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Jerome's question "is the only kind of flexibility that matters that of firing people?" reminds me of a book published by the National Bureau of Economic Research (NBER), a US think tank, entitled Social Protection versus Economic Flexibility: Is There a Trade-Off?

The papers in this book call into question many of the points made in the FT piece. Some of the book's conclusions:

  • Little evidence that labor market flexibility is substantially affected by the presence of publicly-provided social protection programs such as employment protection, health insurance, pension benefits, unemployment benefits and income assistance, or childcare and maternity leave; nor is the speed of labor-market adjustment enhanced by limiting such programs.

  • There is more than one kind of flexibility: countries with extensive social protection systems find other ways to adjust to recessions. For example, compared to the US, Germany relies more heavily on adjusting hours of work rather than employment when faced with an economic downturn.

  • Social protection programs provide substantial benefits to workers. Any analysis of the effects of removing social protections must include the costs to workers of doing so, against any benefits in increased employment that might occur.
by TGeraghty on Thu Aug 11th, 2005 at 11:24:41 PM EST

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