The OECD Jobs Study
In the early 1990s, the OECD received a mandate to examine the labour market performance of its Member Countries. The OECD Jobs Study, published in 1994, launched a critical attack on the 'dark side' of double-digit unemployment of many European OECD members (OECD 1994,1997a, 2006a; Brandt, Burniaux, and Duval, 2005). These reports proved highly influential in terms of the debate on welfare state reform. Hovering around 10 per cent with few signs of improvement, unemployment rates in France, Germany, and Italy were twice as high as in the USA. The employment rate was about twelve points below the USA. The OECD economists argued that Europe's generous welfare states, with their overprotective job security, high minimum wages and generous unemployment insurance, heavy taxation, and overriding emphasis on coordinated wage bargaining and social dialogue, had raised the costs of labour above market clearing levels. Moreover, strong 'insider- outsider' cleavages with unfavourable employment chances for the young, women, the old, and the unskilled prevented the rigid European labour markets from reaching employment rates on a par with the US, the UK, or New Zealand (Lindbeck and Snower, 1989; Lindbeck, 1994). Politically, the extension of employment protection legislation in Europe had, moreover, created self-serving constituencies of workers strongly opposed to necessary labour market deregulation (Rueda, 2005, 2006, 2007).
The fight against unemployment, hence, came to be seen as the quest for flexibility. Among the central policy recommendations of the OECD we find making wage and labour costs more flexible by removing restrictions better to reflect local economic conditions and labour productivity, wage bargaining decentralization, keeping the minimum wage low, reducing non-wage labour costs, restricting the duration of unemployment insurance, reforming employment security provisions that inhibit employment growth in the private sector, loosening employment protection and expanding fixed term contracts, and lower taxation. The OECD thus portrayed the fundamental dilemma of Europe's mature welfare states in terms of a trade-off between welfare equity and employment efficiency. From this perspective, comprehensive welfare provision and economic security undermine the logic of the market. Well-functioning markets were seen as the best guarantee for wellbeing, self-reliance, and autonomy. Inequality is inherent in markets and even necessary to motivate self-sufficient individuals as economic actors.
Alongside the OECD's advocacy of labour market deregulation, the Bretton Woods institutions of the IMF and the World Bank hopped on the bandwagon of neoliberalism. Since the 1990s, neoliberal structural adjustment programmes engineered by the IMF and the World Bank have been implemented in almost every country across the globe, based on price stabilization, fiscal discipline, privatization, deregulation, trade liberalization, reduction of tariffs, liberalization of capital markets, and the opening of economies to foreign investment—all with the objective of making the economies more efficient and competitive in the hope that by enabling global savings to flow to their most productive uses investment, growth, and prosperity would be increased (Rodrik, 2011). As many countries began dismantling controls over crossborder lending and borrowing, the establishment the World Trade Organization (WTO) in 1995, the GATT's successor, ushered in a radically different hierarchy in the relationship between the domestic economy and international trade. Domestic economic management was to become subservient to international trade and finance rather than the other way around as in the era of 'embedded liberalism' compromise. As a consequence, trade disputes began to breach into domestic areas that were previously protected from external pressures. Tax systems, food safety rules, employment regulations, and industrial policies became open to juridical challenges from trade partners (Rodrik, 2011).