In the context of globalisation and rapid technological progress, human resources and skills are becoming increasingly crucial to economic development. This is especially pressing in the aftermath of the global economic slowdown. Labour market agencies and institutions have the capacity to contribute significantly to returning localities to prosperity, but only if they adapt themselves to new priorities: helping workers to compete on the global market, and helping regions to move along the path towards a high-skills, high-productivity equilibrium.

Labour market policy is playing an ever important role in helping local economies to return to prosperity and build living standards in a global knowledge based economy. It is increasingly vital to help individuals to fulfil their potential in the labour market and to acquire the skills they need at various stages of their lifetime and in function of new economic opportunities that present themselves. And the demand for skills will need to be enhanced by helping enterprises to raise their productivity. These complex tasks require intensive action at the local level, in partnership with increasingly mobile enterprises and workers. On the ground, a range of government policies need to be co-ordinated and adapted to local conditions – above all, governments need to inject flexibility in the management of policies.

In order for labour market policy to contribute fully to competitiveness, inclusion and prosperity at the local level, flexibility is necessary in the management of policies and programmes. This chapter presents the results from research conducted in 25 OECD countries to evaluate the degree of flexibility available in the management of labour market policies and programmes at both the regional and local levels. Denmark, Switzerland, the United States, Finland and the Czech Republic present the highest degree of flexibility at the level of local labour markets (or “travel to work” areas), followed by Austria, New Zealand and Poland. In general, however, there is some way to go before offices at this level have an adequate level of flexibility to fully adapt employment policy to local needs and to priorities set in partnership with other local actors.

This chapter examines the relationship between flexibility in the management of labour market policy and employment outcomes. The flexibility index is related statistically to factors affecting employment rates at the country level and to employment rates directly. Directly and indirectly relating the flexibility index to employment rates provides insight into the various paths that flexibility may take in affecting labour market outcomes. The econometric analysis suggests that sub-regional flexibility is positively and statistically significantly related to employment rates in the countries surveyed. One explanation is that sub-regional flexibility leads to more responsive and customised active labour market programmes, which in turn direct more training resources to those who need it, resulting in a positive effect on employment rates.

Labour market policy is in most countries a national priority that requires national co-ordination. Its perceived importance and the financial volume of expenditure for labour market policy place limits on the degree of flexibility for regional or local actors that is politically acceptable. Moreover, potential conflicts of interest between local and national employment service actors are an important justification for centralised rules and regulations in labour market policy. Decentralised systems frequently face problems in performance accountability due in particular to the number of organisations involved and the lack of standardisation in labour market and performance data available. 

Successful co-ordination of workforce development and economic development programmes can help local areas better compete in a global economy by responding more effectively to the needs of workers and businesses, encouraging more innovative practices and entrepreneurship, promoting social cohesion, leveraging government resources by partnering with non-government organisations, and instilling more local ownership in local decision-making and strategic initiatives. However, the potential of horizontal co-ordination among local agencies and organisations has not yet been fully realised. More than a simple restructuring of government, rather it requires a cultural transformation among management, staff, and policy makers. This means greater attention to customers, the balance between accountability and flexibility, appropriate mechanisms and incentives, performancebased monitoring, strategic planning and goal setting, alignment, strong leadership, and trust among partners.

The skills and employability of the local labour force are crucial to the ability of economies to respond to labour market shocks and adapt to global change. The quicker that the unemployed can be re-trained for new jobs, the more adaptable a local economy will be. However, a constraint on improving adaptability is the ability of the state to adequately and quickly reform the delivery of training, welfare systems and employability programmes to meet new challenges. A greater emphasis needs to be placed on the personalisation and localisation of service design, planning, and delivery. Personalisation is needed to combine different forms of support required by people with multiple barriers, and localisation is needed to empower local partners to design interventions and direct resources to meet local employer needs and target the most deprived areas and people. Decentralisation appears to be a necessary condition for joining up services at the point of delivery and for disadvantaged areas to devise solutions to tackle their specific problems.