Labour Market Risks in Times of Welfare State Changes

Hanna Schwander

Labour markets have grown more unequal in the post-industrial societies of the twenty-first century: not only has wage inequality increased but also labour market risks are increasingly unequally distributed between labour market insiders and outsiders (OECD 2011a; Emmenegger et al. 2012b). Hence, the workforce is increasingly divided between a segment of secure labour market insiders and a segment of marginalized labour market outsiders. While insiders enjoy a stable position in the labour market, outsiders are confronted with a number of labour market risks, such as unemployment or atypical employment, with far-reaching consequences for poverty, inequality and social exclusion (Bonoli 2005; Taylor-Gooby 2005; Hausermann and Schwander 2012b; Emmenegger et al. 2012a). At the same time, the traditional ‘industrial’ welfare state has been under strong pressure to reform as globalization and European integration have limited the ability of policy-makers to manoeuver

H. Schwander (*)

Department of Political Science, University of Zurich, Zurich, Switzerland

© The Author(s) 2016 185

M. Wulfgramm et al. (eds.), Welfare State Transformations and Inequality in OECD Countries, Transformations of the State,

DOI 10.1057/978-1-137-51184-3_9

(see Chap. 2 for the general argument). Rigid labour markets and high labour costs have been detrimental to the flexible workforce that employers need in a knowledge-based economy, and policy-makers have started to reform the labour market and social protection systems. These reforms have had strong effects on the degree and structure of labour market inequality, and vary according to the reform strategy. The aim of this chapter is to analyze how welfare state reforms have affected inequality in labour market risks in continental Europe. More specifically, I examine whether reforms of welfare state and labour market institutions have reduced or increased labour market inequality in the last decade.

The paper focuses on continental Europe where the trend towards labour market inequality is most evident. Pressure to flexibilize the labour markets, in particular to reduce their rigid institutionalized employment protection, has been particularly strong in continental Europe with its low employment rates (Palier 2010b; Esping-Andersen 1999; Wren and Iversen 1998; Eichhorst and Marx 2012). The European Union (EU), as a powerful new actor, has urged its member states through reports and jointly set targets (for example, the Lisbon treaty or the European Employment Strategy [EES]) to adapt their labour market arrangements (Sacchi 2015; Pavolini et al. 2015). This effort has put external pressure on national policy-makers to embark on unpopular reforms and has provided them with the opportunity to shift the blame for those reforms onto the European Union (Guillen 2010; Sacchi 2015; Pavolini et al. 2015). Continental European countries managed to reduce their unemployment rates and increase their employment rates throughout the 2000s until the outbreak of the Great Recession in 2008. The price was increased inequality of labour market risks (Palier and Thelen 2010; Schwander and Hausermann 2013), both with regard to ‘old’ labour market risks, such as unemployment and ‘new’ labour market risks, such as temporary employment or other forms of atypical employ- ment[1] (Esping-Andersen 2000; Jessoula et al. 2010; Palier and Thelen 2010; Eichhorst and Marx 2012; Kalleberg 2009; Regini 2000).

This inequality in labour market risks has important consequences for income inequality and poverty. As argued by Obinger et al. in Chap. 2 of this volume, declining replacement rates have made welfare states increasingly less generous and less redistributive. In addition, the tightening of eligibility criteria for social insurance programmes has made it more difficult for those with atypical employment biographies to qualify for these programmes. This holds particularly true in the continental welfare states, which have gradually complemented their social insurance systems with tax-financed but less generous needs-tested schemes for those outside the traditional social insurance systems (Palier and Thelen 2010). As a consequence, the welfare state perpetuates labour market inequalities and translates them into net inequalities and permanent forms of social and economic exclusion (Hausermann and Schwander 2012b).

In this chapter I analyze the effect of welfare state transformations and changes in the regulatory framework of labour markets on the distribution of labour market risks in four European countries from the mid-2000s onwards. In keeping with the focus on labour market integration, I understand labour market inequality as an unequal distribution of labour market risks. More specifically, I focus on unemployment and temporary employment as the dominant forms of old and new labour market risks, respectively. These two forms of labour market risks have strong effects on economic and social deprivation, and are often linked to a permanently inferior labour market status because of their negative effects on human capital and work experience (Gash 2008). France, Germany, Italy and Spain represent four cases with different reactions to the flexibilization pressures on their welfare state in the last two decades. Accordingly, I expect labour market inequality to have developed differently in these countries. I examine whether welfare state transformations and changes in the regulatory framework of labour markets have reduced or increased labour market inequality in the last decade. In addition, the chapter aims to shed light on the development of labour market risks among different social groups known for their weak attachment to the labour market. I examine whether labour market inequality between these potential outsider and insider groups has increased.

The chapter is structured as follows: I first briefly discuss the need for welfare state reforms in continental Europe and the link between welfare state institutions and labour market risks. Next, I compare labour market regulations in Germany, France, Italy and Spain, and present a short history of their recent labour market reforms. I then present evidence on patterns of labour market risks in the four countries and analyze the development of labour market inequality among different labour market groups.

  • [1] Atypical employment denotes all forms of employment that deviate from the standard employment relationship of employed, permanent full-time employment such as part-time employment,temporary employment, self-employment, agency or seasonal work.
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