Flexicurity: Europe's employment solution?
Flexicurity, first developed as a labour market policy in the Nordic countries, has been endorsed by EU leaders and the European Commission as a way of solving the Union's employment problem. However, as a new Commission faces up to Europe's worst recession for many decades, doubts have emerged as to how committed member states are towards flexicurity and making it work across the EU.
European labour markets are generally considered to be too rigid. Making labour market rules more flexible while at the same time providing a good level of social protection is one of the main challenges of the EU's long-term vision for economic, social and environmental reform (the so-called 'EU 2020' goal – see EurActiv 19/11/09).
Since the early 2000s, flexicurity - a combination of easy hiring and firing rules combined with high benefits for the unemployed and a pro-active labour market policy - has become the vehicle of choice for EU policymakers on the road to continuing labour market reform.
However, the diversity of situations at national level means that a 'one-size-fits-all' approach to flexicurity in Europe is problematic. To tackle this problem and unearth ways to make the policy work in different national contexts, the European Commission launched a 'Mission for Flexicurity', the results of which were presented in December 2008.
While the consultation results reaffirmed the EU's commitment to the policy, the simultaneous worsening of Europe's financial and economic crises has called into question whether the new Commission, which begins its five-year term in early 2010, will have enough tools and support at its disposal to push for continued reform.
Flexicurity: A brief history
- The Mediterranean model (Italy, Spain, Greece): Social spending concentrated on old-age pensions and a focus on employment protection and early retirement schemes - inefficient both in creating employment and in combating poverty.
- The Continental model (France, Germany, Luxembourg): insurance-based, non-employment benefits and old-age pensions and a high degree of employment protection - good at combating poverty but bad at creating jobs.
- The Anglo-Saxon model (Ireland, the UK and Portugal): Many low-paid jobs, payments linked to regular employment, activating measures and a low degree of job security - relatively efficient at creating employment but bad at preventing poverty.
- The Nordic model (Denmark, Finland and Sweden, plus the Netherlands and Austria): High spending on social security and high taxes, little job protection but high employment security - successful at both creating jobs and preventing poverty.
Employment Rates and Probability of Escaping Poverty in European Social Systems:
FRA=France; GER=Germany; DEN=Denmark; EU=EU average; Cont=average of continental systems (BE, DE, FR, LU); Nord=average of Nordic systems (AU, DK, FI, NL, SV); Med=average of Mediterranean systems (HE, IT, ES); Anglo= average of Anglo-saxon systems (IR, PT, UK)
Source: André Sapir / BRUEGEL; edited by EurActiv
Making flexicurity work across the EU
The secret behind the success of the Nordic models was found to be the 'flexicurity' approach, which was implemented in Denmark in the early 1990s, and - with some variations - in other Nordic countries, the Netherlands and Austria. The approach is based on social dialogue between employers' organisations and trade unions, and it was initially promoted by Social Democratic politicians such as Poul Nyrup Rasmussen, who was Danish prime minister from 1992 until 2001.
The concept rests on the assumption that flexibility and security are not contradictory, but complementary and even mutually supportive. It couples a low level of protection for workers against dismissals with high unemployment benefits and a labour market policy based on the obligation and right of the unemployed to receive training. The concept of job security is replaced with employment security.
Much of the discussion since the publication of the Sapir report has focused on features of the more successful economies - namely the Nordic ones - which could be applied to those lagging behind. In particular, the systems of Germany and France, which used to be the motors of the EU economy, have found themselves under scrutiny.
In Sapir's presentation, France and Germany are in the 'continental' sector. Both countries' social systems are characterised by a relatively high degree of employment protection: businesses argue this makes it tough for them to hire people, as they would then have difficulties firing them again.
Average tenure in years with the same employer
Original flexicurity concepts in the Nordic countries arose from work relations and the acceptance of taxation and trade unions, issues which date back to the early years of the 20th century. It has thus been argued that they cannot simply be transplanted into other countries.
When the Commission drafted its Communication 'Towards Common Principles of Flexicurity: More and better jobs through flexibility and security' (published on 27 June 2007), it was aware of this dilemma. It limited itself, therefore, to defining some components of successful flexicurity policies, which can be incorporated into any country's labour-market policies without altering the concept's underlying principles, namely:
- Flexible and reliable contractual agreements;
- comprehensive lifelong learning;
- effective active labour market policies, and;
- modern social-security systems.
