Employment Flexibility Index 2020: Policymakers Reluctant to Respond to Market Needs


For the third year in a row, the Lithuanian Free Market Institute and its partner organizations present the Employment Flexibility Index 2020 that ranks a total of 41 countries that are members of the European Union (EU) or the Organization for Economic Cooperation and Development (OECD).

The Index shows that the US, Japan, New Zealand, the UK, Canada, and Ireland provide the highest degree of freedom to negotiate with employers. France, Luxembourg and Mexico rank the lowest in terms of the flexibility of employing people.

Employment Flexibility Index 2020 also suggests that policymakers are reluctant to respond to evolving market needs as the analysis of the Index data shows little to no change in national regulations for the last year.

Yet, the countries in the lead which enjoy relatively flexible labor markets continue to strive to reap the benefits of flexibility, while those below the average seem to stagnate in terms of labor market liberalization. This only widens the already looming differences in the level of state intervention in the labor markets.

Due to technological and demographic changes the European labor market is becoming more dynamic and diverse. A growing need for more flexibility is evident: worker mobility is increasing, as is the ability to choose jobs that match workers’ skills and interests.

Importantly, growing economic and geopolitical tensions are posing a risk to the global economy, leading to a slowdown in economic growth. Greater flexibility in employment relations would enable market players to adapt to those changes more efficiently.

“The top countries are diverse in the sense of their legal systems, yet there are similar in terms of employment flexibility. For example, those countries have the most flexibility in regulating fixed-term contracts, premium rates for non-standard working hours, and in negotiating overtime, night work and rest days.

In order to ensure greater flexibility and attractiveness to both local and foreign investments policymakers in the countries with lower rankings could consider revising regulations,” – says Karolina Mickutė, the Index lead researcher at the Lithuanian Free Market Institute.

The study thus suggests that changes in the labor markets are happening faster than legislature is able to reflect.

“Forms of employment are changing and workers are becoming more mobile. As the European Commission observes, this creates a need for more flexibility of regulations. Labor laws must not get stuck in times of an economic slowdown. Flexibility becomes particularly important. Unfortunately, extremely rigid regulations are justified on the ground of worker protection but these can have the opposite effect of reducing economic competitiveness and investments.

If we want more jobs, higher salaries, better working conditions and more bargaining power for employees, we need investments and business,” – Edita Maslauskaitė, Interim President of the Lithuanian Free Market Institute, notes.

Employment Flexibility Index 2020 is produced in collaboration with independent think-tanks in Bulgaria, the Czech Republic, Estonia, Poland, and Slovakia based on the World Bank methodology and data from 2019.

Countries are ranked by way of comparing hiring and working time regulations, redundancy rules and redundancy costs.

The full Employment Flexibility Index 2020 may be found here.

This project is generously supported with a grant from the Rising Tide Foundation