Select Committee on European Union Twenty-Second Report


75.  The Green Paper[21] addresses how EU Member States might strike an effective balance between labour market flexibility and employment security by reference to the Commission's increasingly favoured concept of "flexicurity." In addition to the issues raised in the Green Paper, at the time when this report was being written, the European Commission was due to publish, towards the end of June 2007, a communication leading to the development of a set of common principles against which Member States can work toward greater "flexicurity" in their labour markets.

What is "flexicurity"?

76.  Flexicurity is a rather inelegant (and at first glance oxymoronic) piece of EU policy jargon, the meaning and possible interpretation of which we examined in some detail.

77.  According to the Commission[22] "flexicurity promotes a combination of flexible labour markets and a high level of employment and income security and it is thus seen to be the answer to the EU's dilemma of how to maintain and improve competitiveness whilst preserving the European Social Model."

78.  In an attempt to help us decipher the meaning of this, Mr Meager of the IES told us: "The 'flexicurity' approach, if it means anything, is saying, rather than worrying too much about protecting particular jobs, 'let us try to protect the capacity of the economy to generate new jobs, on the one hand, by having a relatively flexible regime but also the employability and, on the other hand, the kind of support they have between jobs so that it makes it easier to take those jobs when they come up'." (Q 12)

The Danish flexicurity model

79.  The term flexicurity is most commonly associated with the Danish version of the Nordic model as mentioned in Chapter 2. Professor Shackleton's evidence to the committee outlined three essential elements of the Danish model: "(a) limited job protection, with very few restrictions on hiring and firing (b) high levels of social security payments for those out of work (c) active labour market policy, with stringent conditions about job search and retraining for those receiving benefit". (pp 13-15) Mr Meager likened these elements to the "three corners of a triangle" with each element requiring the others to be in place in order for the model to operate successfully. (Q 13)

80.  In developing this specific Danish example into a more generic concept the Commission has added a fourth element—continuous life long learning to assist the adaptability and productivity of workers—in effect, as Mr Tom Moran, Senior Policy Adviser on Employment, Employee Relations and Diversity at the CBI remarked to us, transforming "the 'flexicurity triangle' into 'a flexicurity quadrilateral' now or something similar." (Q 50)

81.  Flexicurity has undoubtedly found favour because Denmark exhibits a higher rate of employment, and a lower rate of unemployment, than the UK's Anglo-Saxon economy, but without the accompanying degree of income inequality and poverty. Standardised Eurostat figures show that in 2006 the employment rate of the working age population was 78% in Denmark and 72% in the UK, compared with an average of 65% for the EU25 as a whole. The respective unemployment rates were 3.4%, 5.5% and 7.4%.[23]

82.  However, although the concept of combining flexibility and security—if not necessarily the term flexicurity itself—was welcomed in general terms by most of those who submitted evidence to us, there was considerable scepticism about the transferability of the Danish experience. There was also some concern that, in promoting common principles drawn from Denmark, the Commission would attempt to establish a "one-size-fits-all" model of flexicurity.

83.  Several witnesses, including Mr Meager and Professor Shackleton (QQ 13, 15), noted that, in order to sustain its flexicurity model, Denmark had to spend a large amount of taxpayers' money on labour market programmes (around 4.5% of GDP, compared with less than 1% of GDP in the UK). Countries faced with this funding issue would have a range of options for the relative extent to which (a) individual taxpayers and (b) businesses should bear the cost of labour market programmes.

84.  Professor Shackleton also observed that Denmark has a strongly unionised workforce (75% of workers are union members) and that the elements of its flexicurity model were designed and agree in co-operation with the trade unions. (Q 15) A similar observation was made by the TUC's Richard Exell: "We think where flexicurity is a positive way forward it is because it represents a modernisation of the European Social Model and that is all about combining social justice and economic efficiency. Flexicurity at its best is about high levels of workers involvement in decision making both in terms of participation by workers but also collective participation through collective bargaining and social partnership, high levels of training and emphasis on the high road to economic success, so training, investment, going for high value added." (Q 126)

Does the UK already have flexicurity?

