Assessing the Effects of Internal Devaluation Strategy in the Wake of the Eurozone Crisis: An Analysis of Labour Market Flexibilisation and the Working Poor in Europe

Abstract

In the current European crisis, neoliberal ideas dictate the policy agenda. The propagated solution in the European economic misery is “internal devaluation”: Austerity and labour market flexibilisation are the main goals of economic policy making. Focusing on labour market flexibilisation, this paper calls into question the negative social implications of these policies by demonstrating that increased labour market flexibility creates poverty among the working population. Drawing on the work of Karl Polanyi, the theoretical concept of the commodification of workers and is outlined and, reconstructing the historical processes of commodification, decommodification and recommodification, a theoretical approach is created that outlines the rise of neoliberal labour market policies: how these have led to an increase of labour market flexibility in Europe in the last two decades and how subsequently a new class of precarious workers was created. Empirically testing this theoretical argument, the effect of labour market flexibilisation in Europe over the period 2003-2009 is quantitatively analysed through a time-series-cross-section analysis of 24 European countries. The results of the quantitative analysis support the theoretical argument that was previously made. The paper concludes that labour market flexibilisation has severe negative consequences and is most likely no adequate solution to the current European crisis.