Labour Market and Social Protection Reforms in International Perspective

Parallel or Converging Tracks?

Giuliano Bonoli, Hedva Sarfati

• Publisher: Routledge
• Year: 2017
• Topic: Politics & International Relations
• eBook ISBN:
  9781351923743
• Subtopic: Social Policy
• Index: Politics & International Relations

Social protection systems and labour markets have undergone major changes in the past two decades. Welfare states are being reformed, scaled back and modernised; labour markets, at the same time, are more precarious, more feminised, more unequal, and throughout the OECD area, older. The interaction between labour markets and social protection has become increasingly crucial to the social and economic policy mix concerning unemployment, the transformation of work, the new poverty, and even demographics. Against this background, an interdisciplinary team of leading labour market and social protection experts from various OECD countries examine the multifaceted aspects of the changing relationship between social protection systems and labour markets. They identify and analyse key emerging issues, such as the link between employment and social protection financing, the adaptation of social protection systems to women's career patterns, and the development of new forms of social protection that aim at promoting employment. With practical policy guides and recommendations using case studies and comparative chapters, this will be engaging reading for policy-makers, social actors and academics alike.

Part I

The Interaction Between Social Protection Reform and Labour Market Shifts: Key Issues

Chapter One
Labour Market and Social Protection Policies: Linkages and Interactions

Hedva Sarfati

Introduction

The linkages and interactions between labour markets and social protection systems are extremely important factors in the successful functioning and overall well-being of modern societies. Together, labour markets and social protection systems determine the distribution of resources within a society and the types of incentives available to individuals in their economic choices, as well as affecting social developments, such as the economic emancipation of women, the increase in life expectancy and fluctuations in the birth rate. The proper management of the relationship between the labour market and social protection is an extremely important challenge. The price of failure can be very high in terms of unemployment, poverty and social exclusion.

Both the labour market and social protection systems have changed dramatically over the past three decades, and their coordination and interaction has not always been optimal. In some cases, social protection systems have been accused of being the cause of labour market problems, such as unemployment and outsider-insider divisions. Moreover, they sometimes seem to lose sight of their original purpose through focusing on individuals who are not the most disadvantaged. Conversely, labour market changes have created problems for the viability of social protection systems: in many countries, low employment rates have reduced the capacity of society to finance generous social protection schemes, while unemployment and precarious low-paid jobs have placed financial pressure on social programmes, thereby aggravating the financial difficulties of welfare states.

What is more, the environment in which the labour market and social protection systems interact has also undergone substantial change over the past few decades. The most important of these contextual changes include:

• the globalization of the world economy, with social contributions increasingly being seen as a threat to competitiveness;
• the prevalence since the mid-1980s of neo-liberal approaches among national and international policy-makers, which call for a reduction in the role of the state in such areas as social protection;
• the advent of European Economic and Monetary Union, with its drastic demands to cut public deficits and debts, of which social expenditure is an important component, representing between one quarter and one-third of GDP in most countries.

These trends have placed additional pressure on labour markets and social protection systems, and need to be taken into account in any analysis of the manner in which they have developed. This chapter focuses on developments that are key to the relationship between the labour market and social protection systems. It describes and discusses eight principal labour market and social trends that have an impact on the functioning of social protection systems in terms of their financial viability, effectiveness or the continued relevance of their objectives.

1 High and Persistent Unemployment Levels, with Regional Variations

Unemployment in the European Union has almost trebled over the past three decades, rising from 4 per cent in the early 1970s to 11 per cent in 1994, and remaining at 8.1 per cent of the labour force in November 2000, despite the recent economic recovery. However, some countries have fared better then others in attaining almost full employment (Denmark, Ireland, Luxembourg, Netherlands, Portugal, Sweden and the United Kingdom), while others have registered major improvements (France and Spain) (Eurostat, 2001).

A similar pattern has been observed in Australia, New Zealand and Canada, where unemployment peaked at over 10 per cent in the early 1990s and declined to around 7 per cent by 1999, However, during the same period, Japan has seen only a slight increase in its unemployment rate from 2 to 3 per cent, but rising to 4.8 per cent by the end of 2000, just below its post-war record of 4.9 per cent. In contrast to this trend, the United States experienced a decline in unemployment from a peak of 9.5 per cent in 1983 to 4.0 per cent by November 2000. This outstanding performance may be on the wane, depending on the depth and duration of the economic slowdown which started at the end of 2000. While some massive lay-offs have been announced in various sectors, the United States labour market was still tight in Spring 2001.

In this context, it is also interesting to examine how unemployment rates have varied within countries. These regional variations have been assessed recently by both the European Commission and the OECD (European Commission, 2000, pp. 61-76; OECD, 2000, pp. 31-79). Regional disparities in unemployment rates are associated with inequalities in earnings and activity rates and are persistent over time, particularly over the past two decades. They are therefore of particular concern in terms of macroeconomic policy and labour market and welfare policies.

