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3. Labor Market Regulation and the Global Economic Crisis
- Russell Sage Foundation
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42 Chapter 3 Labor Market Regulation and the Global Economic Crisis robert kuttner T he current economic crisis has increased rates of unemployment and exacerbated a long-term weakening of institutions such as employment security, labor regulation, and collective bargaining. This trend has different particulars for different nations, but has common general characteristics everywhere. High unemployment and protracted crisis tend to put downward pressure on wages and erode regulated labor markets. Protracted joblessness increases tensions between unions and their members by creating pressures for reductions in wages and other labor protections that union leaders have to broker with their membership . It creates defensive responses that often take the form of twoclass systems of labor relations that undermine labor solidarity, established workers retaining traditional benefits and younger workers or workers in new economic sectors getting fewer protections. It creates hardships that induce people to work in the gray economy. From the perspective of the state, the crisis puts pressure on public budgets, which in turn reduces benefits to workers and undermines systems of labor protection. From the view of industries facing reduced earnings and diminished demand for workers, the crisis accelerates both the desire and capacity of businesses to find ways to cut costs at the expense of labor. Industry is more likely to outsource work and to convert permanent payroll jobs to temporary jobs or short-term contract workers . All of this erodes tacit, as well as explicit, social compacts, and increasingly treats the labor market as just another spot market in which workers are added or discarded, and wages and benefits are increased or decreased, based on short-term economic fluctuations. All of this tends to destabilize and undermine the systems of labor regulation that have been part of Western democracies since the postwar era. At the same time, however, the pressure for more flexible labor markets creates opportunities. In principle, it is possible to combine greater Labor Market Regulation and the Global Economic Crisis 43 job flexibility with greater employment security as nations such as Denmark , Sweden, and the Netherlands have shown. Yet so-called flexicurity takes many forms, some genuinely conducive to employment security , and others simply new strategies for reducing it. Moreover, forms of flexicurity that replace older, more rigid forms of job security with newer, more adaptive ones require three things that are in short supply in current economic circumstances: ample government budgets, politically influential trade unions, and relatively full employment. This set of pressures on labor markets did not begin with the financial collapse of 2007 to 2009. Indeed, the current crisis only accelerated a trend in place for at least three decades, weakening the postwar model of labor relations. Although particulars differed widely among countries, the older postwar social settlement assumed stable and negotiated labor relations and the regularization of work. Casual labor gave way to a new set of standards, partly anchored in laws and partly the fruits of collective bargaining. The aspiration was to gradually expand these conditions of normalized work arrangements from core jobs to peripheral ones (socalled primary and secondary), so that the entire labor market would be regulated. Scholars have identified three broad traditions and significant variations among Western nations: a liberal and relatively more marketoriented Anglo Saxon system with islands of strong unionism and partial social insurance protections, a corporatist continental European tradition based heavily on state regulation, and a Nordic or social-market model that relied less on state standards and more on direct bargaining , wage-setting, and shared responsibility for keeping wage growth in line with productivity growth for purposes of maintaining international competitiveness. These diverse institutional settings suggest that comparable macroeconomic outcomes can have very different institutional and political ingredients and distributive consequences. Consider the issue of productivity and wages. In the United States, the extreme case of unregulated labor markets, wage restraint has been the result of weak unions, casualization of work, widening income inequality, and increased political power of industry. In the Nordic countries, wage restraint has been a deliberate policy goal of labor as well as industry. But until very recently, it has been coupled with a deliberate narrowing of income inequality (solidaristic wage policy), suggesting that there is more than one path to keeping wages in line with productivity growth, resulting in very different social outcomes. However, these models have lately come under both political and economic assault. And undermining the broad social model of which flexicurity is a part can make it more difficult to maintain comprehensive labor -market...