Labour Market Flexibility - Essay Example

Labour market Flexibility affiliation “The trend towards labour market ‘flexibility’ inevitably entails employment insecurity and a transfer of risk from employers to employees.” To what extent do you agree with this statement? Labour market Introduction The labour demand is usually a derived demand. In the medium and short term, the demand for labour will adjusts to the changes in the vast national income and the cycle in business. In the longer term, demand for labour changes, as a result, of deep-seated large scale changes to the economy structure, often brought about by the constant changes in technology and globalisation. Therefore, labour market flexibility can be defined as the willingness and sustained ability of labour to respond to the ever changing condition in the market, including changes in the wage rate flexibility, skills and training and demand for labour. Description of Labour Market Flexibility Labour market flexibility refers to the ability and the willingness of labour to respond to changes in the market condition, including changes in the demand for work force and the wage rate. The labour market flexibility is an imperative aspect of how labour markets adjusts to supply and demand, it is therefore has a key role to the supply side of the macroeconomics. A flexible labour market is when firms are under fewer regulations concerning the labour force and therefore, can set their own wages, change their work hours and fire employees (Michie & Sheehan 2003, P.131). In contrast, a labour market with low flexibility is bound by some rules and regulations such as requirements from trade unions and minimum wage restrictions. It is good to note that, labour market institutions were seen to block the clear functions of the market by weakening the demand for work force, thus making it not attractive to hire workers by pushing up the wage or by distorting the labour supply, leading to impairing the equilibrium of market function mechanism (Benner 2003, P.629). The most distinction of labour market flexibility is based on strategies companies use, and they can be grouped into four: External numerical flexibility, it refers to the number of workers from the external market or the adjustments of labour intake. It can be achieved by employing workers temporarily or on fixed contracts, therefore, the employer can hire and fire employees according to the company’s needs, by following the protection legislation. Internal numerical flexibility, it is achieved by adjusting schedules or working hours of workers employed in the firm. It includes part time, overtime and shifts. Functional flexibility, it is where the employees can be transferred to different tasks within the company, it mostly deals with organization of operations in a firm. Financial flexibility, it is where there are differences between workers’ wages and the wage levels are not decided collectively. It is mostly based on individual performance or supply and demand of labour (Benner 2003, P.631). Therefore, a manager will choose or combine the method that best fit in a company at different economical time. Increased globalization and industrialization have resulted to numerous changes being witnessed in the labour market. The employers in their bid to reduce their obligations to their employees as well as maximizing their profits, have resorted to transferring a lot of risks to their employees which makes them to feel more insecure about their positions in employment. Owing to the fact that employees are the most essential requirement of an organization, human resources are becoming de-motivated as well as disturbed. As a result of such disturbance, their rate of performance and devotion towards the assigned duties are reducing, thereby declining the total productivity of the organization. Therefore, in order to mitigate such negative impacts of jobs flexibilities, many organizations are now trying to implement the strategy of restructuring and reorganizing their workplace (Eichhorst & Marx 2011, P.75). A strategy aimed at reducing rate of employee turnover, which is because of increased flexibility, is thus necessary to be introduced and implemented in organizations. Otherwise, it might result in bankruptcy as well as enhancement of termination or attrition of the workers from the organization, thereby declining its brand image and portfolio in the market among many other rival contenders. However, due to attrition, the rate of living standard and life style of the employee. Organizations thus need to adopt an approach that is geared towards addressing the various forms of flexibilities that is being witnessed in current times. This essay mainly tries to highlight, the fact that due to various labour market flexibilities, the rate of job insecurity is increasing and may lead into serious consequences in the labour market (Rodgers 2007, P.41). Critical analysis Flexibility in the labour market can be described as the ability of an organization to make amendment to its labour force concerning the number of employees employed as well as the conditions under which they work. Flexibility is made manifest by the existence of few rules and regulations that concern the employees as well as their wages. It further relates to the willingness as well as the capacity of workers to adjust to the changes made by their employers regarding their work conditions. The supply side of the economy heavily depends on the flexibility in the labour market due to the fact that the demand for labour