The Commisison paper then tackled the difficult task of making suggestions on how to proceed with labour-market reforms. In order to avoid giving specific advice to member states, it defined a typology of four different challenges that labour markets in different countries may be facing, leaving governments to assess which of the recommendations apply to them.
For each of the situations, the authors suggested a 'pathway' out of the respective labour-policy impasses, touching on each of the four elements of flexicurity. The typology comprised the following situations:
Key challenge: Contractual segmentation. The labour market is divided between 'insiders' and 'outsiders', or workers holding permanent contracts and those on short-term contracts with low levels of social protection. Typically, these countries are marked by a high rate of early retirement. Examples include Spain, Italy, France and Portugal.
Suggestion: Aim towards a more even distribution of flexicurity and security to create 'entry points into employment' for newcomers and promote their progress into better contractual agreements.
Key challenge: Developing flexicurity within the enterprise and offering transition security. A high percentage of large enterprises leads to low job mobility within the workforce. This is the case in Germany, Belgium, Luxembourg and France.
Suggestion: Invest in employability and life-long learning to increase workers' adaptability to technological change; provide for better and safer transitions from one company to another.
Key challenge: Skills and opportunity gaps among the working population. In countries with high employment rates, such as the UK, the Netherlands and even Denmark, the cradle of flexicurity, low-skilled groups have little chance of finding a better job than the one that they currently hold.
Suggestion: Promote opportunities and develop the skills of low-skilled workers in order to enable upward social mobility.
Key challenge: Improve opportunities for benefit recipients and informally employed workers. This situation is typically encountered in countries that have joined the EU since 2003 and have undergone intensive restructuring, resulting in a high percentage of the potential workforce being dependent on long-term benefits.
Suggestion: Introduce or reinforce active labour-market policies and life-long learning to improve opportunities for benefit recipients to move from informal to formal employment.
The European Council in December 2007 adopted an agreement on 'Common Principles of Flexicurity,' and throughout 2008, the 'Mission for Flexicurity' saw the European Commission examine how the common principles could be merged into national processes across the EU.
Will the economic crisis derail flexicurity?
Since late 2008, a steady worsening of Europe's financial and economic crises has been raising the question of whether the EU institutions, busy responding to the escalating crisis with recovery packages and solidarity funds, will de-prioritise the drive towards EU-wide flexicurity.
The 'Mission for Flexicurity', the conclusions of which were presented in December 2008, argued that despite the escalating downturn, "the long-term challenges for labour markets are still the same".
Indeed, the conclusions claimed that flexicurity is "without doubt the strategy that European labour markets must adopt in order to adapt to new requirements, while providing the necessary degree of protection, particularly in the current context of economic slowdown".
A June 2009 summit of EU leaders followed in a similar vein, concluding that the crisis need not weaken the flexicurity push, but that the policy could instead become a central plank of economic recovery. The goal they sought was "a balanced policy mix" to "help member states, and the social partners when and where relevant, to manage the impact of the global crisis".
However, as 2010 sees the dawn of a new EU treaty, a new European Parliament and a new European Commission, the policy arguably stands at a crossroads, and despite the many rhetorical commitments to maintain flexicurity as a flagship EU policy, it is still unclear precisely how far the institutions and EU leaders are willing to go.
A Bruegel report offering strategic advice for the incoming Commission, while broadly supporting the continued EU promotion of flexicurity, claimed that the policy's survival is threatened by the current crisis as governments lose faith in flexible labour markets.
With this loss of faith likely to increase further in 2010, the report presents the incoming EU employment and social affairs commissioner with a stark policy choice – "the most important strategic decision of your tenure: whether actively to promote an ambitious flexicurity agenda against the odds […] or whether to shift emphasis and attempt to develop a less controversial agenda based on longer-term challenges such as ageing and migration".
In an interview with EurActiv Czech Republic, Employment and Social Affairs Commissioner Vladimír Špidla expressed his conviction that flexicurity is essential to meeting the demands of our changing societies, saying "what we must give people in the first place is not the security of having a single job, but a security of career and especially support during a change".
However, he warned that this approach is "very complex" and requires "a certain structure" to the education and on-the-job training systems. Moreover, "flexible but at the same time reliable labour law" and "modernisation of social security systems to make them effective" are necessary, he said.
More recently, Špidla stressed that flexicurity was "not an alibi" to make the labour market more flexible, nor was it a threat to workers' security. Rather, it allows them to adapt to change and manage the transition between jobs, he argued.
