Additionally, through assessing the importance of such factors it is pivotal that an accurate judgment is made in terms of how they have differed in order to adapt to changing market conditions or the introduction of new legislation such as the introduction of the Single European Market in 1993. The main theme of the essay will be to discuss and apply the importance of both labour market flexibility and labour mobility within European Business and to present any potential improvements that could be made within the current infrastructure of the EU. In order for any market to achieve the macro-economic objectives that have been set labour market flexibility has to be at the forefront in terms of its importance. How flexible labour is within a given market has a profound impact on a plethora of elements within a market that has the capability to derail performance entirely.
Labour market flexibility occurs as a result of a number of factors which include the mobility of labour, the extent of labour migration as well as barriers to entry and exit. Labour market flexibility is present in both the short and long-term with labour markets having to adjust to differing demands accordingly. In the short term, the demand for labour adjusts to changes in national income and the business cycle. 2 The demand for labour adjusts accordingly to any potential fluctuation in national income; failure to do so will result in a surplus of products and therefore production to halt. For example, predicted figures for the impact Brexit will have on national income within the UK show national income may fall by as much as 2.6%. 3 This being said it is predicted that with rising trade costs this figure may rise to an astounding 9.5% of national income.
A loss of a potential 9.5% of national income will have a dire effect on the economy and is a perfect example of when a countries labour market flexibility is put to the test. Labour market flexibility will be tested in a scenario such as post-Brexit as it raises questions such as how will companies react to a potential loss of sales and therefore a decrease in production levels. Issues will arise within any country regarding how flexible the labour market is should a drastic change such as Brexit take place. A loss of free trade is a major issue however it does also raise issues surrounding the extent to which labour migration can take place which will again pose issues for the labour market flexibility within the UK and the entire of the EU. Migrant labourers from the EU make up more than 30% of all workers in the manufacture of food products as well as almost a quarter of domestic personnel such as carers come from the EU. 4 Should the proposed plans for Brexit go ahead labour market flexibility will take an increasingly important role for the UK.
EU migrants, as stated, make up a high percentage of labour intensive occupations, thus should migration into the UK from EU countries be stopped, or the current migrants who are currently working within the UK are forced to leave, thousands of workforces within the UK could face serious shortages in staff. Furthermore, the importance of maintaining flexible labour markets within an economy is clearly represented when assessing UK unemployment figures as well as wage growth since the recession of 2009. Unemployment within the UK had almost halved as of 2014 as well as flexible labour markets helping to stagnate wage growth. 5 The ease at which employers can attract workers to carry out jobs that require less training in fields such as manual labour has, without doubt, contributed to the steady decrease in unemployment, a clear benefit of having flexible labour markets.
However, in contrast, it is important to analyse the long-term impacts of a flexible labour market and whether the characteristics are helping to create an economy that is improving consistently or whether the characteristics of flexible labour markets only act to stabilise the issues from a short-term viewpoint. Flexible labour markets do act to stabilise an economy that may be faltering due to any number of reasons, however, there are clear examples where an issue within a given economy has been rectified for a period of time rather than eradicating the issues entirely. In Ireland between 2000-2007 migrant workers accounted for around 10% of the Irish labour force with 215,400 economically active persons out of 2,178,100 being non-Irish internationals. As of 2006 records show that employment in Ireland grew by 83,000 or 4.2% with non-Irish nationals ‘tentatively estimated to account for 48.5% of the growth’. 6 With an employment growth of 48.5% in 2006 it should be safe to assume that the implementation of a flexible labour market will allow for an increase in demand for labour to be met with an influx of migrants that can adequately fill any gaps in the market.
With this said when looking at the situation in more detail it is apparent that the massive levels of growth were not sustained and if anything the dramatic growth has only exasperated issues within the Irish economy. The influx of migrants paired with foreign investment lead to a 300% rise in property prices, however after the recession the Irish housing market has now been left with an over 15% vacancy rate. 7 The example of Ireland represents a much wider argument that must be considered when attempting to understand the importance of labour market flexibility. Despite the mass progression made by Ireland during the period of 1980-2007 in particular, due to the freedom of movement within the EU allowing non-Ireland internationals to move to the country for employment thus allowing a period in which the country flourished due to endless job prospects and the possibility of a better life, the example of Ireland does represent a wider issue relating to just how important labour market flexibility is within European Business. The implementation and maintenance of a flexible labour market does allow for the economies of countries within the EU to flourish, however it does appear that the benefits of having a flexible labour market seem to be more of a short-term solution to issues that will impact European Business.
