Defining the issue

The concept of ‘employment security’ has several dimensions. In the Ameri­can debate, commentators commonly speak of job security, which - in a strict sense - refers to a worker’s probability of keeping a particular job with a particular employer, including the specific work tasks, skill requirements, compensation and non-wage attributes (such as seniority entitlements) of that particular job.

Employment security, by contrast, is a broader concept and has both a macroeconomic and a microeconomic dimension. Macroeconomic employ­ment security relates to the availability of employment opportunities in the economy as a whole and could be defined as a worker’s probability of staying in employment or finding new employment as long as he or she wishes to participate in the labour force. The degree of macroeconomic employment security is primarily dependent on the overall state of the economy and is influenced by macroeconomic policies and only very indirectly by labour legislation. Microeconomic employment security refers to the worker’s prob­ability of not being unjustly or arbitrarily dismissed by the employer and thereby relates to a continuing employment relationship with a particular firm (rather than to a particular job within that firm). Unlike ‘job security’, microeconomic employment security may involve (and in fact often depends upon) the possibility of internal job reassignments as well as changes in work tasks, working conditions and compensation.

It is evident that these different dimensions of employment security are closely interrelated and highly interdependent: in a stable economic environ­ment of economic growth and tight labour markets (as characterized the period of the 1960s and early 1970s, when most employment security regula­tions in European countries were enacted), the provision of microeconomic employment security involves low costs for firms and few benefits for work­ers since, in the case of a job termination, alternative employment can easily be found.

A further important distinction in this context is the one between ‘institu­tional’ and ‘de facto^, employment security. The latter term is commonly used to describe empirical findings that, even in the absence of legal or collectively negotiated dismissal and lay-off restraints, many workers enjoy a high degree of factual employment security involving long-term employment relation­ships extending through variable states of the economy. De facto employment security thus refers to the fact that both firms and workers may have purely economic motives for continuing employment relationships over longer periods (without any externally imposed constraint). From mere de facto employment security (which may be better termed ‘employment stability’, since it does not preclude individual workers - at any point in time - from facing insecurity as to the further continuation of their employment relation­ship), we distinguish institutional employment security through explicit or implicit (though enforceable) rules and provisions imposing restraints on firms’ ability to dismiss workers ‘at will’. Such restraints may be ‘endog­enous’, that is, the outcome of unconstrained ‘efficient’ contracting between firms and workers (or their representatives) or ‘exogenous’, that is, imposed by law or collective agreements, as in most European countries and large parts of the US public sector.

Finally, it should be noted that in most cases institutional employment security does not mean absolute security against job loss in the sense of guaranteed employment.³ In modern market economies, employment secu­rity, for the vast majority of workers, can only mean security from unjustified or arbitrary employment terminations.⁴ That is, employment terminations are tied to certain standards, rules and procedures, the concretization and ‘strict­ness’ of which tend to vary across different groups of workers, from situation to situation, as well as from country to country. Consequently, employment security regimes must be viewed as a continuum rather than as a fixed point, ranging from legal pre-notification requirements, seniority rules for lay-offs and basic ‘fairness’ criteria for disciplinary dismissals all the way to compre­hensive systems involving judicially enforced ‘just cause’ requirements, mandatory consultations with worker representatives and public authoriz­ation procedures. From an analytical perspective, the need for policy interventions in this area essentially hinges on two questions: first, whether, from the viewpoint of maximizing individual and collective welfare, the nature of modern labour markets and modern employment relationships re­quires special arrangements regarding the conditions and terms of employment terminations; and second, whether the definition and enforcement of such terms and conditions can be achieved more efficiently⁵ through public policy (legislation) than through mere private contracting by the individual labour market parties.