The impact of employment flexibility on UK Unemployment # Vassilis Monastiriotis European Institute, London School of Economics Houghton Street, London WC2A 2AE Tel: +44 (0)20 7955 6937 Fax: +44 (0)20 7955 6497 E-mail: v.monastiriotis@lse.ac.uk . Abstract This paper explores the impact that the levels and types of employment flexibility have on regional unemployment, both directly and by conditioning the unemployment effects of some key macroeconomic variables. The paper draws on Keynesian and monetarist explanations of unemployment and relies on a novel set of flexibility indicators to examine their impact on regional unemployment, unemployment persistence, and adjustment to economic shocks. The results provide useful insights into the explored relationships and highlight the areas and conditions under which employment flexibility helps achieve favourable employment outcomes. The implications of the findings are discussed in the concluding section. Keywords: Employment flexibility, regional unemployment, persistence, NAIRU JEL codes: E12, E24, J64, R11, R38 # I am thankful to S. Nickell, M. Baddeley, E. Stockhammer, I. Gordon, S. Destefanis, B. Hancke, W. Schelkle and conference participants at the 2005 AHE conference and various DTI/EMAR Labour Market Flexibility meetings in London for useful comments. Financial support by the DTI/EMAR Labour Market Flexibility Small Grants and the ESRC (ref.: T026271203) is acknowledged. Special thanks to Yiannis Kaplanis for his assistance with data and bibliographical research and for commenting extensively on earlier drafts of this paper. The LFS/QLFS data used are Crown Copyright and have been used under permission. All errors and omissions remain with the author.