Flexibility Paradigm and Restructuring of Labor Markets in Developed Market Economies

Developed market economies collectively experienced yet another crisis in the 1980's, like the Great Depression of 1930s, known as stagflation. Economists believed that this crisis has emerged due to the rigidities in the supply side that have been created by the regulations and institutions to avoid reoccurrence of recession. Therefore, they suggested the restructuring of the economy by removing all regulations and institutional constraints through policy reforms. It has been argued in this paper that in the developed market economies, the technology of mass-production which developed symbiotic existence with the policies of mass-consumption (higher aggregate demand) has created the supply side rigidities. The removal of these rigidities requires restructuring at the enterprise level. Policy reforms provide only necessary conditions for bringing about micro-level restructuring but do not provide sufficient conditions. Wherever, policy reforms provided enough incentive for the restructuring at the enterprise level, those economies were able to overcome the crisis earlier than the others. This according to the author, explains the diversity in the impact of policy reforms on the performance of different developed market economies.