Flexicurity For Labour Market

Flexicurity For Labour Market Within Organizations



Abstract

In this paper we study the effect of a micro-level measure of flexicurity on workers' job satisfaction. To this end, using micro-data from the Eurobarometer survey, we disaggregate the sample of workers into different groups according not only to their employment contract (i.e. permanent or temporary), but also to their perceived job security, and we evaluate differences in job satisfaction between these groups. After the potential endogeneity of job type has been controlled for, the results show that what matters for job satisfaction is not just the type of contract, but mainly the perceived job security, which may be independent of the type of contract.

The combination “temporary but secure job” seems preferable to the combination “permanent but insecure job”, indicating that the length of the contract may be less important if the worker perceives that s/he is not at risk of becoming unemployed. Our main conclusions are robust to the use of alternative definitions of workers' types and they generally hold within different welfare regimes and also for different aspects of job satisfaction, mainly those more related to job security.

Table of Contents

Abstract2

Table of Contents3

CHAPTER I4

Introduction4

CHAPTER II8

Literature Review8

Introduction8

Economic Changes and Flexibility9

Analyzing Flexibility11

Geography and Labor Market Dynamics16

Flexibility and Labor Market Policy18

CHAPTER III24

Data, definitions and descriptive analysis24

Empirical strategy33

CHAPTER IV37

Econometric results37

Sensitivity analysis44

Further check for unobserved heterogeneity49

CHAPTER V54

Conclusions54

References57

Appendix A. Technical appendix—Probit OLS (POLS)64

CHAPTER I

Introduction

In the 1990s in most OECD countries “perceived employment insecurity has become more widespread” (OECD, 1997). However, after the economic recovery in the second half of the 1990s, this feeling of insecurity decreased, although with important differences between countries (Auer and Cazes, 2003). Employment stability is desirable both for workers, who rank it as one of the most important factors for job satisfaction (European Commission, 2001), and for firms, which dislike high turnover and prefer stable employment relationships in order to retain human capital investment and reduce both workforce screening and selection costs.

On the other hand, the recent intensification of competitive pressures has called for more flexibility in labour markets for both firms and workers. Two different relationships between work security and flexibility have been conjectured, the first supporting the “trade off” theory and the second the “flexicurity” thesis (Muffels and Luijkx, 2005). According to the former hypothesis, there is a negative relationship between flexibility and security: flexible employment patterns are in conflict with work security, and a high level of work security can be obtained only at the cost of low flexibility.

The opposite view is at the basis of the “flexicurity” hypothesis, according to which flexibility and security are not contradictions, but may be mutually supportive if appropriate labour market institutions are in place (Madsen, 2002). The flexicurity model was first implemented by Denmark as a combination of numerical flexibility (thanks to low employment protection legislation), social security (in the form of a generous system of unemployment benefits), and active labour market policies especially focused on active job search and training. Thus, the main idea behind flexicurity is to achieve a ...