Flexicurity: what is it? Can it work downunder?

• Author: Belchamber, Grant
• Position: Viewpoint essay

From the late seventies, neo-liberal economic prescriptions for labour market reform held sway across the English-speaking advanced economies. The neoliberal view was that employment security came at the expense of labour market flexibility, and retarded economic dynamism. Today, the Great Recession has blown asunder the claim that deregulated labour markets generate more jobs. It is clear that flexible wages and scant unemployment benefits do not automatically clear the labour market.

The Nordic and western European nations never fully embraced labour market fundamentalism. Their distinctive alternative policy--'flexicurity'--targets both flexibility and security, combining decent work in lightly regulated labour markets with active labour market programs and generous unemployment benefits. By adopting a social insurance model, Australia can raise significantly the income support available to unemployed workers and underpin national economic dynamism with robust flexicurity architecture. An increase in the Superannuation Guarantee provides a tractable, efficient and effective way to do this.

Flexicurity--what is it?

* 'Flexicurity' is a fusion of the words 'flexibility' and 'security'. Think 'flexsecurity'. It is a generic name for a distinctive approach to labour market policy that in 2007 was formally adopted and endorsed by the European Union.

* Flexicurity is a system, an integrated suite of policies crafted to fit national histories and institutions. It is a many splendored thing. Unlike de-regulation, it is not a one-size-fits-all magic policy wand.

Origins

The historical roots of flexicurity lie in the Nordic and western European countries with histories of dialogue and cooperation between the social partners--preeminently labour, capital and government.

The concept crystallized as a policy approach around the late 1980s and early 1990s, when neo-liberal precepts had gained prominence in the Anglo-Saxon economies. (1) This rise to dominance of market fundamentalism and deregulationist policy (especially labour market policy) was clearly apparent in the US, UK, Australia and New Zealand, as well as in international institutions including the IMF, the World Bank and (parts of) the OECD.

'Euro-sclerosis' was a term widely used in the 1980s to characterise sluggish European economic and employment growth after the OPEC oil price shocks of the seventies. Slow economic adjustment and growth was attributed to labour market regulation and inflexibility in the European countries. Collective bargaining, employment protection laws and generous social welfare regimes were alleged to 'harden the economic arteries', slowing the responsiveness of European firms to economic shocks and causing high and persistent unemployment and joblessness.

In the Reagan and Thatcher world view, it was cruel to be kind--attempts to protect the weak and vulnerable in the labour market simply exacerbated the problem. Minimum wages priced low paid workers out of jobs. Employment protection laws inhibited recruitment, splitting the labour force into 'insiders' (those with secure jobs) and 'outsiders' (the growing army of casual workers unable to obtain the good, secure jobs). Generous and open-ended unemployment benefits encouraged the jobless to stay idle.

The Anglo-Saxon solution was to champion rampant individualism and reject collective endeavour, creating a market society along with a market economy. Small government, low taxes, pervasive deregulation of markets, privatisation and the dismantling of social supports and protections became the policy order of the day in the English-speaking economies in the last two decades of the 20th century. (2) This was the 'Washington consensus' and it became scripture for the international institutions: the price mechanism does all the heavy lifting in economic and social adjustment, as rational individuals respond to incentives and the free market solves all problems.

Double-digit unemployment rates and chronic fiscal stress did challenge the Scandinavians and Western Europeans in the last quarter of the 20th century, but market fundamentalism rubbed against the social grain.

Flexicurity emerged as a rich policy response, recognising the complexities inherent in combining economic growth with social inclusion and rejecting the simple policy prescriptions of Anglo-centric economic orthodoxy.

Key Elements

The three key elements of flexicurity are:

1. Labour market flexibility

2. Generous unemployment benefits

3. Activate labour market policies

   Figure 1 depicts the stylized relationship between these three elements. The arrows show the direction of movements in the flexicurity system of workers who lose their jobs.

