the interplay between all elements of the Danish flexicurity, and the role and composition of flexicurity in achieving low unemployment. Scholarly research reveals strong correlations between the unemployment effects of the flexicurity policies, the effectiveness of Danish flexicurity on unemployment and inequality, and the involvement of the social partners in designing flexicurity policies.

2. The Concept of Flexicurity

Larkin examines the evolution of the social security system in the United Kingdom in the aftermath of the Welfare Reform Act 2007 (the Act has promoted some changes in the concept of citizenship), and considers whether the Act itself has succeeded in meeting the rhetorical claims made for it by legislators during the passage of the Welfare Reform Bill through Parliament. (1) Cuesta and Bohorquez assert that social security coverage is associated with reductions in the probability of occupational transitions. (2) As Calmfors puts it, "using the flexicurity label as a catch-all for many different policy approaches does not promote clarity in policy comparisons." (3) Vandenberg holds that deregulation tends to reduce security for workers. Employment security is the security of remaining with an employer. Flexicurity characterizes specific aspects of labor market governance. "Flexicurity provides a way of considering the overall level of flexibility and security and the trade-offs that may be possible." (4) Raisanen and Schmid contend that the concept of flexicurity is far from unitary, and that the flexibility-security nexus is not always a tradeoff. "Job security can induce employees to be loyal to the employer, to invest in firm-specific human capital, to co-operate, and to pass over tacit knowledge to other employees because they do not have to fear internal competition. All this increases internal functional flexibility." (5) Raisanen and Schmid write that temp-agencies can provide security for the internal workforce of individual employers and job security for skilled workers in their own organization. "The flexicurity labor market will increasingly be characterized by hybrid employment relationships combining the advantages of internal and external labor markets." (6) In Raisanen and Schmid's view, hire and fire policies can lead to a feeling of employment insecurity. Modern labor markets need both more flexibility and new securities. "In developing flexicurity policies a central issue may turn out to be how individual, small-scale and not mass-level labor market transitions can be surrounded by incentives and security." (7)

Andersen says that active labor market policies are an integral part of the Danish flexicurity model. "The flexicurity labor is as a case with large flexibility for firms in adjusting their labor force, relative generous unemployment benefits, and active labor market policies to maintain the incentive structure in the labor market and to overcome obstacles for employment. If it works it has some attractive properties, but it may be particularly vulnerable to significant drops in unemployment." (8)

de Groot and Elhorst claim that more flexibility in labor markets should not lead to unacceptable outcomes in the field of social security, and analyze how the components of flexicurity influence unemployment, participation and employment growth rates. The term flexicurity refers to combinations of labor market flexibility and high levels of social security. Flexicurity can be referred to as a state of affairs in the labor market.
   High levels of labor market flexibility are often thought to be a
   disadvantage for employees, while a high level of job security is
   generally associated with a burden on an employer's ability to
   respond quickly to changing market conditions. However, the key
   principle that underpins the flexicurity concept is that
   flexibility and security should not be seen as opposites. Within a
   well implemented flexicurity strategy flexibility and security are
   mutually reinforcing, leading to a win-win situation in which both
   employer's and employee's needs are satisfied. (9)


de Groot and Elhorst note that flexicurity is often used in referring to the functioning of the Danish labor market: it depends on high government expenditure on unemployment benefits and active labor market policies.

3. The Complexity of the Interrelationship between Flexibility and Security

J0rgensen observes that the flexicurity system should function as a shelter against the wind in times of economic crisis. "Good and trustful processes and robust policy results are strongly interconnected in a flexicurity system. [...] Flexicurity is the historically institutionalized relationship between the labor market regime and public policies in relation to security for wage earners and dynamics in the labor market." (10) Andersen and Svarer hold that the macro performance in Denmark has fuelled an interest in the flexicurity model. Standard perceptions on flexicurity do not match experience from Denmark. A flexicurity system is often portrayed as ensuring employment security. The flexicurity characterization of Denmark is most fitting for low income groups. (11) According to Keune, Dutch flexicurity promotes the use of atypical, flexible types of employment. (12) Keune says that the European Commission's concept of flexicurity "sets flexibility above security, economic goals above social ones and employers' interests above those of workers," (13) while flexicurity will not become "the consensual motor of innovative national employment policy in the years to come." (14) Auer writes that the recent global financial crisis has challenged the original concept of "flexicurity" based on easier hiring and firing coupled with sound social protection for the unemployed. The present widespread critique of flexicurity will lead to reinforcing internal adjustment options and supporting policies. (15)

Tangian presents a macroeconomic analysis of flexicurity with regard to the current economic crisis: the pure effect of the crisis is softened if social security is generous. A better alternative to flexicurity would be a normalization of employment relations. "The notion of flexicurity was introduced in order to reconcile the European public with the increase in flexible employment, which entailed decreased job security and reduced eligibility for social security benefits." (16) Tangian says that flexicurity has been adopted earnestly and with a long-term perspective, and evaluates the relationship between the severity of the crisis and the levels of labor flexibility and social security. "If jobs are protected and "normal", providing a sufficient income, then there is no need for generous social security and no need for high public expenditure on it. Thus, a "normalization" of employment can reduce the risks entailed in economic shocks and decrease social security expenditure." (17) Tangian reasons that the crisis manifests itself less evidently when social security is generous. Flexibility and security explain the severity of the crisis. Flexicurity decreases the total demand, contributes to overproduction and unemployment, and aggravates the crisis.

