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Flexible Labour Markets - Activity

The first thing to clarify when looking at this topic is the difference between flexible working and flexible labour markets. The former looks at ways businesses change working practices to improve the way the business operates through increasing motivation and productivity: for example, hot desking, distributed working (where employees can access their 'workplace' from any of a company's locations), working from home, flexible shift patterns and so on.

What are flexible labour markets?

Flexible labour markets focus on the ease with which the demand and supply of labour responds to changing wage conditions. This determines the extent to which unemployment or underemployment will exist in the economy. Underemployment is a situation where a worker has a job but may not be working to full capacity or does not have all their skills utilised or is working for a lower income than their qualifications, training or experience might suggest.

Flexible working may have an impact on the flexibility of labour markets through the ease with which employers can acquire and use labour for productive purposes. A firm with a very seasonal operation may need large numbers of workers at certain times of the year but very few at others. If the market mechanism is working effectively then, in theory, the firm will be able to do this but if there are restrictions to the working of the labour market then this may not be possible and as such, workers may be left without jobs that technically are available.

Supply Side Policy

Flexible labour markets are a key element of supply side policy. This is a macroeconomic policy that seeks to improve the efficiency of the operation of markets in an economy to increase the capacity of the economy.

Aim

This Activity is going to lead you into an investigation of aspects of flexible labour markets and help you build your understanding of the importance and limitations of flexible labour markets in macroeconomic policy. You will be expected to show an understanding of the use of labour market diagrams to help illustrate your understanding.

You will need to look at the following areas that influence the ease with which labour markets can operate:

Training room

Image: Should training be provided by businesses or is it the responsibility of the government? Copyright: Vicky S

  • Employment regulation - the laws and rules for hiring, firing and dealing with employees legislated by both the UK government and the EU.
  • Geographical mobility - the ease with which people can move to different parts of the country where jobs may be available.
  • Occupational mobility - the ease with which people are able to move from occupation to occupation including the degree to which skills and qualifications are transferable between occupations.
  • The benefit system - offers a safety net to those who are out of work but how far does it provide incentives for people to move from 'welfare to work'?
  • The poverty trap - the problems people face when moving from state support to work - in some cases you can be worse off by having a job!
  • Education and training - who should pay for training - the state or the employer? What type of qualifications structure should we have? Should we push science and engineering courses at the expense of arts and humanities courses? Should education and training be aimed at preparing people for work or is education more than that?
  • Infrastructure - the investment in new technology for information exchange, for example, could help both employers and employees find information about vacancies and skills available as well as helping improve geographical mobility.
  • Trade Union activity - There has been significant changes in the way in which trade unions operate following extensive legislation in the '80s and early '90s. This has had an impact on labour markets and the development of trade union activity in the future will be an important factor in how the market develops.
  • The 'hidden costs' of hiring labour - employers often complain about such costs - pension contributions, national insurance contributions (NICs), health and safety legislation, the minimum wage and so on.

Task:

Take one of the areas listed above. Write a short presentation explaining the issue and the likely impact on the labour market. Then explain what measures would need to be taken to increase flexibility in the labour market in relation to your factor and outline some of the consequences of such a measure.

For example, if you are looking at the 'hidden costs of labour' the obvious answer would be to lower them but think of the consequences on things like motivation of workers, potential recruitment, government expenditure and so on.

The aim is to encourage you to appreciate the decisions that have to be made when considering policy-making with respect to such an issue. In economics, the answers are often simple but it is the consequences that might be unpalatable!

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