85.  In making this point, the TUC was countering the view of some others who submitted evidence to us that the less regulated, less unionised, lower tax UK model represents an equally good example of flexicurity in action. For example, the Unquoted Companies Group (UCG)—an informal group of around 30 chief executives of owner managed companies—argued that "the UK's relatively unregulated labour market already delivers flexicurity, if we must use this word." (pp 200-204)

86.  This view was contested by Mr Owen Tudor, Head of European and International Relations at the TUC, who told us: "Flexicurity has been successful in Nordic economies but we would contend that what the UK has is not flexicurity." (Q 102) However, the UCG's view was consistent with evidence given to us by the DTI. (pp 85-96)

87.  Although the UK labour exhibits a high degree of labour turnover—with around 6 million leaving jobs each year and a similar number finding new jobs—more than two-thirds of these job moves are voluntary and UK workers generally feel secure in their jobs. The DTI cited the recently published Fourth European Working Conditions Survey which finds that the UK has the second lowest rate in the EU for the percentage of workers who fear they will lose their job in the next six months. In addition, the flexibility bestowed by light employment protection legislation meant that the UK had a relatively high rate of workers employed on permanent contracts (these accounting for 94% of the workforce). (pp 85-96)

88.  Expanding on this point, Mr Meager of the IES told us "There is a paradox actually that across countries there seems to be an inverse relationship between the strictness of employment protection legislation and how people feel". (Q 12)

89.  This paradox may be explained by the fact that in more regulated labour markets workers protected by law, fear that if they do lose their job it may be difficult to find another, at least on a permanent contract. This explanation was posited by the EU-wide employers' organisation Business Europe (known until recently as UNICE, the Union of Industrial and Employers' Confederations of Europe, of the which the UK's CBI is a member) which contended that the essence of the flexicurity approach is that it does not seek to organise trade-offs between flexibility and security but, on the contrary, sees flexibility and security as reinforcing each other, with flexibility looked upon as a way to improve employment security. (pp 125-132)

90.  Mr Meager also argued that in countries where employers were not easily able to make staff redundant, instead of doing so regularly they tended to do so occasionally and on a large scale, particularly at times of economic crisis. This tended to create a sense of unease amongst workers. (Q 12)

Flexicurity: what lessons for the UK?

91.  Mr Meager went on to make the point that, from the UK's perspective, any lessons to be drawn from a debate on flexicurity relate to skills policy and welfare to work measures for those individuals and groups who face the most difficulty adapting to change, rather than to matters of labour law as the Green Paper suggests. Mr Meager thus concluded that this element of the Green Paper was "off the point". (Q 13)

92.  It is therefore significant that the interim report of the European Commission's Expert Group on Flexicurity[24]—which has been received by the Committee—concludes that "there is not one way that leads to Rome". As the Expert Group states: "Resulting from consultations and negotiations at national levels, flexicurity can take different forms from country to country. In some cases flexicurity will focus more on solutions within companies, in other cases it will concentrate on transitions between jobs and from employer to employer. Sometimes it will focus more on the interplay between relatively flexible rules of economic dismissals in combination with high benefits, whereas in other cases emphasis will be on safe bridges from work to work organised by social partners and public employment services".

93.  We commend the Commission for starting, in the Green Paper and elsewhere, an important policy debate on how labour market flexibility and employment security might be combined and reinforced to the benefit of both employers and workers and in furtherance of the common good.

94.  However, we recommend that the purpose of this debate should be primarily to share information and examples of good practice, recognising the diversity of circumstances between Member States identified by the report of the Commission's Expert Group on Flexicurity. Any common principles of flexicurity agreed at EU level should therefore be interpreted as guidelines rather than as obligations.

95.  We recommend also, that as far as the UK is concerned, progress toward enhancing flexicurity requires action on skills and welfare to work measures rather than changes in labour law.

21   op. cit. page 4 Back

22   European Commission Expert Group on flexicurity Back

23   Office for National Statistics:  Back

24   Expert Group on Flexicurity's report from the rapporteur to the Commission: Flexicurity pathways: April 2007 Back

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