Flexible labor market:

Why Flexibility? Need for Flexibility:

The concept of flexibility has permeated much of current human resources management
thinking, providing justification for recent developments in more flexible and variable working
patterns. Its need arises from the following:
The changing business environment- highly competitive "global" product markets, an
increasingly rapid advancements in Information and Communication Technology (ICT) and
increasing capital intensity of production.
A changing social environment for example, the increasing female participation ratio and the
trend towards early retirement and rising divorce rates.
Government policy environment a desire to reduce unemployment and make the economy
attractive to inward investment as a source of employment and long-term growth

Flexible Firm Model:
Atkinson and Meagers model of flexible firm identifies four types of flexibility that companies
seek:
1. Functional: This refers to a firms ability to adjust and deploy the skills of its employees to
match the tasks required by its changing workload, production methods. This is done by multi-
skilling / dual skilling / dismantling of traditional rigidities between occupational groups
(horizontal and vertical flexibility). This is designed to improve efficiency and reduce costs.
This is a core area of traditional conflict within the division of labour between distinct skilled
groups and between the skilled and the non-skilled (Penn, 1985).
2. Numerical: This refers to a firms ability to adjust the level of labour inputs to meet
fluctuations in outputs. There is increased use of part-timers, temporary, short-term contract
staff, job sharers and agency workers.
There is a contrast between core permanent workforce and peripheral non-permanent. The
general idea is that an increasing mixture of non-standard employment forms will be more
efficient and cheaper.

3. Distancing Strategies: This refers to the increased use of other firms that undertake non-core
activities such as catering, cleaning and transport. Such a strategy will be cheaper.
4. Financial: This refers to achievement of flexibility through the pay and reward structure.
5. Temporal flexibility: It is concerned with the pattern of hours worked and linked to the
demands of the business. Seasonal or demand work is provided leading to Flexi-time systems.
In addition, annual hours contracts allotted with increase in evening working.
These flexibilities are achieved through a division of employees into:
Core workforce: The core group is composed of high-skill and high-pay workers recruited
from the primary labour market. These workers are expected to deliver functional flexibility.
Core group workers have brighter career and promotion prospects and they usually are
provided with comprehensive training and development.
Peripheral workforce: The peripheral group consists of two-types of group. The first group
consists of generic-skill (e.g.: word processing) workers recruited from external labour market.
The second group consists of workers recruited as required on variety of contracts (e.g.:
Government trainees, job sharers, sub-contract labour, temps etc.). This group workers have
low job security.

Flexible Labour Markets. - Benefits and Disadvantages
Flexible labour markets involve a minimum of government intervention, they are labour
markets which work efficiently and are competitive. Many supply side economists argue flexible
labour markets are of great importance in reducing unemployment and improving the
competitiveness of the economy.
Advantages:
1. Opportunity to exploit 24-hour economy
2. Contributes to an improvement in the inflation-unemployment trade off
3. Flexible wages and flexible employment helps to ensure that markets clear rapidly
eliminating any excess supply or demand, so economies automatically move into long run
equilibrium at potential output.
4. Higher productivity growth in the long run (which then helps to improve competitiveness)
5. Flexible employment suits more flexible life-styles
6. Stronger employment creation during an economic upturn
7. Flexibility makes the economy more attractive to inward investment
8. The economy can respond more flexibly to an external economic shock because wages and
employment are more flexible
9. Increases Labour Participation Rates: Flexible labour markets can be beneficial for workers.
This is because it gives them more options of, when and where to work. This is particularly
helpful for women with young children, for example, they can work part time and still look after
their children. However, although flexible labour markets have created work in the part-time,
service sector, there has been less success in creating permanent, full time jobs.
10. Flexible labour markets help to reduce costs for firms; for example, workers can be
employed when they are needed. It is not necessary to pay for workers who are not productive.
This will help attract inward investment. It is argued one reason, for higher unemployment in
France is that there are costs in hiring and firing workers, this reduces the incentive for firms to
expand.
However, although they have some benefits, these advantages of flexible labour markets are
not equally shared. In particular, there are concerns over the negative impact on job insecurity.
Criticisms are made based on its disadvantages:

Reduce Classical (Real Wage) Unemployment
Real wage unemployment occurs when wages are set above the equilibrium, for example,
through trades unions or minimum wages. Flexible labour markets help to keep wages close to
the equilibrium and therefore avoid creating unemployment.
However, it is worth noting that minimum wages and trades unions don't always cause
unemployment. For example, if firms have monopolistic power, wages can be kept below the
equilibrium. A true flexible labour market would require both workers and firms to lose their
market power.
However if labour markets are very flexible workers may have greater job insecurity, and this
can lead to lower productivity

Reduces Wage Price Spirals
If workers have too much market power they can bargain for higher wages, this can lead to
inflation.

