The flexible firm model

The concept of the ‘flexible firm’ was originated by Atkinson (1984) who claimed that there is a growing trend for firms to seek various forms of structural and operational flexibility. The three kinds of flexibility areas follow:

1. Functional flexibility is sought so that employees can be redeployed quickly and smoothly between activities and tasks. Functional flexibility may require multiskilling – craft workers who possess and can apply a number of skills covering, for example, both mechanical and electrical engineering, or manufacturing and maintenance activities.
2. Numerical flexibility is sought so that the number of employees can be quickly and easily increased or decreased in line with even short-term changes in the level of demand for labour.
   This refers to a firm’s ability to adjust the level of labour inputs to meet fluctuations in outputs. There is increased use of part-timers, temporary, short-term contract staff, job sharers and agency workers. There is a contrast between ‘core’ permanent workforce and ‘peripheral’ non-permanent. The general idea is that an increasing mixture of non-standard employment forms will be more efficient and cheaper.
3. Financial flexibility provides for pay levels to reflect the state of supply and demand in the external labour market and also means the use of flexible pay systems that facilitate either functional or numerical flexibility.
   This refers to achievement of flexibility through the pay and reward structure.

These flexibilities are achieved through a division of employees into:
• Core workforce: The core group is composed of high-skill and high-pay workers recruited from the primary labour market. These workers are expected to deliver functional flexibility. Core group workers have brighter career and promotion prospects and they usually are provided with comprehensive training and development.
• Peripheral workforce: The peripheral group consists of two-types of group. The first group consists of generic-skill (e.g.: word processing) workers recruited from external labour market. The second group consists of workers recruited as required on variety of contracts (e.g.: Government trainees, job sharers, sub-contract labour, temps etc.). This group workers have low job security.

Flexible labour markets involve a minimum of government intervention, they are labour markets which work efficiently and are competitive. Many supply side economists argue flexible labour markets are of great importance in reducing unemployment and improving the competitiveness of the economy.
Advantages:
1. Opportunity to exploit 24-hour economy
2. Contributes to an improvement in the inflation-unemployment trade off
3. Flexible wages and flexible employment helps to ensure that markets clear rapidly eliminating             any excess supply or demand, so economies automatically move into long run equilibrium at               potential output.
4. Higher productivity growth in the long run (which then helps to improve competitiveness)
5. Flexible employment suits more flexible life-styles
6. Stronger employment creation during an economic upturn
7. Flexibility makes the economy more attractive to inward investment
8. The economy can respond more flexibly to an external economic shock – because wages and               employment are more flexible
9. Increases Labour Participation Rates: Flexible labour markets can be beneficial for workers. This is because it gives them more options of, when and where to work. This is particularly helpful for women with young children, for example, they can work part time and still look after their children. However, although flexible labour markets have created work in the part-time, service sector, there has been less success in creating permanent, full time jobs.

10. Flexible labour markets help to reduce costs for firms; for example, workers can be employed when they are needed. It is not necessary to pay for workers who are not productive. This will help attract inward investment. It is argued one reason, for higher unemployment in France is that there are costs in hiring and firing workers, this reduces the incentive for firms to expand.

Disadvantages:
     Reduces Wage Price Spirals
If workers have too much market power they can bargain for higher wages, this can lead to inflation.

Rising inequalities
 There are concerns about a lack of training for workers on short term contracts which has a long term effect on their ability to regain employment if they lose their jobs.

 Shorter term contracts might lead to job insecurity – for some people, the concept of “job security” is being gradually replaced by the concept of “employability”. Frequent job changes for workers can be unsettling for them and for their families.

 Shorter term employment contacts and eligibility for occupational pensions may lead to increased pensioner poverty in the long run, many people on short term contracts do not enter into any occupational pension.

 Longer term social implications of labour market flexibility – the “24 hours per day” work culture and the possible effects on family life.

 Income uncertainties - as the balance of risk in the workplace shifts from the employer to the employee