(How) Do Flexible Labour Markets Really Work? The Role of Profitability in Influencing Unemployment

This paper assesses the theoretical justifications available for policies of flexible labour markets (FLMs) in reducing the level of unemployment in developed economies. It empirically assesses the OECD's rationalisation of policy linking profitability to investment and job creation in four country cases. New capital investment is found to be significant for unemployment in all cases but it is not found to be a consequence of the mechanistic achievement of ‘normal’ profits. Without an empirically supported mechanism for how FLMs reduce unemployment, the policy is open to the accusation of being no more than a political tool for altering distribution, without concern for the wider socio-economic consequences