restricted access 2. The Politics of Labor Market Reform in Hard Times
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46 2 THE POLITICS OF LABOR MARKET REFORM IN HARD TIMES That countries adopt diverging paths of labor market reform raises an important question for policy makers as well as scholars, considering the frequency of global and national economic crises around the world and the necessity of reform for economic adjustment. This chapter focuses on the institutional arrangements of the labor market to explain the political process and outcome of labor market reform. It argues that the features of the employment protection system determine the patterns of reform and that the configurations of industrial relations shape the trajectories of labor market inequality and dualism. The first section analyzes three possible explanations for the politics of labor market reform: the political partisanship of the government, the role of political institutions, and economic crisis. While these explanations provide useful insights in accounting for the politics of labor market reform, they do not sufficiently answer empirical questions arising from the two cases of Japan and Korea as well as general patterns of reform across advanced industrialized countries . The second section, then, turns to building a theoretical framework to explain labor market reform, inequality, and dualism. The third section explains the ways in which the variables of employment protection systems and industrial relations shape the patterns of labor adjustments and institutional changes in the labor market in times of economic crisis, focusing on the cases of Japan and Korea. The final section summarizes the core argument presented in this chapter. THE POLITICS OF LABOR MARKET REFORM IN HARD TIMES 47 Three Possible Explanations for the Politics of Labor Market Reform What causal mechanisms might undergird the three explanations for the politics of labor market reform?1 By testing these frameworks against empirical evidence drawn from Japan and Korea, I demonstrate that they fall short in providing adequate explanations for the variations in the politics of labor market reform. Political Partisanship of the Government A first possible explanation for the politics of labor market reform is the political partisanship of the government. A strand of research on this points out that labor-friendly socioeconomic policies (e.g., strong employment protection and generous social welfare programs) to shield workers from the vagaries of the market can be attributed to left governments closely tied with labor unions (Bradley et al.2003; Esping-Andersen 1990; Garret 1998b; Huber,Ragin,and Stephens 1993; Huber and Stephens 2001; Korpi 2006). Recently, departing from the simple dichotomy of the left–right ideological spectrum of the political partisanship of the government, a group of scholars points to the political partisanship of the government combined with insider-outsider differences as a key variable to account for the diverging patterns of reform in advanced industrialized countries, especially the rise in labor market inequality and dualism (Iversen and Soskice 2009; Iversen and Stephens 2008; Palier and Thelen 2010; Rueda 2007).2 Yet even scholars within this camp disagree as to whether social democratic governments (or left governments) foster or prevent the increase in labor market inequality and dualism. Rueda (2007) claims that social democratic governments have accelerated labor market inequality and dualism between insiders and outsiders because they have prioritized the interests of insiders—their core constituencies in electoral competition—over those of outsiders (e.g., temporary and unskilled workers).He argues that a lack of policy responsiveness by social democratic governments to widening economic disparity further deepens labor market inequality and dualism, although he points to employment protection legislation and corporatism as two additional factors to mediate the consequences of inequality and dualism in the labor market (Rueda 2007, 27–35).3 Meanwhile, other scholars argue that social democratic governments, combined with specific skills-training systems and wage-coordination mechanisms , have effectively preempted the rise in labor market inequality and 48 CHAPTER 2 dualism by expanding social protections for those most affected by labor market reform, such as active labor market policies for outsiders (Iversen and Soskice 2009; Iversen and Stephens 2008). Contrary to Rueda (2007), these scholars claim that social democratic governments, in support of protecting the interests of labor (including both insiders and outsiders), have been able to maintain a high level of economic equality amid labor market reform, whereas Christian democratic governments, composed of more diverse groups of political constituencies ranging from business to religious groups, have exacerbated labor market inequality and dualism in most continental European countries. While the political partisanship of the government provides a compelling story for explaining cross-national variations in the politics of labor market reform...


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