is a form of derived demand. Flexibility should bring a change while safeguarding the degree of fairness to the stakeholders. These changes may include the effect of technology, shifts in consumer preference and changes in innovation (Eichhorst & Marx 2011, P.79). Flexibility in the labour market can be largely attributed to several factors, which include mobility in labour, wage flexibility, extent of labour migration, market work play, skills, training, and ability to hire and fire. However, in order to adjust the economic fluctuations, varied types of flexibilities need to be implemented or approved by the organizations such as work hours, cross-trainings, locations, wages, working conditions, techniques, technologies and compliance of its labour forces. It is done in order to amplify the retention ratio of the labours and the competitiveness of the organizations in the market. In essence, labour market flexibility helps to maintain a unique balance between demand and supply of the products or services of the organization in the market. Along with this, labour market flexibilities also play a significant role in amplifying the motivation and commitment of the employees or labours that may amplify their level of performance. However, due to improvement of their motivation, the rate of interpersonal conflicts within the employer or other co-labours might also be reduced and may enhance their efficiency at work (Go et al. 2010, P.1477). Other than this implementation of varied types of LMF, the rate of job satisfaction increases, and enhance the retention ratio that is extremely essential for the employee as well as the employer. Hence, labour market flexibility acts as a catalyst that offers equal balance within the employees and the employers of an organization. There has been an increased debate unto why there is increase in the labour market flexibility, and some of the reasons deduced can be as follows: globalization has opened competition that is more international; therefore, many competitive firms have to keep their labour cost low. The technological changes have made it very easier to have flexible market; appointing example is the internet that has led to provision of much and better information thus making it easier to work at home. In addition, many private firms have sought to increased profitability through cutting excess labours. In essence, many positives and negatives outcomes have come about regarding labour market flexibility as discussed below: As per neo-liberal thoughts, an organization might include various rules and regulations in order to maintain and control its labour forces. However, this is done to maintain the efficiency and performance of the labour that may prove effective for the organization. Nevertheless, such types of strict regulations or rules do not prove effective for the organization, as it leads to enhancement of the rate increased staff turnover. Other than this, constant wage rates, is also another important cause, that may lead to enhancement of unemployment rate that may hinder the rate of development of the organization in long run. Regulations of working time are also another prime cause that might reduce the efficiency of the labours thereby reducing the rate of motivation and commitment. Active labour market policies, education and training also need to be implemented by an organization in order to improve the output of the individual worker. As it offers a significant impact over the productivity of the organization as a whole that may offer positive and negative results over its reputation, in this economic turmoil scenario (Lind 2001, P.19) Hence, the main point of the a above argument is that, labour market flexibility is extremely essential in order to retain the labours or workers within an organization so as to enhance its sustainability and competitive position in the market. However, if labour market flexibility is not adopted effectively, then it might create a risky environment for both employees as well as the employers. Evidence analysis Labour market rigidity has considerable effects on economic growth and development. The setting up of low minimum wages leads to reduction in the general spending levels in the economy mainly because people have less amount of income to consume. Investment on the other hand, tends to increase under rigid labour markets owing to the fact that most people strive to create their own employment opportunities rather than to seek for employment. The high risk of loss of employment opportunities forces workers to venture into private practice with an aim of increasing their financial security and n the long run contributes to economic growth evident by a large Gross Domestic Product (G.D.P). It is evident that countries with more rigid labour markets are likely to experience deeper recessions because of high labour turnover and low productivity. Rigidity in the labour market may leads to increased unemployment Rate in the country as it makes it hard to secure a job. As a result flexibility in the labour market assists in minimizing high rates of unemployment. The regulation role played by government policies on firms and workers assist in determining the rate key economic indicators (Michie & Sheehan 2003, P.130). In capitalist economies, most of the organizations or employers desired to maintain authoritarian leadership style or policies such as fixed wage rates, accurate working time, no extra incentives for extra work, no unemployment benefits etc. However, due to which, the rate of commitment