Economic and Labour Market Analysis Department (EMP/ELM)

In a globalized world, where competition has intensified, labour markets work best when there is an institutional environment that allows adjustment flexibility for firms while ensuring income, social and employability protection for workers. While one notices –in the developed world- the maintenance of employment protection rights and therefore also employment stability at the core of the employment system, a certain shift towards more flexible forms of employment and from employment protection at the company level towards social protection on a more collective level is noticeable. In fact there seem to be trade-offs between employment and social protection and this calls for an extended bargaining agenda of the social partners including employment protection and labour market policies.

These results imply that developing countries –operating very often in unstable environments that impair development- have to find ways to stabilize and gradually formalise, rather than to flexibilize, destabilise and informalize their labour markets further in order to climb higher up the development ladder. Labour market stabilization –that fulfils productivity targets- implies the introduction of labour standards and labour market institutions. Without such an institutional support, productive and more stable and secure employment relationship for many would historically not have been possible in developed countries. It is the embeddedness of private and public sector employment in a network of labour market institutions such as unemployment benefit, re-employment services and training schemes, which is a condition for the management of change as stipulated in the global employment agenda. This institutional embeddedness of employment is also a condition for decent work that can hardly be created by the private sector without the support of labour market institutions.

For the transition countries of central and eastern Europe a general conclusion would be that there is now a need for finding a new balance between labour market flexibility and job stability and security, through much higher investment in human resources and the use of functional flexibility (internal adjustment) rather than numerical flexibility (external adjustment) in enterprises. Also, institutional assistance and labour market policy need to be much strengthened in order to help people (jobseekers and workers threatened by unemployment) improve their employability and find new decent jobs or create their own business as quickly as possible.

The analytical work on these labour market items in OECD and transition countries will continue. The terms of the trade-off and its policy implications have to be assessed, especially for advising the ILO constituents. However, much more attention will be given to the analysis of the formal and informal labour market in developing/emerging countries. Specifically, the applicability of labour market policies with the double aim of flexibility/security to underpin the management of change will be tested in several countries. This will be in line with the global employment agenda. A few case studies will concentrate in this biennium on developing and emerging countries such as Turkey, China, Egypt, Namibia and Mexico.