4. The Effectiveness of Danish Flexicurity on Unemployment and Inequality

Sharkh analyzes how much and which labor market flexibility and security combinations are advantageous and who benefits. Security implies "social protection" in the form of non-wage income. (18) Brown and Snower maintain that the Danish labor market policy of flexicurity combines very flexible labor markets, and analyzes how and to which degree the Danish flexicurity concept achieves a low unemployment rate. The various policy components of flexicurity interact with each other.
   The joint implementation of the flexicurity policies directly
   addresses distributional consequences of more flexible labor
   markets, which are spread through the whole workforce, by providing
   more generous income support. These political complementarities
   might generate stronger support for this reform. At the same time
   the active labor market policies, esp. the workfare activation
   requirements put workers' employment incentives back in place and
   generate strong economic complementarities and, thus, enable the
   sustainability of the flexicurity policy. (19)


Brown and Snower note that the Danish flexicurity policies have some apparent complementarities in Germany (Danish flexicurity focuses on external numerical flexibility), and evaluate the unemployment and inequality effects of implementing the Danish flexicurity concept in Germany. "For reasonable parameter values, the Danish flexicurity policy has huge incentive effects and sizeable complementarities in terms of unemployment." (20) Jensen emphasizes that the Danish flexicurity model is characterized by a relation between flexibility, (21) social security and active labor market policy: the Danish labor market is characterized by having two models of flexicurity. These two models cover different parts of the labor market and different segments of employees. The blue-collar flexicurity model covers primarily skilled and unskilled workers on the labor market, while the white-collar flexicurity model covers primarily employees with middle-range or high-range education and qualifications. (22)

5. Conclusions

This paper has provided a literature review on the meaning of flexicurity and the economic effectiveness of the flexicurity policy. In addition, this paper provides implications for practice and research to further explore the economic complementarities of the flexicurity policies and the issue of transferability of Danish flexicurity.

REFERENCES

(1.) Larkin, Philip M. (2011), "Incapacity, the Labor Market and Social Security: Coercion into 'Positive' Citizenship," The Modern Law Review 74(3): 385-109.

(2.) Cuesta, Jose, and Camilo Bohorquez (2011), "Labor Market Transitions and Social Security in Colombia," The World Bank Policy Research Working Paper 5650, May.

(3.) Calmfors, Lars (2007), "Flexicurity--An Answer or a Question?" SIEPS European Policy Analysis 6: 4.

(4.) Vandenberg, Paul (2008), "Is Asia Adopting Flexicurity? A Survey of Employment Policies in Six Countries," Economic and Labor Market Papers International Labor Office, Geneva, 4: 8.

(5.) Raisanen, Heikki, and Gunther Schmid (2008), "Transitional Labour Markets and Flexicurity from the Finnish Labour Market Point of View," Employment and Entrepreneurship 42: 13.

(6.) Ibidem.

(7.) Ibid., 36.

(8.) Andersen, Torben M. (2011), "A Flexicurity Labor Market in the Great Recession: The Case of Denmark," IZA Discussion Paper 5710, May: 3.

(9.) De Groot, Ayolt J., and Paul J. Elhorst (2010), "Labor Market Effects of Flexicurity from a Regional Perspective," Tijdschrift voor Economische en Sociale Geografie 101(4): 394.

(10.) Jorgensen, Henning (2011), "Danish 'Flexicurity' in Crisis--Or Just Stress-tested by the Crisis?" Friedrich-Ebert-Stiftung Working Paper, March, 9-10.

(11.) Andersen, Torben M., and Michael Svarer (2007), "Flexicurity--Labor Market Performance in Denmark," CESifo Economic Studies 53(3): 389-429.

(12.) Keune, Maarten (2008), "Flexicurity: The New Cure for Europe's Labor Market Problems?" in Chrystophe Degryse and Philippe Pochet (eds.), Social Developments in the European Union 2007. Brussels: ETUI-REHS.

(13.) Keune, Maarten (2008), "Flexicurity: A Contested Concept at the Core of the European Labor Market Debate," Intereconomics March/April: 92.

(14.) Ibid., 98.

(15.) Auer, Peter (2010), "What's in a Name? The Rise (and Fall?) of Flexicurity," Journal of Industrial Relations 52(3): 371-386.

(16.) Tangian, Andranik (2010), "Not for Bad Weather: Macroanalysis of Flexicurity with Regard to the Crisis," ETUI Working Paper 6, Brussels: 5.

(17.) Ibid., 26.

(18.) Sharkh, Miriam A. (2008), "Optimal Global Configurations and Effects of Labor Market Flexibility and Security," Stanford Center for International Development, Working Paper 370, August.

(19.) Brown, Alessio J. G., and Dennis J. Snower (2009), "Incentives and Complementarities of Flexicurity, Kiel Working Paper 1526, June: 9.

(20.) Ibid., 11.

(21.) Zaharia, Ioana, Nicolae Tudorescu, George Cristinel Zaharia, and Constantin Zaharia (2011), "Inter-Organizational Relationships in Agri-Food Systems and Challenges to the Food Safety Management," Economics, Management, and Financial Markets 6(1): 408-413.

(22.) Jensen, Carsten S. (2011), "The Flexibility of Flexicurity: The Danish Model Reconsidered," Economic and Industrial Democracy 32(4). Forthcoming

ANICA IANCU

anica.iancu@ucv.ro

LUMINITA FLORENTINA POPESCU

luminita-florentina.popescu@ucv.ro

VIRGIL POPESCU

virgil.popescu@ucv.ro

University of Craiova
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Author:Iancu, Anica; Popescu, Luminita Florentina; Popescu, Virgil
Publication:Economics, Management, and Financial Markets
Article Type:Report
Geographic Code:4EUDE
Date:Jun 1, 2011
Words:1850
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