Labour Force Flexibility

What is a flexible labour force?

 

Labour force flexibility is when workers can transfer between activities quickly in response to changes in the economy. Hence, a flexible labour force is a mobile labour force. 

Governments can increase the flexibility of the labour force by providing:

1. Job retraining schemes – either promoted by the government or provided/subsidised by the government.

2. Investment into education – improving quantity and quality of resources in the education industries.

3. Increasing available apprenticeships – apprenticeships are valued by employers because an apprentice learns real working skills on the job.

4. Increasing the number of vocational exams available – to ensure people are sufficiently trained in vocations and not just academic subjects.

5. Reducing trade union power – because trade unions can cause inflexibility in the labour force by increasing the market wage/bargaining for longer working contracts (otherwise they threaten firms with strikes).

6. Changing employment laws to make it easier for firms to hire and fire workers – firms are willing to take on more workers if there are less risks around employing new people. Short-term contracts and 0-hour contracts are favoured by businesses as they can employ workers as and when they need, which minimises cost and risk for them. Therefore, workers will be able to move from job to job quickly when there is demand for certain skills. Temporal flexibility may be increased too with these types of contracts being offered – more jobs will be available for people who do not want to work standard working hours (e.g. night workers or weekend workers)

 

The debate around 0-hour contracts

+ On the one hand, 0-hour contracts can improve labour force flexibility. It allows businesses to hire workers as and when needed, decreasing costs and risk. It allows jobs creation to occur, as businesses can open new positions when there are changes in their demand and the economic climate.

+ Furthermore, governments can reduce unemployment figures by promoting 0-hour contracts. As mentioned before, 0-hour contracts minimise cost and risk for firms so more people should be in employment.

- On the other hand, workers are not guaranteed an income, which increases financial risks for workers. Many workers will be against these contracts and some people will be unable to effectively manage their budgets. It can also decrease the willingness of banks to provide loans. Banks prefer when workers have an employment contract. Therefore 0-hour contracts can reduce the number of loans being supplied, which is particularly bad for the housing market (people are less able to get a mortgage).

 

Wage flexibility

Wage flexibility is when wages can change in response to changes in demand and supply. Employers would prefer to change wages whenever possible. For example, when there is a recession, demand for goods and services is low. Firms would prefer to pay workers less during these period as they do not make as much money and they possibly could go out of business.

However, employees prefer a guaranteed level of income, so would prefer a fixed wage. Employment contracts make wages less flexible, which can damage an economies ability to recover from recession. This is called wage stickiness.

Wage flexibility can be improved by reforming employment contract laws, limiting trade union power and removing the minimum wage.


So, in summary we have learned:

Wage flexibility has benefits and negative for firms, employees and governments

The debate around 0-hour contracts

Wage flexibility


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