Labor Market Flexibility

Written By
Paul Tracy
Updated November 4, 2020

What is Labor Market Flexibility?

Labor market flexibility is the degree to which a company is able to modify its labor force to maximize productivity.

How Does Labor Market Flexibility Work?

A company is constantly adjusting its labor force via variables like staff size, total productive hours, and wages. Labor market flexibility is the range within which a company can increase or decrease these variables. 

A company is constrained in its labor market flexibility by external controls -- including minimum wage requirements, regulations on employee work hours and laws governing employee hiring and firing. A company's level of labor market flexibility is inversely correlated with the stringency of external labor controls. For example, companies in states with strict labor laws have low labor market flexibility.

Why Does Labor Market Flexibility Matter?

Proponents of labor deregulation suggest that high labor market flexibility promotes long-term productivity, higher wages and lower levels of unemployment. By contrast, proponents of labor regulation suggest that low labor market flexibility protects members of the labor force from exploitation by employers.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Labor Market Flexibility.
Be the first to ask a question

If you have a question about Labor Market Flexibility, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Labor Market Flexibility, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Labor Market Flexibility

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms