Importance of Labour Market Flexibility and Labour Mobility to EU Businesses

Explain why labour market flexibility and labour mobility are seen as important to EU businesses?

The European Union is possibly at its most crucial point since its creation in 1993(1) (Paul,2007). With countries such as the United Kingdom voting to leave and others potentially becoming nervous at the once deemed helpful over hindrance EU, the scrutiny on whether this organisation is as helpful as it once was is now further under the microscope. The result and consequences of Brexit could massively affect migrating workers across the EU not just getting into the UK and other European countries but workers from the UK leaving to find work across Europe, which the labour mobility and labour market flexibility gives workers the freedom to be able to move to find work. The ability for businesses to move workers but also hire and fire when needed is crucial to meet the demand and supply that workers can meet for businesses across the EU especially with the number of migrant workers which move over to the UK but also skilled workers who come over from different countries cannot just help but also improve things such as FDI (foreign direct investment) for example. However, the remaining members still feel the benefits of the EU, especially with labour and the ability for the market to react with supply and demand as said in labour market flexibility (2) as these EU businesses are able to bring in workers when, like said before, demand is needed to be met the EU is very useful for being able to use skilled workers who are not just one job specific and utilize these workers .This labour market flexibility and mobility is crucial to the ability of EU businesses to be able to trade in this single market freely and develop their business. So, the EU and its market flexibility and mobility depending on where you sit can be crucial or not to the success of EU businesses and how they operate.

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Labour market flexibility is the “willingness and ability of labour to respond to changes in market conditions, including changes in the demand for labour and the wage rate” (3) as said in labour market flexibility. This is important as it means that businesses from the EU could react to, and “adjust supply to demand” (4) as said in labour market flexibility. The ability for EU businesses to be able to keep with the demand of labour is crucial as, especially with the changing uncertainty of the EU a business must expect markets to shift constantly, whatever sector they are in. Therefore, if labour must be moved to meet the demand elsewhere then that business will be in a good position to bring the supply of workers. Also, in these flexible markets the labourers indeed have more rights meaning “higher productivity but also better rights leading to less unemployment” (5) (Lennard,2015, pg.1). which benefits both business and worker as these workers will be able to create more products meaning that imports and exports will be able to increase for businesses. However, with these workers being more flexible it can lead to less rights as they are more expendable and can be fired easily if there is change within the business or market. Labour market flexibility is especially strong for supply in macro-economic as it deals with the country’s economy and has indicators such as “GDP, unemployment rates, national income, price indices “as said in macroeconomics. (6) This means that if the country’s unemployment rates are low then there is a less demand for workers as most of that country’s population are working. This backs the theory of labour market flexibility being the most important factor to the supply area of macro-economic as without the labour market being flexible to change such as wage rates or demand for example then a country’s economy would struggle as labour would be non-existent. Moreover, with this flexible labour it encourages the inward investment and “multinational firms may be attracted to invest in countries with more flexible labour markets, creating jobs in the first place” as said in economics help (7) meaning that EU businesses with labour market flexibility can expand and have open trade as a result.

Demand for labour can change however, and the flexibility of labour within their market sometimes still does not help, especially if there is no demand. The short, long and medium demand for labour very much can fluctuate as the short- and medium-term demand very much depends on national incomes and where businesses are in terms of market and their own cycle. On the other hand, the longer-term demand can change due to “structure of an economy, often brought about by changing technology or through globalisation and deindustrialisation” (8). This further strengthens the idea of how important labour market flexibility is to EU businesses as if there is further demand in the short or medium term then the ability for businesses to bring in workers quickly but also without problems allows businesses to meet the demand and not lose money due to under staffing which can lead to less productivity. This also suits workers as they will have mostly flexible lifestyles which undoubtedly comes with being apart of a flexible labour market which not only offers them a greater choice but also the businesses who are looking for these types of workers. There is a clear uncertainty for these workers however as their job is not secure which can lead to stress and job insecurity but they will expect that in these sorts of markets. 

Moreover, the importance of labour market flexibility to EU businesses is evident with the lower costs that comes with flexible labour markets as if firms are over staffed and need to cut the costs then they can quite easily get rid of workers without hassle showing the benefits of both hiring and firing workers from these markets. On the other hand, labour market flexibility does bring with it some problems. The first of which is that if a business brings in labour then there could be a lack of training in that specific sector or job causing more expenditure for the business then what they would like because if workers lack the training then they won’t be able to do the job to the best of their ability. This, in turn, links to the businesses then having a lower productivity which affects any EU business dramatically as this can lead to poor trade due to the lack of exports. Lastly, the barriers to entry have a major effect as It can require qualifications or for exit can include lengthy contracts for example which is a major stumbling block as if barriers to entry are high causes labour to be flexible.

