Testing the Flexibility Paradigm:
Canadian Labor Market Performance
in International Context
The paradigm of “labor market flexibility” has exerted a decisive influence on labor market policy making in the developed industrial economies in recent years. This paradigm rests on the central notion that competitive labor market forces will generally attain the most efficient match between labor supply and labor demand, and hence a lower rate of long-run structural or “equilibrium” unemployment. Government interventions aimed at enforcing particular labor market outcomes (such as minimum wages, unemployment insurance programs, collective bargaining structures, and other employee protections) tend to disrupt these competitive market forces, limit the “options” of labor market participants, and produce a less flexible, adaptive, and efficient labor market, marked in particular by higher rates of unemployment in the long run. The OECD Jobs Study (OECD 1994) provided the classic statement of this flexibility paradigm, and following its release member governments were entreated to adopt procompetitive policy reforms. Coincident with the rise of the flexibility paradigm was a widespread de-emphasis on the role of aggregate demand conditions in explaining unemployment and other negative labor market outcomes and a corresponding downgrading of the importance of macroeconomic policy as a means of reducing long-run unemployment.
As a result of the intellectual and policy dominance of this view—the OECD-IMF orthodoxy—most recent international comparisons of labor market structures and performance have tended to be conducted through a “flexibility lens.” The typical depiction of Canada's labor market in an