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New ILO study: Labour markets less
volatile than generally assumed
Is a fair degree of stability in the labour markets the prescription for sustained development? The situation in the industrialized countries today might suggest that. Those countries labour markets are changing, from a high degree of flexibility, or movement, to stability and longer-term employment - a sharp contrast with less developed labour markets. In this analysis, Peter Auer and Sandrine Cazes of the ILO's Employment and Strategy Department discuss whether development and longer term employment relationship go hand in hand.
According to many observers, job stability has reportedly gone, never to return. Workers are told to prepare for a flexible labour market and frequent job changing. The labour market of the future is portrayed as offering mainly short-term and unstable jobs, of both high and low quality in terms of wages, skills and working conditions. A recent ILO study * is in stark contrast to this image as it holds that job stability is surprisingly resistant to change: Over the last decade, average employment tenure has either increased or remained stable in major industrialized countries.
In 1998, on average, over 60 per cent of all employed persons in Europe remained in their jobs for more than 5 years. About 40 per cent held their jobs for more than 10 years.
These percentages are about the same as those for the early 1990s, with one notable difference. The proportion of those with longer tenure (+10 and +20) has increased. It is true, however, that this proportion is much lower in the United States (with about 25 per cent of employed persons holding jobs for more than 10 years). Also average tenure is much lower in the United States than in Europe, it also proved to be relatively stable over time.
Gender gap in job stability
There has been little change for men and an increase for women, resulting in a general stability or slight increase of average tenure in almost all countries under review, except for Finland, Greece and Ireland. In Germany average tenure decreased, probably because of mass lay-offs following reunification, but it has since increased.
Indeed, the patterns tend to differ between men and women. In almost all European countries, average tenure for women employees is shorter than for men (except Portugal, and also the Scandinavian countries, where it is about the same) but generally, female employment tenure has been increasing. This reflects the changing career patterns of women, notably women's increased participation rates and their increased access to more qualified jobs, which generates longer careers and a trend towards stabilization of jobs, even if they are sometimes part time.
The empirical analysis of the secular evolution of employment tenure has very often focused on male tenure, as it is likely to be less influenced by such changes. However, average tenure for men has remained broadly stable in most European countries, in some countries (e.g. France) it has even increased.
In Ireland, the fall in average job tenure for both sexes, but especially for men, is considerable: tenure has been decreasing since 1993. As this fall is in parallel with strong job creation, the fall is most probably due to the fact that if many newcomers with per definition low tenure join the labour market, average tenure is supposed to fall.
Young people markedly disadvantaged
Average tenure in any given economy is highly dependent on the demographic structure of the working population: young people have markedly lower tenure. Controlling for the age composition has revealed some changes in tenure for young workers, meaning that those who already had the most flexible employment relationships seem to have seen a further decrease in employment tenure.
The decrease in youth employment tenure points not so much to generally destabilized labour markets, but rather to segmented labour markets in which long-term and short-term jobs are concentrated among different groups. In order to assess the labour market vulnerability of young workers, one has to further analyse whether the transition phase to regular employment is only prolonged or whether young workers are trapped in temporary jobs with little chance of access to regular jobs.
Labour market stability and labour market institutions
The above indicates that labour markets of most industrialized countries are showing an unexpectedly large core of stable jobs, with different forms of flexible employment organized around this core.
In these countries, labour market stability seems to be supported by labour market institutions. Thus, workers' and employers' organizations and their ongoing dialogue, employment security regulation, social protection and the fundamental rights of workers all play a role in stabilizing the employment relationship. There is therefore also a positive relationship between decent work - which includes all of the above - and employment stability.
Job stability is not equivalent to job security
There was a much-publicized increase in the perception of job insecurity up to the mid-1990s because of recurrent mass lay-offs, which were widely reported in the media and which also affected those hitherto protected - the more qualified white-collar workers.
Other factors contributed to the heightened perception of job insecurity: the increasing flexibility for young workers and the rise in temporary jobs - which often are now the main entry-point into more stable employment. However, some of these more stable jobs (i.e. those with a tenure of at least 5 years) might also translate to undesired and effectively rather unstable jobs (e.g. long-term involuntary part-time jobs and recurrent temporary jobs). Nevertheless, claims that the longer-term employment relationship belongs to the past are contradicted by the apparent stability of labour markets in the industrialized world.
