Making markets with active labor market policies: the influence of political parties, welfare state regimes, and economic change on spending on different types of policies

Abstract

Active labor market policies consist of a diverse set of policy tools with which to address joblessness and the degree to which governments invest in various policies as a response to rising unemployment varies widely. Fleshing out the determinants by policy type holds the promise of illuminating more clearly contestation over activation. To this end, this study analyzes the role of partisanship as well as welfare state regimes and the economy on spending patterns. We begin by detailing a theoretical framework for understanding variation in active labor market policies. Bonoli categorizes active labor market policies according to their market orientation and emphasis on human capital investment. In a study of social service reforms, Gingrich explains how all parties employ market-based reforms to empower some groups over others. These theories are then used to derive partisan hypotheses for direct job creation, training, labor market services, and employment incentives. Hypotheses for the four main types of active labor market policies are tested with regression analysis of 22 countries between 1985 and 2008. High spending on direct job creation, a non-market oriented policy type, is marginally significantly higher in the social democratic regime and by left governments prior to the activation turn. Left parties spend significantly more than other parties on training policies and after the activation turn these policies also become a distinct feature of the social democratic welfare state regime. The same trend exists for employment incentives. Center-right parties and those within the Christian democratic regime also spend marginally significantly higher on training policies before the activation turn, which is explained by results for deindustrialization. No partisan or regime effects are found for labor market services, which supports the view that all countries rely on these policies. The literature also suggests that a composite measure masks political conflict since this policy type encompasses diverse policies.