Institutions and labour flexibility: a psychological approach

By Guglielmo Forges Davanzati, Sergio Salvatore

PKES Working Paper 1203

March 2012
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It is a widespread view that labour flexibility increases labour productivity. The rationale for this argument lies in the fact that labour flexibility, in the form of high job insecurity, acts as a “discipline device” and as a result provides workers with an incentive to give firms their maximum effort in order to minimize the probability of being fired. By contrast, Institutional economists argue that job insecurity generates lower labour productivity, since it has a negative effect on worker morale. Following this line of thought, and on the basis of evidence, the following question will be addressed: why do workers react to the increase in job insecurity by reducing their intensity of work? The answer provided is based on a psychological framework, where individuals choose in a 3- dimension space. One dimension concerns the symbolic scenario defining the object and the parameter of value (model of value); one the level of identification with this scenario (salience), that is variable through time and space and persons; and the third concerns the value associated with the object (relevance).

Keywords: Institutionalism, decision theory, labour flexibility

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