and devotion of the labours or workers towards their assigned tasks reduced that hindered the performance of the organization. Other than this, due to lack of health and safety policies, the labours or worker failed to maintain their health that hindered their performance. Other than this, due to lack of implementation of training and educational training programs, the inner skills and talents of the workers or labours may not be improved. Because of which, they may not present satisfactory results or performance in changed work. Due to which, the management or the employer may offer termination notice to these unproductive labours and recruit highly skilled and talented labours within the organization. Due to which, the rate of unemployment or poverty might be enhanced thereby amplifying the intensity of economic disparity. Moreover, lack of presentation of appropriate wages to the workers or labours also acts as one of the prime precipitant of economic downfall. This is because; as the management in capitalist economies tried to offer low wages for longer hours of work by the labours, most of the other employers of that age also rejected to offer paid maternity leaves to the female workers of the organization. As a result, the retention rate of these talented female workers declined that offered considerable impact on the health of the mother and the child. Therefore, due to extensive mental harassment and disturbance, the health of child decreased or resulted in deaths. Other than this, due to termination of the female employees from work, the rate of unemployment or illiteracy of the country increased that hindered its portfolio among other neighbouring nations of the globe (Michie & Sheehan 2003, P.136). In addition, due to lack of flexible work timings, the organizations may not offer temporary employments to the workers or labours. Due to which, the rate of unemployment of the nation may not be reduced. Moreover, due to improper in-work benefits such as medical insurance policies, incentives and extra wage rates. The rate of retention of the workers reduced significantly. Moreover, several organizations failed to present varied types of inventive products and services to satisfy the changing demands of the customers. As a result, the organization failed to maintain its image and reputation in the market among many other rival players. Furthermore, the organizations of capitalist economy also reduced to implement advanced techniques and machines within the organization to enhance the rate of productivity or efficiency of the workers or labours. However, due to increase of unemployment, the rate of poverty, illiteracy, migration is also increasing that hinder the path of growth among others. Therefore, it might be depicted that rigidity in the rules and regulations of the labour market lead to the decrease of economic condition of the country or nation. Hence, in order to improve the economic condition of a country, it is extremely essential to accept the flexible rules and regulations of the labour market in order to retain the workers. However, due to retention of the workers within the organization, the rate of unemployment might be reduced that may increase the economic standard of the country. This is extremely important for a nation to accept flexible rules and policies within the organization so as to attract highly experienced and talented worker or employees that may prove effective for it in long run (Lind 2001, P.20). Many employers always try to maintain universal wage policies and working hours within the organization to maintain uniformity among the employees. In addition, the employees always try to attain salaries or wages as per their experiences or talents in order to amplify their motivation and commitment. Along with this, implementation of varied types of education and training programs also help in enhancement of the knowledge and skills that may help in creation of varied types of inventive products and services in the market among others. Therefore, it might be clearly stated that, flexibility acts as a weapon to improve the dedication and devotion of the employees and increase the total output of the organization. Contract theory of labour market suggests that the smoothing of wage income over time is a natural feature of labour market. The turnover costs of hiring and firing are occasionally high especially for skilled workers with the best specific human capital. Moreover, the perception of justice and fairness largely based on the past relationships, strongly affect motivation of work and hence productivity. There is always a permanent risk of losses in firm productivity flowing from a decline in the work motivation of individual employees. Hence, from an employer’s viewpoint, income smoothing is paramount as long as the demand variations remains in the expected range and taken to be temporary. For the employees, a stable wage income over a contract periods much preferable to the volatile income flow since consumption expenditure is easily planned under conditions of predictable wages than in a potentially large income loss. Under long-term work arrangements, employees may receive a wage more than their marginal revenue product annually in the early part of their employment. For these reasons therefore, employees and employers should enter into a long term work relationships to avert the flexibilities and their risks. The optimal degree of labour market flexibility changes when un foreseen supply or demand shocks occurs, and upsetting the expectations