Labor Market Flexibility

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DEFINITION of 'Labor Market Flexibility '

Firms' ability to make changes to their workforce in terms of the number of employees they hire and the number of hours worked by the employees. Labor market flexibility also includes areas such as wages and unions. A flexible labor market is one where firms are under fewer regulations regarding the labor force and can therefore set wages (i.e. no minimum wage), fire employees at will and change their work hours. A labor market with low flexibility is bound by rules and regulations such as minimum wage restrictions and requirements from trade unions.

INVESTOPEDIA EXPLAINS 'Labor Market Flexibility '

Supporters of increased labor market flexibility argue that it leads to lower unemployment rates and higher GDP. However, its opponents claim that flexibility puts all the power in the hands of the employer, resulting in an insecure workforce.

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