IDEAS home Printed from https://ideas.repec.org/p/mcr/wpdief/wpaper00025.html
   My bibliography  Save this paper

Labour market flexibility and technological innovation or, desperately seeking a trade-off

Author

Listed:
  • Paolo Ramazzotti

    (University of Macerata)

Abstract

Lack of labour market flexibility has often been accounted for the low growth rates in the European Union. A recent report on ”An Agenda for a Growing Europe”, better known as the Sapir Report, discussed this issue and clearly stated the terms of the trade off between growth and lack of flexibility. The Report acknowledges that flexibility involves a range of social and economic drawbacks. Nonetheless it contends that ”At a time of very rapid change and a need to adjust both production and skills quickly, flexibility comes at a premium.”. In this paper I focus on a range of microeconomic issues, involving the conceptual plausibility of the claimed trade off and the implications that a policy based on such a trade off may have in terms of both growth and social welfare. I argue that the assumptions underlying the trade off are not clear because the notion of innovation in the Report is rather confused. Contrary to what the Report claims, flexibility turns out to be irrelevant for the innovation it purports. Flexibility might produce some effects but only with innovations that the Report neglects. I contend that the effects of flexibility may be to reduce innovation and the potential for growth. Truly, flexibility may allow firms to introduce new technology, but it may also lead firms away from innovation in so far as it allows them to pursue profit through other means, i.e. through cost scrapping. My final argument is that the notion of trade off that the Report refers to is misleading in that it in no way takes account of the social costs that flexibility would determine. I conclude my discussion by drawing a few implications for economic policy.

Suggested Citation

  • Paolo Ramazzotti, 2005. "Labour market flexibility and technological innovation or, desperately seeking a trade-off," Working Papers 25-2005, Macerata University, Department of Finance and Economic Sciences, revised Oct 2008.
  • Handle: RePEc:mcr:wpdief:wpaper00025
    as

    Download full text from publisher

    File URL: http://www.unimc.it/dief/wpaper/wpaper00025/filePaper
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcr:wpdief:wpaper00025. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvana Tartufoli) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/dimacit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.