Although the European Union has clearly set its aim at flexicurity some analysts question the long-term positive effects of enhancing the labour market flexibility with the goal of creating more jobs. Kleinknecht and Naastepad (2005) argue that more flexible labour relations and reduction of wage-cost pressure resulted in high job growth on one side but on the other side gave negative incentives to labour productivity growth and innovation.
This can be explained as follows: successful organizational learning and accumulation of knowledge require stable and longer lasting labour relations, which create trust, loyalty and commitment of personnel, which helps to prevent a firm’s technology being easily leaked to competitors. As empirical evidence the authors point out that in the Netherlands (which saw great labour market reforms in the 1980s and thereafter a significant job growth) the economic growth in the 1980s and 1990s has been highly labour-intensive (more hours had to be worked in the Netherlands to produce a GDP growth of 1%).
Since more jobs in this case were created at the expense of innovation and labour productivity growth, tha latter in turn slows down the modernization process which is the basis of long-term economic growth. These aspects should be taken into consideration when reforming the labour market and the right amount of flexibility should be found.