how labor market flexibility works
labor market flexibility refers to how quickly a firm responds to changing conditions in the market by making modifications to its workforce a flexible labor market allows employers to make changes in response to supply and demand issues the economic cycle and other market conditions but a truly flexible labor market only exists when there are few labor force regulations in place when this is the case employers are able to set wages fire employees and change employee work hours at will and the changes can go either way during tough economic times for example an employer that has high flexibility can cut wages and increase the number of hours that employees are expected to work to boost productivity conversely when the economy is strong the same employer may decide to give employees a slight raise and cut back on their hours labor unions can limit labor market flexibility by negotiating higher wages benefits and better working conditions with employers less flexible labor markets are subject to more rules and regulations including minimum wages restrictions on firing and other laws involving employment contracts labor unions often have considerable power in these markets some of the other factors that affect labor market flexibility include employee skills and training occupational mobility minimum wages part time and temporary work and job related information that employers make available to their employees advantages and disadvantages of labor market flexibilitysupporters of increased labor market flexibility argue that it leads to lower unemployment rates and higher gross domestic product gdp due to the unintended consequences of tight labor market restrictions a firm may consider hiring a full time employee for example but be concerned that the employee would be extremely difficult to fire should that prove necessary and could claim costly worker s compensation or sue based on alleged unfair treatment the firm may choose instead to take on short term contract workers such a system benefits the relatively small number of full time employees with especially secure positions but hurts those on the outside those who must move between unreliable short term gigs proponents of tough labor market regulations on the other hand claim that flexibility puts all the power in the hands of the employer resulting in an insecure workforce the labor movement began in the late 18th and 19th centuries in the u s and europe in response to dangerous and dirty workplace conditions extremely long shifts exploitative practices by management and owners wage garnishment threats and other abuse and arbitrary dismissals 1employers had little incentive to ensure that workplace injuries and deaths were rare since they faced no consequences for creating hazardous conditions and employees who could no longer work were easy to replace factors impacting labor market flexibilityas mentioned earlier unions employee skills and training minimum wage regulations and job related information can all have an impact on flexibility in the labor market also called trade unions these organizations represent the collective interests of a group of workers employees can band together through their union to initiate negotiations for better wages working conditions benefits and working hours making the market less flexible 