   [FIGURE 1 OMITTED]

   The first movement is from employment and receipt of wages, to (generous) unemployment benefits. This is the arrow from labour market to benefit system. Depending on economic conditions, some workers will quickly find alternative employment in decent work. Generous unemployment benefits allow and enable these workers to find jobs commensurate with those which they have lost. This is the arrow straight back into the labour market.

   For some workers--those whose industries and occupations have been affected by structural change, for example--there may be no job openings such as those from which they have been displaced. Soon after losing their jobs, these workers have the capacity (and obligation) to undertake programs of (re)training, whether to upgrade their existing skills or to acquire entirely new skill sets. The (generous) unemployment benefits available to them provide motivation and income support for the duration of the training program. This is the arrow from benefits to activation. (4)

   Equipped with a new or renewed set of skills in demand, and/or having participated in capacity-building work experience programs, unemployed workers re-enter employment in the flexible labour market. This is the arrow from activation to employment.

   One further distinguishing feature of the flexicurity paradigm should be noted here.

   The Anglo-centric policy prescription is based on a static conception, wherein there are two alternative states - a worker is either employed or unemployed; by 'making work pay', policy can encourage the former over the latter.

   The flexicurity conception is of 'transitions' through a multiplicity of alternative states. In a dynamic world--today and increasingly tomorrow--the vast majority of workers will have a succession of jobs with a series of different employers, intermingled with parenting and child care, care for elderly family members, community responsibilities, further study and training, and possibly joblessness. Every worker can reasonably expect to move between different combinations of these and other roles and duties during the course of their working life, in a continuing quest for 'work-life balance'. Each successive transition shapes the next; success breeds further success, and every failure increases the baggage to be carried into the subsequent transition. The challenge for policy is to 'make transitions pay'; to maintain engagement with the labour market throughout the life course by incorporating bridging jobs and access to in-work benefits in overall scheme design.

   What is Labour Market 'Flexibility' in the Flexicurity System?

   In a flexicurity framework, 'flexibility' has two important meanings.

1. External (or numerical) flexibility means ease of hiring and firing. Employers are able to lay off workers quite readily; and workers are able to find new jobs with relative ease.

2. Internal (or functional) flexibility means the ability of employers to reallocate work amongst their employees, and the readiness of workers to accept a wide range of duties that may change significantly over time.

   The exemplars of flexicurity--Denmark and Sweden--have flexible labour markets in both senses of the term. (5) (See also the section on 'security' below.)

   The argument in support of flexible labour markets is that they facilitate structural change in the economy over time by enabling firms to re-set production systems in response to competitive pressures in the markets for their output. This delivers faster sustainable growth of living standards.

   Unions stress that flexicurity means flexibility for workers, not of workers.

   Flexibility does not mean wage concessions. This is the opposite of its meaning in neo-liberal economic theory, where an unfettered price mechanism is thought to allocate resources efficiently amongst alternative uses, and wages must be allowed to rise and fall relative to other wages and the price of capital. Unions negotiating wages in collective bargaining have regard to economic conditions, but wage stability provides a relative value anchor in society. On occasions in times of severe national economic stress, collective agreements struck by unions have included delays in dates of effect of negotiated wage rises and/ or changes in the spread of hours worked (over the day, week, month or year); but reductions in wage rates are virtually unknown and relative wage structures change little over time.

   Finally, the issue of working time arrangements reaches into both numerical/ external and functional/internal flexibility. For employers, short-time work, part-time employment, flexi-time provisions and 'working time accounts' are elements in the flexibility mix. For workers, too, life-cycle considerations and transitions bring the same or similar flexibility elements to the fore in managing work-life balance. These dimensions of flexibility are well known in collective bargaining and relevant provisions are typically included in collective agreements. Fairly and properly constructed provisions on working time flexibility are essential components of the flexicurity suite.

   What is 'Security' in the Flexicurity System?

   In the flexicurity framework that operates in Sweden and Denmark, security refers both to income and...