Labor market segmentation and the politics of investment and compensation

Abstract: This dissertation investigates patterns of policy reform that relate to labor market segmentation. It does so through two interrelated research questions.  The first question aims to understand what policies are theoretically relevant for a regime-based model of labor market segmentation and how these policy regimes have empirically evolved over time in rich European democracies. The theoretical approach argues that previous studies have a narrow policy focus. Previous literature studies policy-based dualization primarily through how governments regulate the labor market status of standard and atypical workers through employment regulations.  Some literature also incorporates active labor market policy (ALMP) or unemployment compensation as a way to include pro-outsider policy into models of policy-based segmentation.  This thesis argues that current policy models of segmentation fall short of capturing the full scope of how government economic strategy approaches segmentation.  Primarily, they do not represent governments’ efforts to either avoid segmentation by investing in a skilled insider workforce or compensating the effects of segmentation through outsider-targeted welfare tools.  To integrate investment and compensation as policy dimensions alongside the literature’s focus on regulation, the dissertation incorporates tertiary education and minimum income benefits alongside employment regulations and labor market policy in a labor market policy regime. The second research question addresses the politics of these reform trajectories, asking why reforms were undertaken and what made them successful.  Because the beneficiaries of higher education and minimum income benefits are politically diffuse, it develops an explanatory account of reform based on the role of political coalition-building in broader political processes that help secure reform coalitions for policies where beneficiaries are not concentrated labor market constituencies. The dissertation contrasts this theoretical account against two influential explanatory theories, one based on electoral politics and the other on economic interests. In the second and third chapters, the dissertation uses a descriptive strategy to investigate the first research question by investigating policy developments in sixteen rich European democracies combined with a deeper investigation into policy changes in Sweden, Germany, and the Netherlands. It shows that a focus on regulations and labor market policy underestimates the variety of strategies governments take to intervene in the balance and outcomes of typical and atypical labor market participants.  The chapters identify two empirical policy trajectories.  One invests more in a skilled insider workforce but compensates outsider employment less; another invests less but uses more targeted welfare benefits to compensate for atypical employment outcomes. This variation occurs within similar trajectories of employment regulation and labor market policy.This dissertation’s fourth and fifth chapters use qualitative material to investigate influential reform processes in tertiary education and minimum income benefits in Sweden, Germany, and the Netherlands. These chapters show that decisions are made in the context of labor market concerns and that where they benefitted diffuse constituencies, decisions to invest in insiders or compensate outsiders were a part of broader reform processes.  The findings illustrate patterns of party and economic coalitions that deviate from predictions made by other explanatory accounts.