Labour market flexibility does have a role within maintaining an economy as well as contributing to European Business, and it is extremely important particularly within European Business due to the freedom of movement, however as can be seen with the issues in Ireland, a labour market being flexible does not always result in any issues within an economy being resolved. Labour mobility, on the other hand, refers to the movement of workers within an economy or between different economies. Labour mobility can be broken down into two primary forms of labour mobility; geographical and occupational. “Geographic mobility refers to a worker’s ability to work in a particular physical location, while occupational mobility refers to a worker’s ability to change job types.” 8 Additionally there are other forms of labour mobility within an economy such as personal and national labour mobility as well as horizontal and vertical labour mobility. The importance of labour mobility stretches beyond just the concept of foreign nationals within the EU being able to move freely to countries within the EU with better job prospects, the importance and success of flexible labour markets are reliant upon a number of factors that will result in a positive effect on European Business. The factors that determine whether a labour force will be mobile include the implementation and continuity of successful education and training, effective transport links and means of communication as well as the correct advertisement of jobs.
In order to assess the importance of labour mobility, it is important to attempt to judge the importance of both less developed countries as well as the more developed countries such as the UK and Germany. In less developed countries such as Poland, it is essential that for labour mobility to be successful any potential opportunities for work in more developed countries must be advertised correctly in order for the intended to be made aware of the potential opportunities. In contrast, education and training must be of high priority within more developed countries seeking foreign employees. For labour mobility to remain a key aspect of European Business it is essential that the cycle that foreign employees tend to take in terms of seeking employment in more developed countries, such as the UK and Germany, remains in place with remittances being paid and the experience of working in an improved environment taken home to the sender country.
The ease of which workers can move between different jobs within an economy or seek work in other locations such as different countries within the EU has a profound impact on the success of an economy. The introduction of the single European market which has allowed free movement for citizens residing in European countries has seen an increase in the need for labour in certain countries to be met by an influx of migrants. The freedom of movement between EU countries has allowed for a major increase in the number of migrants flocking from countries with poorer opportunities, such as Poland, Lithuania, and Romania towards the UK for example due to a higher demand for workers in fields such as manufacturing. To put into perspective the number of Polish nationals moving into the UK has risen to 703,050 as of 2015.
The receiving countries within the EU such as Germany and the UK benefit from the implementation of free movement within the EU, however when considering the importance of labour mobility it is essential to look at how freedom of movement will have an impact on the sending countries. The biggest effects on sending countries are estimated to be in Bulgaria, Romania, and Lithuania, “where the potential level of output may be permanently reduced by 5-10 percent as a result of the population shifts”. 10 The freedom of movement of workers from state to state within the EU is massively beneficial for the receiving country, however, as can be seen by the 5-10% reduction in output levels in the sending country can take a big hit through the loss of its skilled labourers. This being said, the EU has attempted to address the hit the sending countries will take in losing its skilled labourers. Firstly, the use of remittances means the sender country will take a substantially less financial hit than first feared. Remittances come in the form of a transfer of money from a worker who is employed in a foreign country back home to a family member or friend.
The use of remittances, particularly since the implementation of the freedom of movement within the EU, has allowed for countries such as Poland to not take as substantial as a financial hit as they may have should remittances not be as popular as they are today. Secondly, although it may seem initially that the sender country is losing members of the economy who can contribute financially, which admittedly they are, it is becoming more and more common for workers seeking employment abroad to move for a temporary period of time, rather than settling permanently in the receiving country. For example in 2012, 136,000 people who settled in Poland and around 156,000 people who settled in Romania were nationals of the given countries who were returning from working abroad. 11 This particular figure is extremely important. As stated it is widely presumed that with skilled labourers leaving the concept of labour mobility is only beneficial to more developed states with better job opportunities such as the UK and Germany.
However as can be seen when assessing the figures and the implementation of remittances, the loss of skilled labourers is generally beneficial for all parties involved. Workers pay remittances to individuals who remain in the return to their home country with newly acquired skills that can be used within workplaces or to potentially advise employers more efficient ways of completing tasks. In conclusion, after considering the themes discussed throughout the essay, it is evident that both labour market flexibility and labour mobility are both extremely important within European Business. The benefits of having a flexible labour market can allow for a country/economy to stabilise and begin to flourish under the correct circumstances. The example of the potential ramifications of Brexit for example on the economy in the UK, due to the concept that the labour market will become less flexible due to leaving the EU, shows how the loss of flexible labour markets will inherently hinder the economy through the loss of labourers from other states within the EU.
Additionally, when assessing Ireland it becomes more evident that the use of flexible labour markets can only help to progress an economy, but should an economy encounter any instabilities, such as the recession of 2007, any weaknesses that may be apparent may still result in the fast decline of a countries economic situation. Whereas in comparison the importance of labour mobility is hard to argue. Despite differing opinions, it becomes clear through research that labour mobility benefits all states within the EU and can act to consistently improve an economy. Through the movement of skilled labourers from less developed countries to countries that can offer better opportunities in terms of employment and therefore the potential to earn a more comfortable living, the receiving country benefits due to gaps in the market being filled, whilst the sender country benefits through the return of remittances and a more skilled labourer in the long term. It is evident that both are incredibly important to European business and the development of a progressing economy, however the example of Ireland and the economic crisis they have faced after the 2007 recession it becomes clear that it is more of a short-term fix to issues that states within the EU may face or issues they may face in an ever-changing business environment.
