Under pressure. Economic constraints, electoral politics and labour market reforms in Southern Europe in the decade of the Great Recession

Fabio Bulfone,Arianna Tassinari

doi:10.1111/1475-6765.12414

Abstract

AbstractEven when subject to comparable exogenous constraints during the Eurozone crisis and in its immediate aftermath, governments in Southern Europe have pursued distinct labour market reform agendas. What room for manoeuvre did governments of crisis‐struck peripheral countries really have in shaping their labour market reform strategies, and how can we account for the observed variation? We address these questions by making a twofold contribution to the debate on the political economy of austerity in the Eurozone periphery. First, through the first systematic analysis of all labour market and collective bargaining (CB) reforms implemented in Portugal, Spain, Italy and Greece over 2009–2019, we identify those elements of core labour market deregulation common across Southern European countries (namely, the loosening of employment protection for workers on open‐ended contracts and the decentralisation of CB to the firm level); and those elements of variation, both cross‐country and cross‐party, in the content of corollary labour market interventions that accompanied this core deregulation. Second, we explain these similarities and variations in reform outcomes as the product of the interaction of two factors: economic constraints and electoral dynamics. We argue that the implementation of the common core of deregulation is linked to the exogenous pressure to improve export competitiveness to which Southern European countries have been subjected since the crisis. Through the combination of survey data analysis and qualitative evidence, we then show empirically how the variation in the corollary measures accompanying deregulation is linked to the class composition of the electoral social blocs Southern European partisan governments rely on or aim to assemble. Based on this analysis, we identify four ideal‐typical labour market reformist strategies attempted by Southern European governments during the decade of the Great Recession. The analysis highlights that although domestic politics plays a crucial role in shaping structural adjustment under crisis conditions, not all reform strategies are equally viable within the framework of Economic and Monetary Union.

Highlights

Since the onset of the Eurozone crisis peripheral countries have come under strong exogenous pressure to implement austerity measures and structural reforms aimed at achieving so-called ‘internal devaluation’
Through a detailed analysis of the content of the labour market and collective bargaining (CB) reforms implemented in Greece, Italy, Portugal and Spain since the onset of the crisis in 2008, we identify and differentiate between elements of labour market policy change common across all our cases, and those that vary across countries and partisan families
By developing the first systematic analysis of all labour market policy and CB reforms implemented in Portugal, Spain, Italy and Greece since the outbreak of the 2008 crisis, we reconcile the debate between those highlighting homogeneity in a common trajectory of liberalisation (Armingeon & Baccaro 2012), and more recent contributions observing cross-country and cross-party variation in labour market reform outcomes (Afonso 2019; Cioffi & Dubin 2016; Moury & Standring 2017; Picot & Tassinari 2017)

Summary

Introduction

Since the onset of the Eurozone crisis peripheral countries have come under strong exogenous pressure to implement austerity measures and structural reforms aimed at achieving so-called ‘internal devaluation’. We posit that, depending on the composition of their extant or intended support base, partisan governments in Southern Europe have four possible categories of labour market reform strategies available, based on those presented by Amable and Palombarini (2009, 2017) and Beramendi et al (2015) These are the preservation of the social democratic coalition, creation of a centrist pro-EU coalition, neoliberal rupture and coalescing of the challengers’ coalition. The neoliberal rupture is a pro-market strategy, largely compatible with EMU-related constraints, aimed at consolidating the core electoral bloc of centre-right parties: large employers and self-employed professionals, SME owners and managers (cf Amable & Palombarini 2009) It involves deregulatory labour market policy and CB reforms that reduce labour costs and increase employment flexibility, tax cuts and incentives in favour of selected sectors or professions, and compensatory measures that reduce labour costs for SME owners in the domestic sector. We expect this scenario to be associated with the presence of strong clientelistic linkages between governing parties and their electorate

Methodology

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