Labour market flexibility and workers’ living conditions in Europe

Abstract

Labour market flexibility is one of the main pillars of the European policy framework, as it is perceived as an instrument to promote growth with positive spillover effects on the workers’ income. The aim of this article is to investigate the effect of competition in the labour market on workers’ living conditions from a macroeconomic perspective. An empirical dynamic panel co-integration technique connecting indicators of workers’ poverty to an index of ‘labour flexibility’ is applied to 15 European Union countries. The results suggest that higher flexibility of the labour market is correlated, in the long run, with a higher number of workers living in poverty, considered in both relative and absolute terms. When examining the population as a whole, these results seem to be amplified, suggesting that the strategy of pressure on the labour market could be detrimental not only for workers but also for general living conditions.