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ECPR 50th Anniversary Fund

Social-Democratic Strategies towards Labor-Market Risks

José Fernández-Albertos
Universidad Autònoma de Madrid – Instituto de Políticas y Bienes Públicos del CSIC
José Fernández-Albertos
Universidad Autònoma de Madrid – Instituto de Políticas y Bienes Públicos del CSIC
Dulce Manzano
Carlos III-Juan March Institute of Social Sciences – IC3JM

We start by noting that regulating the labor market is just one possible way of addressing workers’ demands for income protection against labor market–related risks. By acknowledging that other policies can be used to address the same political demand, we first develop a simple framework to understand the preferences of firms, types of workers, and political parties representing different constituencies of employers and workers’ profiles towards labor market regulation vis-a-vis alternative policies, notably a systems of unemployment benefits.
We then derive two key empirical implications of the argument and provide empirical evidence from contemporary OECD countries that are consistent with them. First, we show that there is a clear relation of substitution between the cost of firing and the generosity of unemployment subsidies across countries. And second, we find that countries with more volatile economic conditions seem to use more extensively the latter policy than the former.
Using this theoretical framework, the second part of the paper focuses on the social-democratic parties’ preferred combination of policies. The preferred labor market policy of these parties is not obvious, and is likely to vary across contexts, since these parties i) represent different coalitions of workers (across countries, but also across time); and ii) face different degrees of opposition to certain forms of labor market protection by business and their political allies. We suggest that by paying attention to these two dimensions, we can account for the varying and changing strategies embraced by social-democratic parties, opting openly for flexisecurity strategies in some contexts, firmly opposing to the deregulation of the labor market in others.
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