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176 Chris BennerLABOR AND FLEXIBILITYFlexibility can be defined as the ability to change or react to change with littlepenalty in time, effort, cost, or performance. The ability of Silicon Valley firmsto be flexible – to be at the cutting edge of rapid change in information technologyindustries and rapidly take advantage of new opportunities associated withthese changing technologies – has been a critical component of the region’slong-term success. Yet change always entails some cost, and the benefits of flexibilityto one actor in the economy may, and often do, come at the expense orloss of others. While some forms of flexibility are clearly important for firms toremain competitive in today’s rapidly changing marketplace, all too often thedrive of corporations for labor flexibility is simply a desire for decreased deregulationand the ability to hire and fire employees at will, which results inincreased insecurity, declining wages, and deteriorating working conditions,while contributing little to economic competitiveness (Pollert, 1988; Standing,1999). Thus understanding the nature of this labor flexibility, and how it does ordoes not contribute to economic competitiveness and workers’ livelihoods, iscritical in our efforts to understand contemporary labor markets.The most common way of analyzing flexibility in the labor market and inproduction systems is to start with firms as the unit of analysis. In this framework,firms can pursue both internal or functional flexibility and external ornumerical flexibility. Internal or functional flexibility involves a series of laborpractices that increase the ability of workers inside the firm to adjust to changingdemands, such as multi-skilling, broad job categories, redeployability,teamwork, and so on. External or numerical flexibility is a series of practicesthat allow firms to take advantage of external relations, either to accessspecialized skills and expertise or to adjust to fluctuating labor demands(Ozaki, 1999; Standing, 1999).Using the firm as the primary unit of analysis clearly made sense duringmuch of the post-World War II era, when large, vertically integrated firmsdominated production in most major industries. Even today, a focus on firmsprovides important insights. The pressures on employers and their responseshape much of the dynamics and structure of labor markets. Firms pay wages,determine hiring and firing decisions, and provide the bulk of training andcareer development opportunities. Public policy is most frequently centeredon how to influence the behavior of firms and the consequences of particularpolicies on the ability of employers to compete (Osterman, 1999).The emergence of a network economy, however, has led to the developmentof a wide range of conceptual frameworks that do not assume that the moderncorporation is the most useful institution for understanding the organization ofeconomy activity. Production networks, industrial clusters, “untraded interdependencies,”milieux of innovation, learning communities, firm culture –