In: Labor Market Flexibility, Flexicurity and Employment ISBN 1-60021-416-9 Editor: Tiiu Paas and Raul Eamets, pp.1- © 2006 Nova Science Publishers, Inc. Chapter 5 MACRO-LEVEL LABOUR MARKET FLEXIBILITY IN THE BALTIC STATES Jaan Masso, Raul Eamets INTRODUCTION The study of the macro-level flexibility in this chapter follows our definition of labour market flexibility presented in Chapter 3. According to our scheme, labour market flexibility can be divided into macro-level and micro-level flexibility. The latter contains employment protection legislation (hereinafter EPL), i.e. the regulations covering hiring and firing (dismissals), trade unions’ influence on the functioning of the labour market, the flexibility of wages (ability of wages to respond to different changes in economy, like economic cycles), minimum pay regulations and labour market policies. The long-time work of the authors of our research group has relied on that scheme. However, we are also aware of the difficulties in defining and measuring such a comprehensive phenomenon as labour market flexibility, and the drawbacks of exiting indicators and indices. This chapter is an updated synthesis of the authors’ (and other researchers’) earlier research on the topic within a few years, particularly by Eamets and Masso (2005; 2004), and Paas et al. (2003). Informal discussions of the topic are combined with the results of some earlier quantitative studies 1 . Our aim is to outline the peculiarities of the Baltic labour markets and industrial relations systems to show how these have contributed to the economic development of the Baltic states after the transition processes (e.g. the reallocation of production factors and the restructuring of enterprises) and to convergence (catching-up) with the old EU member countries. Another focal point is how joining the EU and adopting the acquis has shaped the system. We compare the Baltics with other CEE countries and the EU-15. The rest of the chapter is structured as follows. The first sub-chapter on the employment protection legislation starts with a short overview of the concept; thereafter formal labour legislation and its actual enforcement in the Baltic states are analyzed. The second sub- 1 Sub-section 5.1. in particular summarizes the findings of authors’ earlier papers: Eamets and Masso, 2005; 2004.