inculcated into long term arrangements of work (Michie & Sheehan 2003, P.141). The performance of the labour market is entirely dependent over employment and unemployment. However, it might be possible only if the organization or the employer tries to implement highly flexible working rules and regulations. Only then, the employer might retain the experienced employees that may improve the productivity of the organization to a considerable extent. Other than this, implementation of the policy of temporary working conditions within the organization, offers an opportunity for numerous unemployed workers or labours to attain employment. Furthermore, implementation of varied types of incentive rates within the organization, the rate of attrition of the labours or workers reduces to a significant extent that may improve the sustainability and competitiveness of the organization in the market among others. In addition, execution of varied types of training programs such as job rotations also helps an employee to increase their performances and skills. This might help in improvement of the motivation and commitment of the employees within the organization that may increase its yield. As a result, it helps in reduction of inactivity within the employees thereby amplifying their economic condition and standards(Michie & Sheehan 2003, P.143). Hence, it might be stated clearly that implementation of varied types of flexibilities for the labours within the organization helps in enhancement of their performance and efficiency. Thus, all the above-mentioned information might prove extremely advantages and useful in future era, although it seemed difficult to recapitulate from varies sources. Advantages of labour market flexibility The competitive advantage of the firm can be greatly enhanced through flexibility the manner in which organizations operate as well as how the employees feel about their freedom in the organization. Other than this, flexible conditions of the labours also help in their retention that may prove effective for the organization in developing varied types of new products thereby amplifying its profitability and total revenues. The development of varied types of inventive products and initiatives, the range of customers might be increased that may improve the economic condition of the nation or country GDP. Furthermore, due to the retention of the labours or workers within the organization, the rate of prosperity and brand image of the organization might be enhanced to a considerable extent as compared to others. In practice, this is likened ton industries trying to win their customers by allowing them to bargain on some of the wages they want to be paid. It occasionally make some of the employees to stick to one company for long time increasing its production (Sharma 2006, P.2075). Thus, it might be clearly depicted that due to the implementation of varied types of flexibilities such as adoption of advanced techniques, machines helped in improvement of the total productivity and earning of the organization. Due to which, a specific amount of share might also be attained by the employees as bonuses or incentives that may improve their motivation and inner desires. In addition to this, specific employment protection measures need to be taken by the organization so as to protect the employees from any sort of job insecurity or mental disturbances (Sharma 2006, P.2081). Conclusion In conclusion, the statement “The trend towards labour market ‘flexibility’ inevitably entails employment insecurity and a transfer of risk from employers to employees” can be confirmed to be true. Indeed flexibility has brought along with it several advantages and disadvantages to both the employer and the employee. However, the employees seem to be facing majority of the pitfall of this upcoming system, it is much escalated with the coming of new technology like internet that has allowed several people to get information that they want. Therefore, this has led to several employers resorting to working with employees on simple contract without offering permanent employment, and these eventually lead the labours to lack job security and tenure. The long-term problem is unemployment increase in a countries economy; therefore, employers indirectly have transferred the risk to their employees. Curbing the problem of labour market instability is one of the most important steps to shield the employees from its effect. It can be achieved by introduction of varied types of job protection policies within the organization that helps to increase the rate of job security and retention ratio that enhances the level of performance of the labours. References Benner, C., 2003. Labour Flexibility and Regional Development: The Role of Labour Market Intermediaries. Regional Studies, 37, pp.621–633. Eichhorst, W. & Marx, P., 2011. Reforming German labour market institutions: A dual path to flexibility. Journal of European Social Policy, 21, pp.73–87. Go, D.S. et al., 2010. Wage Subsidy and Labour Market Flexibility in South Africa. Journal of Development Studies, 46, pp.1481–1502. Lind, J., 2001. Labour market flexibility increasing? European Industrial Relations Review, pp.18–20. Michie, J. & Sheehan, M., 2003. Labour market deregulation, “flexibility” and innovation. Cambridge Journal of Economics, 27, pp.123–143. Rodgers, G., 2007. Labour Market Flexibility and Decent Work,PP.36-48 Sharma, A.N., 2006. Flexibility , Employment and Labour Market Reforms in India. Economic & Political Weekly, XLI, pp.2078–2085. Read More