What is 'Labor Market Flexibility '

Labor market flexibility refers to firms' ability under a jurisdiction's laws and regulations to make decisions regarding employees's hiring, firing, hours and working conditions.

BREAKING DOWN 'Labor Market Flexibility '

A flexible labor market is one where firms are under fewer regulations regarding the labor force and can therefore set wages, fire employees at will and change their work hours. Less flexible labor markets are subject to more rules and regulations, including minimum wages, restrictions on firing, and other restrictions on employment contracts; labor unions often have considerable power in these markets.

Supporters 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. For example, a firm might be considering hiring a full-time employee, but fear that the employee will be extremely difficult to fire and may claim costly worker's compensation or sue based on alleged unfair treatment. The firm will likely choose to take on short-term contract workers instead. Such a system benefits the relatively small number of full-time employees with especially secure positions, but hurts those on the outside, who must move between precarious, 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 19th century in the U.S. and Europe as a response to dangerous and dirty workplace conditions, extremely long shifts, exploitative practices by management and owners (wage garnishing, threats and other abuse), and arbitrary dismissals. Employers 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.

 

RELATED TERMS
  1. Organized Labor

    Organized labor is an association that engages in collective ...
  2. Unemployment Rate

    The unemployment rate is the percentage of the total labor force ...
  3. Employment Situation Report

    The Employment Situation report is a monthly report compiling ...
  4. Wrongful Termination Claim

    A wrongful termination claim is filed in a court of law by someone ...
  5. Civilian Labor Force

    Civilian labor force is a term used by the Bureau of Labor Statistics ...
  6. Fire Sale

    A fire sale consists of selling goods or assets at heavily discounted ...
Related Articles
  1. Insights

    One Reason Jobs Shrink: Superstar Companies

    Are superstar companies that dominate their industries but employ relatively few workers to blame for labor’s falling share of GDP?
  2. Insights

    Why $15 Minimum Wage Might Not Be Good News for Anyone (MCD, DPZ)

    Discover why the minimum wage isn't the panacea it is made out to be, and how artificial wage increases strain businesses and consumers.
  3. Personal Finance

    Minimum Wage: Good Cause Or Economic Pariah?

    Here are some positives and negatives to help you decide where you stand on the minimum wage debate.
  4. Personal Finance

    U.S. Labor Participation Rate at Record Lows

    In absolute terms, labor participation hit an all-time low.
  5. Personal Finance

    America’s Labor Market: Hidden Distortions and Uncertain Forecasts

    Employment reports released by the Bureau of Labor Statistics have a profound impact on political, business, consumer, and investor behavior.
  6. Small Business

    Are We Becoming 24-Hour Workers?

    Many employees are working more than 40 hours a week, and even when they’re not physically at work, they’re still mentally and digitally connected.
  7. Personal Finance

    How to Lay Off Staff

    Firing employees isn't easy, but it is simple: Be honest, be compassionate and be quick.
  8. Insights

    Wal-Mart's Wage Increase Has Potential Drawbacks for Workers (WMT)

    Wal-Mart workers were overjoyed to hear that they would receive $10 an hour. However, there are significant non-financial drawbacks to this raise.
  9. Investing

    Coca-Cola to Use Blockchain to Fight Forced Labor

    Coca-Cola (NYSE: KO) is partnering with the U.S. State Department to create a blockchain-powered secure registry of workers that can be used to counter the use of forced labor worldwide. Nearly ...
RELATED FAQS
  1. How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a ... Read Answer >>
  2. What are restricted shares?

    Understand what a restricted share is. Learn why a company would issue restricted shares to employees and why an employee ... Read Answer >>
  3. How are labor demand forecasts made in human resources planning?

    Discover how human resource planning might be used to estimate the correct demand for labor in a given market, both qualitatively ... Read Answer >>
  4. What is the prime cost formula?

    Prime costs are the costs directly attributed to the production of a product. Before calculating prime costs, direct costs ... Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center