Stability is not equivalent to rigidity either. Stable employment relations in today's globally competitive business environment call for frequent changes in work organization, in working time schedules, in job assignments: thus there is some trade-off between internal and external flexibility. And even relatively stable labour markets show a degree of numerical flexibility because of attrition, lay-offs, retirements, temporary contracts.
Efficient firms - and an efficient public sector - operate in fact with all kinds of flexibility: external, numerical flexibility and internal, functional flexibility through changes in work organization. But in most among the efficient firms flexibility is marginal and core stability remains the dominant pattern.
Table 2: Employment tenure by age and gender (16 country average in years) 1998
| Age | Average tenure |
| 15-24 | 1.9 |
| 25-44 | 7.9 |
| 45 or older | 17.8 |
| all | 10.5 |
| women | 9.4 |
| men | 11.2 |
Social protection and stable employment
These findings have at least two consequences for employment and social policy in industrialized countries and should also inform policy makers in the transition and developing countries. All attempts to radically change social protection in ways that suggest that the link between employment and social protection has to be loosened because the long-term employment relationship is vanishing, are premature.
Longer-term employment remains the basis for most people's income in the industrialized countries. It remains an important tax base for social protection and the basis for eligibility for most social protection schemes, notably unemployment insurance. Also many of the other basic social protection rights, such as sickness insurance and retirement benefits, are usually based on stable employment.
Developed countries
This does not imply that the present systems in the industrialized countries should not be reformed. There should be improvements, for example:
• ensure the transition of those in unstable jobs into stable jobs,
• protect those in unstable jobs better,
• give access to active labour market policies for first-time entrants into the labour market,
• Shift part of taxes on labour to general taxes (still paid on labour - and capital-income but not directly impacting on non-wage labour costs),
• create several pillars in the retirement system and increase portability.
But, if employment is to be at the centre of decent work - to the same extent as it is at the core of the EU's and the OECD's Employment Strategies - promotion of employment should stand in the forefront. This might also mean that rights to social protection that are unconditional on - former or present - work should be used cautiously and in any case not be generalized.
Instead, all policy alternatives that favour employment creation (with such employment giving access to social rights) should be used. Such welfare-to-work policies must be based on decent employment policies and should not lead to restrictive policies of workfare, that push people off welfare into undesired jobs.
Transition and developing countries
The second implication refers specifically to transition countries and developing countries. Leaving aside the special case of the United States - but to a smaller degree even there - labour markets in most highly developed countries are characterized by a large share of stable jobs and a smaller share of flexible jobs. That said, why then should the low road of maximal labour market flexibility be the only road out of underdevelopment, unemployment and poverty?
The high road to development is far more likely to be a specific combination of stable jobs and flexible jobs. This calls up the next question, What are the appropriate institutions and regulations for stabilizing employment? All developed countries have - to different degrees - such stabilizing labour market institutions: employment protection rules such dismissal protection prescribing lay-off procedures (e.g. seniority rules), unemployment protection systems and labour exchanges, education and training, the social dialogue, etc.
Combining flexibility and stability
Various combinations of flexibility and stability are possible. No thorough analysis has yet been made to arrive at the most suitable combination, one reason being that countries (but also sectors and firms) differ. There is no one-size-fits-all solution.
However, good practice examples of how to provide flexibility and stability exist. Their combination depends largely on the interrelationship between employment and social protection: if there is easy access to income protection and employability measures such as training, then there is less need for employment protection at the enterprise level. In its absence, security is better provided by firms, which then need more employment stability and internal flexibility to cope with changes.
However, the principle which should guide both further research and policy advising is clear: there is much more employment stability than generally assumed in the industrialized countries and there are good reasons from both the supply and the demand side of the labour market that this is so. Workers' commitment to employers and employers' commitment to workers underpin high levels of development and are apparently still needed in a time of continuous change.
* Auer, Peter and Cazes, Sandrine (2000): The resilience of the long-term employment relationship: Evidence from the industrialized countries. In: International Labour Review, Vol. 139, No. 4.
Auer, Peter, Cazes, Sandrine and Vicenco Spiezia (forthcoming): "Has job stability decreased in industrialized countries?", Employment paper, ILO.