BusinessEurope Director-General Philippe De Buck said in December 2009 that "the Lisbon Strategy was decided in 2000 at the height of the Internet bubble. Decision-makers were perhaps too euphoric".
He went on to note that "in 2010 – under the Spanish EU Presidency – the Lisbon Strategy has to be renewed. We are still in the midst of the crisis, so we can expect the same ambitions but greater commitments. We have to urge for a strategy that puts Europe back on track".
"We have argued strongly for implementation of flexicurity principles," he went on, concluding that "by combining the need for more flexibility for companies to adapt and more security for people to find a job, you favour change and you increase mobility".
Andrea Benassi, secretary-general at SME federation UEAPME, argued at the Czech EU Presidency's May 2009 'Jobs Summit' that the EU must push ahead with an aggressive flexicurity agenda. "The policy answers given now will determine whether the crisis will feed through the whole economy or, on the contrary, the recovery process will kick off," he said.
Structural reforms must be continued, said Mr Benassi, in order to "implement the flexicurity principles in all member states, facilitate transitions on the labour market (i.e. from inactivity or school to work) and foster access to initial and continuous training".
"Unfortunately, too few National Reform Programmes (NRPs) have taken a systematic flexicurity approach on board," wrote CEEP, an organisation representing enterprises with public participation and enterprises of general economic interest.
"We hope that both the European Social Dialogue and the elaboration of flexicurity pathways will have a positive impact on next year's NRPs," CEEP added, hoping that the primary effect would be an increased focus on the "policy priority of improving adaptability of workers, enterprises and services".
ETUC, the European Trade Union Confederation, fought hard to have the social security dimension of flexicurity emphasized in the Commission's approach. On 21 January 2008, ETUC declared: "The European trade union movement welcomes the fact that the EU has adopted a more balanced approach to the principle of flexicurity, and recognised the need to offer workers on temporary contracts more security."
"On the other hand, with regard to social protection, there is an excessive emphasis on avoiding the perceived risk of benefit systems acting as a disincentive to work, coupled with a failure to learn the valuable lesson from a number of the EU's most successful member states that generous benefits are a key ingredient in managing structural change and creating an adaptable workforce," ETUC concluded.
The Social Platform, which brings together social NGOs from all over Europe, stressed the importance of inclusion and a high level of social security to the flexicurity approach: "In addition to globalisation, technological change and demography the following trends need to be given more attention to enrich the implementation of the European flexicurity principles: rising inequalities, discrimination, migration, public health issues, strengthened role of the third sector, diversity of families and new role for women and men."
"A compulsory and adequate first pillar pension system remains the most efficient way to address flexicurity in relation to frequent job changes, career interruptions and participation in life long learning opportunities while at the same time securing an adequate income in old age," the NGO said.
The European Confederation of Private Employment Agencies (Eurociett) argued that "in times of economic crisis, the concept of flexicurity is more crucial than ever. Governments should take the opportunity that this concept offers to review how their national labour market are functioning, and take advantage of the contribution of agency work to facilitate a better match between supply and demand of work".
"Indeed," they noted, "agency work embodies the principle of flexicurity – as a highly regulated industry, we provide both flexibility and work security to people and companies".
"Agency Work should be recognised as an essential pillar of flexicurity policies of the EU Member States, providing more work opportunities to more people and enhancing the employability of workers, thereby facilitating transitions in the labour market and preparing the ground for an improved job-creating economic recovery," they concluded.
- Nov. 2006: Commission issues Green Paper on the reform of European labour law.
- 27 June 2007: Commission issues Communication 'Towards Common Principles of Flexicurity' (EurActiv 26/06/07)
- 29 Nov. 2007: European Parliament endorses resolution on Common Principles of Flexicurity.
- 5 Dec. 2007: EU Council of Ministers adopts eight common principles on flexicurity (EurActiv 29/11/07 and EurActiv 05/12/07).
- Aug. 2008: EU Council of Ministers stops short of defining a path to more efficient labour markets as proposed in the Commission's communication (EurActiv 26/08/07).
- 1 Feb. 2008: Employment and Social Affairs Commissioner Vladimír Špidla announces that the Commission has set up a fact-finding 'Mission for Flexicurity'.
- 12 Dec. 2008: Mission for Flexicurity presents its final report. Further EU action is shelved due to the economic recession.
- 8 June 2009: Council adopts conclusions on 'Flexicurity in times of crisis'.