Flexibility, Quality and Competitiveness

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The focus of this article is the interrelationship between the three desiderata of flexibility, quality and competitiveness in the context of the labour market. As with most hallelujah words, those who chant them may not necessarily mean the same thing. Therefore, section I is concerned with establishing definitions. Section 2 briefly considers in what senses the labour market has become more flexible. Section 3 discusses the quality of British goods and services, whilst section 4 asks in which ways greater flexibility can affect quality and competitiveness. Our conclusions are presented in section 5.

1. Definitions

Flexibility has acquired many meanings in contemporary discussion of the economy in general and of the labour market in particular. Usage has included terms such as the 'flexible labour market' where non full-time and non permanent forms of employment are encouraged and/or enabled; the 'flexible worker' who is able to cope with rapid changes in the labour market and diminished job security via upskilling and career changes; systems of production that embody 'flexible specialisation' under which goods and services are tailor-made and customised rather than mass produced; the 'flexible/networked/virtual organisation' which utilises new forms of spatial organisation and technology to re-structure work via devices such as call centres, teleworking and computer networking; 'flexible production' such as the use of multi-skilling, production cells and teams; and the 'flexible firm', which may embody one or several of the above approaches. This array of different interpretations of the concept of flexibility produces significant dangers of terminological overlap and confusion, particularly within international policy debates, where the terms are sometimes used as though they were interchangeable.

In this article, we will be following a fourfold definition of employment flexibility (Kessler, 1998)

* functional

* financial

* temporal

* numerical.

Functional describes the ease with which employees can be switched between different tasks and jobs within the firm. Financial relates to decreasing commitment to fixed pay and pay-related costs. At the extreme it describes the ease with which employers can vary the general level of pay within their firms. It also involves the use of various methods of payment which have the advantage not only of calibrating current labour costs to the environmental and internal conditions faced by the firm, but of avoiding the consolidation of high costs incurred in good times into pay or pension commitments in the future. Annual bonuses and some forms of merit pay fall into this category. Temporal refers, for example, to employers acquiring greater flexibility in the length of the paid working week as well as to the timing of work during the week, and includes devices such as variable hours or zero hours contracts and arguably the use of part-time workers. Numerical involves reducing the proportion of the workforce to whom employers have long-term commitments. In this category are included: the contracting out to other companies of functions previously performed by in-house labour; the use of temporary workers; the use of limited term employment contracts. The ease with which workers in general can be sacked is also of relevance here. These are microeconomic definitions. Macroeconomists have thought in terms of flexibility as indicated by the behaviour of certain aggregate variables. In particular they have been concerned with the flexibility of nominal wages in the face of nominal shocks and the flexibility of real wages with respect to real shocks. Ultimately their concern has been with the inflation/unemployment nexus.

We also need to state clearly what we mean by quality. Quality has two dimensions. First the specification of a good or service, and second how well its producer actually delivers to that specification. …