FDI and Labor Market Flexibility on the Employee’s Perspective: A Comparative Analysis of Civil and Common Law

This paper explores the relationship between labor marketflexibility and Foreign Direct Investment (hereinafter ‘FDI'). Also, itwill examine what types of labor markets are flexible, what levelsof flexibility are available, and what kinds of policies are necessaryto support a flexible labor market. These analyses are founded onlegal systems, largely composed of civil law and common law. Especially, this comparison can reflect on whether the employmentand labor markets are strongly regulated or not. It is important formany countries to choose what types of labor policies serve theirinterests when the economy is faced with market failures. In civil law countries, the labor market is generally more rigiddue to the strong emphasis on codified employment and labor lawsand mandatory rules for employment provisions. Common lawcountries, however, have more flexible labor markets due to theapplication of precedent in judicial decisions and thecontract-at-will doctrine. In these regards, this paper examinesthe different approaches of civil law countries and common lawcountries with respect to the relationship between labor marketflexibility and FDI. In fact, the labor markets in the common law countries havetended to attract more FDI than those in the civil law countries. This paper, however, raises a question whether or not labor marketflexibility on the employer’s perspective is persistently enhanced ifcertain countries attract a great amount of FDI. More importantly,it is doubtable whether their labor markets are stable in case ofthe countries attracting a certain amount of FDI. As a result, it isnecessary for many countries to consider labor market flexibility onthe employee’s perspective.