Regional disparities in unemployment have changed during the various phases of the business cycle, widening slightly in the European Union in the late 1980s, narrowing in the early 1990s during the recession, and widening again during the post-1994 recovery. However, the narrowing of regional disparities during the early 1990s, where it occurred, was mainly due to large-scale job losses in regions with relatively high employment rates (Germany, France, Sweden and United Kingdom, which were all relatively hard hit by the recession), rather than improvements in unemployment in the less well-performing regions. The narrowing of cross-regional disparities due to a fall in unemployment was observed only in the Netherlands. Moreover, although all the regions of Spain have gained jobs since the 1994 recovery, unemployment disparities have widened.

Regional differences in unemployment are particularly wide in Belgium, Germany, Italy and Spain, as well as in Australia, United Kingdom and United States, while they are relatively narrow in Austria, Finland and Sweden. At the regional level, especially in Greece, Italy and Spain, low employment rates often coincide with high unemployment and inactivity rates. The converse applies in the better performing regions in the same countries, such as in parts of Northern Italy, which boast almost full employment.

The persistence of regional disparities over time implies structural problems that are relatively resistant to political intervention. For example, between 1980 and 1998, there was little change in the ranking of regions by employment performance. The better performing regions were predominantly located in the United Kingdom, followed by Sweden, Denmark, Finland and central Portugal. The regions with the lowest employment rates were mainly located in Southern Italy, Eastern Germany and South and East Spain. However, the regional divide was also persistent in Belgium, France (North and South) and Portugal (North and South), although Portugal has a low unemployment rate (4.1 per cent in 2000) and a very high activity rate in the centre.

While variations in employment growth between countries reflect variations in the growth of output, this correlation does not apply systematically across countries. Indeed, in 1998, the best performers in terms of employment also had the highest increase in GDP per capita, while in some countries GDP growth has not been matched by an increase in employment. This becomes even clearer when looking at regional disparities within countries. It is interesting to note in this respect that in most countries there is little correlation between levels of GDP per capita and employment levels. This should serve as a warning to policy-makers, since it shows that while regions which have benefited from European Union structural funds (which aim to reduce regional disparities in economic performance in the poorest regions) have indeed narrowed disparities in GDP per capita, they have not managed to reduce employment imbalances.

Labour mobility (internal migration) is one of the means of overcoming regional imbalances in unemployment, and seems to have been effective in equalizing regional employment rates in Australia, Canada, Japan, New Zealand, United Kingdom and United States, and to a lesser extent in Germany and Italy and in the rest of the European Union. The same outcome can also be produced by commuting, which is limited to some dynamic transfrontier zones (for example, between France, Germany and Switzerland, or Luxembourg), and which increased between 1992 and 1998. On the whole, however, migration within and between countries across the OECD region has declined significantly over the past three decades. The European Commission estimates that less than 0.4 per cent of the workforce in the European Union moves to another country to work each year, compared with 2.4 per cent in the case of the United States. This probably reflects a variety of factors, including an improved standard of living and higher incomes in poorer regions (as a result, among other factors, of European Union regional policy), the increase in dual wage families and ... the rise in unemployment.

Labour mobility also depends on educational level, the cost of changing housing when moving from a poor to a wealthier area, the availability of social services and community networks and the portability of social protection rights (unemployment benefit and pensions in particular).

Teleworking could provide an alternative to such mobility through the development and extended use of information technologies and telecommunications infrastructure. But, despite the broad speculation about its potential for rapid job growth in both Europe and the United States, it has so far fallen short of expectations.

The combination of regional disadvantages in terms of high unemployment, low activity rates and low labour mobility means that a significant proportion of the population has to depend on social transfers for income support. Moreover, the categories concerned are unable to contribute to the funding of social safety nets and, in particular, to old-age pensions.

As the duration of unemployment has risen over the past decade, unemployment compensation systems, which were designed for temporary periods of joblessness, have come under increasing strain. Long-term unemployment (12 months or more) in the European Union, as in most OECD countries, constitutes a high proportion of total unemployment, reaching 43.5 per cent in 1994, or nearly twice its share in 1980. The proportion of long-term unemployment trebled between 1980 and 1994 in the United States (from 4 per cent to 12 per cent) and in Canada (4 per cent to 15 per cent), but grew at slower pace in Australia (from 19 per cent to 36 per cent). These trends are illustrated b...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• List of Contributors
• Foreword
• Preface
• Acknowledgements
• Introduction Tight Constraints, New Demands and Enduring Needs: Addressing the Labour Market versus Social Protection Challenge
• Part I: The Interaction Between Social Protection Reform and Labour Market Shifts: Key Issues
• Part II: Social Protection and Labour Market Trajectories in Selected Countries and World Regions
• Part III: Alternative Policy Mix Scenarios
• Index