Labour market flexibility and technological innovation or, desperately seeking a trade-off
<p> <font size="2"> </font>Lack of labour market flexibility has often been accounted for the low growth rates in theEuropean Union. A recent report on ”An Agenda for a Growing Europe”, better knownas the Sapir Report, discussed this issue and clearly stated the terms of the trade offbetween growth and lack of flexibility. The Report acknowledges that flexibility involves arange of social and economic drawbacks. Nonetheless it contends that ”At a time of veryrapid change and a need to adjust both production and skills quickly, flexibility comesat a premium.”. In this paper I focus on a range of microeconomic issues, involving theconceptual plausibility of the claimed trade off and the implications that a policy basedon such a trade off may have in terms of both growth and social welfare. I argue that theassumptions underlying the trade off are not clear because the notion of innovation in theReport is rather confused. Contrary to what the Report claims, flexibility turns out to beirrelevant for the innovation it purports. Flexibility might produce some effects but onlywith innovations that the Report neglects. I contend that the effects of flexibility may beto reduce innovation and the potential for growth. Truly, flexibility may allow firms tointroduce new technology, but it may also lead firms away from innovation in so far as itallows them to pursue profit through other means, i.e. through cost scrapping. My finalargument is that the notion of trade off that the Report refers to is misleading in that itin no way takes account of the social costs that flexibility would determine. I conclude mydiscussion by drawing a few implications for economic policy.
Year of publication: |
2005-10
|
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Authors: | Ramazzotti, Paolo |
Institutions: | Dipartimento di Istituzioni Economiche e Finanziarie, Facoltà di Economia e Diritto |
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