European Employment Models in Flux

Institutions are the building blocks of social order; they shape, govern and legitimize behaviour. Not only do they embody social values but they also reflect historical compromises between social groups negotiated by key actors. It thus comes as no surprise to find major differences in the institutional arrangements of today’s capitalist societies. These differences apply especially to employment institutions, which shape the exchange of human labour. Employment contracts are necessarily incomplete contracts, since the actual performance required and rewards offered are constantly subject to new decisions after the contract has been initiated. To put some limits on this uncertainty, institutions, both formal and informal, have been established to influence not only the contractual conditions but also the rights of employees or their representatives to engage in some shared determination of their working conditions and the organization of the work process. The employment relationship is also a pivotal institution in economic systems, with consequences as much for social and family organization as for the production system. It not only shapes the terms under which labour is supplied to and utilized within firms, but also underpins systems of social stratification and determines standards of living. Furthermore, as welfare states have developed and provided support for citizens not in employment, so the employment relationship has become integrated into welfare arrangements, with time spent in an employment relationship often the basis for accumulated entitlements to benefits.

When the UK took over the presidency of the European Union in July 2005, the then Prime Minister Tony Blair presented the UK model as a potential saviour for the European social model, a model for the rest of Europe to emulate. It had succeeded, it was claimed, not only in combining growth with high employment rates, facilitated by flexible labour and product markets, but also for using economic growth and modern approaches to public service and welfare reform to renew public services and to combat child poverty. Even at the time these claims were met with scepticism; for many the UK still represented the liberal or market version of capitalism which, if followed as the model for modernization, could not only sound the death knell for distinctively European varieties of capitalism (Wickham, 2005) but also promote a dangerously fragile form of expansion, based on extended consumer credit and a seemingly never-ending rise in house prices. From the perspective of autumn 2008, the grandiose claims by Blair to have developed a blueprint for Europe have been put in perspective by the financial meltdown and the state-led rescue plan for the jewel in the UK’s crown, the City of London. This major collapse of the UK and world financial system is too new and its course as yet too unpredictable for this chapter to predict the characteristics of the next phase of model development in the UK. It is appropriate to note, however, that we are witnessing a clear demonstration of the cyclical volatility of the fortunes of national models (see Chapter 1 of this volume). The decade of New Labour could be argued to be the UK’s glory years, with high employment combined with some renewal of its social model, even if the underlying weaknesses of the model could be clearly identified. The focus of this chapter is on understanding the factors behind the New Labour boom period and the extent to which its characteristics both reinforced and redefined the UK model as an example of neoliberal capitalism and a residual welfare state.

The main objective of this paper is to analyse the major transformations of the Swedish model, its welfare regime, employment and production systems. Until the end of the 1980s Sweden was remarkably successful in combining low unemployment with high and growing employment rates and also with a high degree of income equality and small gender disparities. However, most economists and many policymakers were aware that the unprecedented activity level and the extreme labour market tightness during the second half of the 1980s were not sustainable in the long run. For many years inflation had been alarmingly high and in 1990 it reached 11 per cent, presaging a crisis that became dramatic. In just three years, from 1990 to 1993, the rate of employment fell by 10.5 percentage points and the rate of open unemployment quintupled from less than two to more than 8 per cent of the labour force.¹ Furthermore, the annual government deficit reached 14 per cent of gross domestic product (GDP), in spite of repeated ‘reform packages aimed at reducing public expenditure and increasing government revenues. The cutbacks in public spending, which principally took the form of lowering income replacement rates in various social insurance systems and reducing public sector employment, were considered by many citizens as a painful’ rolling-back of the welfare state .

For most of the 1960s–80s the Federal Republic of Germany was regarded both at home and abroad as one of the countries that had been particularly successful in combining economic growth and social equality. For many economists and social scientists Germany was the exemplar of ‘Rhenish capitalism’ (Albert, 1992) which, by virtue of the ‘beneficial constraints’ (Streeck, 1997) imposed on German capital by strong labour unions and institutions, fostered long-term corporate strategies and an environment of trust relationships, not only within capital but also between the strong associations representing capital and labour. It was under these conditions that a system of high-quality and export-oriented production was developed, which in turn powered the entire employment system.

The ‘varieties of capitalism literature focuses on large (Western European and North American) countries’. Depending on the authors, the literature differentiates between two (Albert, 1993; Hall and Soskice, 2001), three (Coates, 2000) and five models (Amable, 2005). Small and economically less powerful countries such as Austria are hardly mentioned in the debate. On the other hand there is a body of literature that discusses the periodically stunning economic and labour market successes of small countries, sometimes presented even as role models for the rest of Europe (Katzenstein, 1985; Auer, 2000). A common weakness of the varieties of capitalism literature is that it does not take into account the interdependence between different models, in particular between large and small countries. The relationship between Austria and its ten times larger northern neighbour Germany is a case in point. Many German companies have subsidiaries in Austria. The relative dependence on German capital has an important impact on the Austrian model and limits the choices of domestic actors (the same is true for the new European member states with even larger proportions of foreign direct investments [FDI]). On the other hand small states tend to adjust faster to new challenges and have opportunities that are blocked for large countries. Wage restraint and export-orientation may work for Austria but not for a reunified Germany in an enlarged Europe (see Chapter 4, this volume). At the same time the example of Austria, which as a result of EU enlargement into Central and Eastern Europe (CEE) has itself become a net capital exporter, also shows the advantages of economic power over other countries.

It is a common wisdom to say that Hungary has faced two historical challenges since 1988: first, the so-called ‘regime change’ which took place in 1989/90 when the state socialist system collapsed and gave way to democratization and a market economy based on private ownership; and second, joining the European Union which formally took place on 1 May 2004. The former involved far-reaching changes in politics, economy and society, and at the same time represented a real break with the past in many fields. The latter on the other hand involved a relatively smooth transition with incremental changes. No wonder that a huge body of literature across political science, economics, sociology, anthropology and even psychology deals with the ‘post-communist’ transition/transformation (the choice between the two terms is also addressed by many writings). In contrast, the enlargement of the EU has been addressed by highly specialized papers only, characterized by a limited focus, mainly on administrative, legal, economic and technical aspects.

Researchers who endeavour to draw up comparative typologies of national models, always experience difficulties in classifying France relative to other developed countries.¹ Indeed, whether they focus on production, employment or welfare regimes as a whole, or on the specific components of such regimes such as management systems, corporate governance, social protection, gender contracts, industrial relations or various combinations of these aspects, France is often placed in an ambiguous position reflecting the complexity of its system and the institutional layering that characterizes its political structure.

This chapter examines the transformation of the Greek socio-economic model since the beginning of the 1990s, analyses the main drivers for change and evaluates its success/shortcomings in achieving high job growth rates, job quality and social cohesion while maintaining competitiveness.

Since the first democratic elections after the Francoist dictatorship (20 June 1977), important changes have taken place in Spain. These have affected the economic and social structure, culture, labour relations, gender relations and everyday life. The changes have been influenced by both external factors (globalization, European integration) and internal factors (political democratization, territorial restructuring, social demands and cultural changes). This context of deep and rapid transformation in the socioeconomic model must be taken into account in order to understand the puzzle that is the current employment system. The drivers of these changes are diverse, as we will see. Our hypothesis is that there have been significant breaks with the past, but these are not of a radical nature and are instead combined with significant degrees of continuity.