Laziness Or Liberation? Labor Market Policies and Workers’ Attitudes Towards Flexibility

This paper examines the relationship between labor market policies (dismissal protection and unemployment benefits) and workers' willingness to be flexible (e.g., accept lower pay or learn new skills) in order to remain gainfully employed. Drawing on the policy feedback literature, we argue that these policies not only influence actual labor market dynamics but also affect employees' attitudes and that attitudinal flexibility is a key precondition for the efficient functioning of labor markets. In contrast to economists who have examined the direct effects of policies on employment outcomes with mixed results, we thus focus on the indirect effects of labor market policies on attitudes related to labor market behavior. Using multilevel modeling techniques, we analyze individual level data collected by the International Social Survey Program (ISSP) in 2005 in combination with country level information from the Organization for Cooperation and Economic Development (OECD). The main findings of this paper are: First, employment regulation and unemployment benefits indeed make a difference in employees' willingness to be flexible; and second that the relationships between the strength of dismissal protection and the generosity of unemployment benefits on one hand and employees' attitudes towards employment flexibility on the other are non-linear. Substantively, this strongly suggests that there can be either too little or too much social protection. We ascribe our findings to different sources of work motivation. Extrinsic motivations, such as financial incentives, seem to be equally important for attitudes towards flexibility as intrinsic motivations that can only be developed if a minimum level of job security exists