Rising inequalities
There are concerns about a lack of training for workers on short term contracts which has a
long term effect on their ability to regain employment if they lose their jobs.
Shorter term contracts might lead to job insecurity for some people, the concept of job
security is being gradually replaced by the concept of employability. Frequent job changes
for workers can be unsettling for them and for their families.
Shorter term employment contacts and eligibility for occupational pensions may lead to
increased pensioner poverty in the long run, many people on short term contracts do not enter
into any occupational pension.
Longer term social implications of labour market flexibility the 24 hours per day work
culture and the possible effects on family life.
Income uncertainties - as the balance of risk in the workplace shifts from the employer to the
employee

Some recent research on the Flexibility debate:
USA Employers tend to divide their workforce into primary and secondary segments. Firms,
which provide better benefit packages to full time and permanent staff, are more likely to rely
on flexible staffing arrangements. In the US, as in the UK, the main motivation for flexible
labour is to reduce costs. In the US, employers are allowed to offer different benefit packages
to non-standard workers i.e. self-employed, those hired through temporary agencies, and this
has encouraged the wider use of such workers.
UK It suggests that British management have taken one of three approaches to labour
flexibility each of which is biased towards numerical rather than functional flexibility.
Cost minimisation through the employment of low-paid, part-time, female workers, Changes
in UK and European legistlation may make this cost-cutting more difficult in future.

Minimise costs by achieving numerical flexibility in core as well as peripheral functions.
Extensive use of temporary workers and sub-contracting.
Combine functional flexibility in core functions with numerical flexibility in peripheral
functions by contracting peripheral functions out to external agencies. Cully et al., (1999)
functional flexibility consists more in the multi-tasking of semi-skilled labour than in multi-
skilling of highly trained workers.
Developing Countries Indicate That Flexible Labour Markets Are Not the
Solution to Unemployment
Labour markets in rich and poor countries look remarkably similar in terms of their flexibility.
But poorer countries frequently experience considerably lower levels of unemployment,
suggesting that the importance of labour market flexibility for low unemployment is
exaggerated. The unemployment in the developed world is high for reasons other than
inflexible labour markets.
What causes unemployment is probably one of the most important questions that economists
try to answer. One common way of seeking answers to that question is to compare countries,
usually across the OECD, where members are similar in terms of industry structure and income.
For example, it is often argued that European unemployment is higher than in the United States
because the labour market in Europe is less flexible.
The policy implications of this argument are both clear and contentious: anything that creates a
less flexible labour market is it the social chapter of the Maastricht treaty or the welfare state
has a cost - unemployment is higher. In that context, one measure of flexibility is whether
workers who have jobs can push up their wages if firms are more profitable: with a flexible
labour market, firms that are more profitable should simply employ more labour.
Is the secret of this success a flexible competitive, well functioning, labour market? In the past,
relatively little evidence for developing countries has been available. Now we have data that
enables very direct comparison between labour markets in poor and rich countries and the
labour markets look remarkably similar.

In particular, firms that are more profitable seem to pay their workers more rather than hiring
more labour. There is no evidence that the labour market in Africa, where unemployment is
low, is more flexible than in the UK, where unemployment is much higher. The implication for
policy is that it is easy to exaggerate the importance of labour market flexibility for low
unemployment. Unemployment is high for reasons other than inflexible labour market.

Flexible specialisation an alternative model?
Based on high skills, high productivity and high wage labour force that exploits new
technologies and new market opportunities. Emphasis is on internal functional flexibility to
support adaptations to the new technologies. Aim is to increase the capacity of workers to
acquire new skills or broaden their range of skills and adapt to changes. High quality goods sell
at premium prices. However, in recent years increased competition has led many producers to
locate outside Germany where costs are lower. Pressures have increased for greater labour
market flexibility. Growth of a division between insiders who retain job security and have
access to promotion and greater incomes and the outsiders who occupy the periphery of the
employment system.

"The U.K. labour markets are more flexible than those of other European economies. This
flexibility has significantly contributed to low unemployment and high participation rates. Some
of the authorities' active labour market policies, notably the New Deal for the young
unemployed, appear to have met with considerable success. However, programs aimed at the
unemployed aged 25 and over, as well as at some other groups, have yet to prove their
effectiveness and may need to include stronger job-seeking incentives"




CONCLUSIONS:
Management is constantly seeking to improve labour efficiency through new working
arrangements. Since 1960s technological and industrial development had kept pace and had
been a continuous integrated process, the focus was on the concept of productivity gains.
However, the nature and rate of change of technological Revolution became greater and faster
through 1980s and 1990s initiating a change in recruitment and the labour market. In order for
the firm to become more competitive, the twin concept of Labour Flexibility and Core/
periphery gained acceptance.
Labour flexibility has come to stay. There are obvious productivity gains by developing
employee time more effectively. However, there are problems of motivation and quality from
such labours. Recruitment and retention issues are no less, which often results in varying
standards in the availability quality.
Numerical flexibility of labour is applied on peripheral groups, which reduces carrying cost of
un-used skills and contracts the labour when required. The functional flexibility on the core
group results in better yield from the labour that is secured with better compensation.
Therefore, the flexibility of labour results in potentially larger labour intensification. In addition,
this flexibility in the labour market permits responsiveness in the product market (Legge 2005).
For the organisation to manage planned change and the adaptive to competitive market
scenario firms must seek flexibility. This also includes the nature of the employment contract
and location of the work. The impact of flexibility of labour to the HRM is a firm results in:
1. Organisational design, which addresses the structure of the organisation to identify core and
peripheral groups of employees and to accommodate them.
2. Keeping in mind the flexibility of labour (numerical and functional) and the new approach to
organisation design it is necessary to design jobs appropriately.
3. Employee attitude is very important as traditional structures and scope of the job has vastly
changed.


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