The UK especially has become more involved within labour market flexibility as seen from the graph to the below. As seen the increase in zero-hour contracts means businesses in the UK are more inclined to use labour market flexibility and not have workers on set contracts therefore outlining the importance of labour market flexibility that is being utilised by businesses in the UK. (9) As a result of Brexit, the UK could see the effects of leaving the EU as by leaving it will make it much more difficult for businesses to be able to just bring on workers and then fire them as there won’t be that freedom anymore, which the labour market brings with it. When the referendum results were revealed “online job ads fell by nearly a half – from nearly 1.5 million to about 800,000” (10), these figures clearly show the effect that Brexit already has and will have on businesses in the UK and EU in terms of labour as many immigrants come over to the UK and tend to work in unskilled jobs which links to the table above with the increase in zero-hour contracts.

Labour mobility is “the ease with which laborers are able to move around within an economy and between different economies. (Radcliffe, B,2016)” (11). The impact of labour mobility is very important to be able to determine growth and production for the market and businesses themselves. There are two different types of labour mobility, one being geographical which is if workers can work in a specific location or not and the other, occupational, is whether workers can change jobs. These are both crucial to EU businesses as if workers are able to change location of where they work with ease that is a vital asset for EU businesses, as if the worker is able to change job type it means that if another job is in need of assistance or is understaffed then the occupational worker is a vital tool for businesses to use. Geographical is just as important as it can allow EU businesses to move production or move workers to certain areas as they are not set in one location. This demonstrates the priority of labour mobility to EU business as already seen by the number of zero-hour contracts increasing and (12) as seen from the table below the UK get a vast amount of immigrants from Europe meaning that many will be looking for jobs and will be very flexible in finding work which is very important for EU and UK  businesses as they can train these workers and then use them where demand is in excess.

(13). The importance of immigration and workers that come with them is seen from the table below 10.4% of the UK population is made up of migrant workers showing how important migrant workers from the EU are to businesses when dealing with demand and supply and the ability of workers to move. Moreover, they are not just important to the UK as you can see Germany, another major EU country have a large percent of migrant workers in the country’s population therefore outlining how important of a tool labour mobility is for EU businesses in not just the UK but also Germany.

By labour mobility happening this can help EU businesses increase their inward FDI as if a company can keep skilled workers and be very flexible then this makes countries but also businesses very attractive for inward investment. There are several opportunities for labour mobility workers who can migrate as seen by the data released by Eurostat where the unemployment percentages where released. These where “Greece (23.1%), Spain (19.2%), Cyprus (14.2%) and Italy (11.9%)” (14). This clearly shows the availability of workers for EU businesses and how they can go into these countries because there is unemployment, they can bring these workers, whether they are occupational or geographical and meet the demand but be able to put these workers on poorer contracts which allows businesses to be flexible with them in terms of where they work or if they need to fire them. This shows the link between labour mobility and labour market flexibility and how both of them complement each other to the benefit of EU businesses. However, although the unemployment can be a benefit to businesses job mobility is still low across certain countries which needs to increase. This is shown by the graph to the right (15) outlining the limited mobility that the EU has and that it needs to improve if EU businesses are to feel the full positive effect of labour mobility. Brexit could also affect labour mobility as with the UK leaving the EU this will make it harder for workers to be able to move countries freely both in and out of the UK which is going to make it doubly difficult for UK and EU businesses to hire and fire workers with ease as there won’t be that free access to move countries within the EU and then also work in these countries. 

The European union has been the main topic of conversation in politics over the last year for all the right, or wrong reasons. However, all these conversations have been based around the UK and Brexit but not about the importance of labour mobility and the labour market to not just the EU but also to the UK and how important the EU is for labour and how the UK benefits from bringing in skilled workers across the EU but then being able to move them on or put them in different jobs. Overall, the importance of labour market flexibility and also labour mobility is unprecedented to EU businesses. Both labour mobility and labour market flexibility bring not just workers to businesses to meet supply and demand but also it helps GDP and inward FDI for these countries. Labour market flexibility is only the start because its not just the markets ability to be flexible, but labour mobility is just as important as if workers are not willing to move then it is impossible for businesses to be able to move or hire workers. The ability of labour to be able to move countries but also be skilled in not just one, but two jobs is crucial for EU businesses, especially in the UK as they hire a lot of migrant workers showing the ability for labour mobility and the market to be utilised to its full potential. The significance of the findings in this essay are un-paralleled as seen with the graphs outlining how the UK uses labour but also how labour mobility needs to improve as there several countries such as Greece for example which is quite high in unemployment rates and how several countries can utilize this to increase labour mobility therefore helping with the flexible labour market. However, as important as labour mobility and labour market flexibility is to the EU there are problems arising. Brexit for example is a major stumbling block for labour for workers coming in and out of the UK as workers could be blocked wanting to come to the UK as barriers to entry could become very high but also for workers wanting to leave and seek work in the EU this might not be possible anymore.

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Whatever is said about the EU whether it is helpful or a hindrance it cannot be denied that the EU is massively beneficial for EU businesses and especially with the use of labour mobility and labour market flexibility so, however the EU turns out in the coming years the use of the EU and also the use of labour for the EU will change considerably.

References;

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