Symposium on the Politics of Labour Market Inequality

Silja Häusermann, David Rueda and I launched a symposium debate in Political Science Research Methods on the Politics of Labour Market Inequality. We discuss the relevance of research on labour market stratification, segmentation, insider-outsider theories and dualization for broader discussions in political science: mobilization, voting behaviour and public policy making.

Please find the introduction to the symposium here. We have contributions from Marius Busemeyer and myself on conceptual stretching in the literature on dualization (link), Georg Picot and Paul Marx (link) on the conceptualization of insiders vs. outsiders, and Tim Vlandas on the empirical veracity of different measurements (link). Silja Häusermann (link) and Hanna Schwander (link)  discuss the political implications of labour market inequality, whereas Philipp Rehm looks at the broader picture of welfare state change.

 

 

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New Paper with @reniracorinne on CEO Pay and the Role of Redistributive Institutions

The wonderful @reniracorinne and I have written an article in Socio-Economic Review. Find a short (policy) summary here. Here is the link to the article.

 

If governments want to target the inflation of CEO Pay, they should also address pay inequality among managers.

Introduction

Since the 1980s, there have been numerous scandals about the excessive growth of top executive compensation (TEC). Enron is just a very prominent example in recent years. As a reaction, governments have experimented with regulating TEC in several ways: The Clinton administration put a cap on TEC tax deductibility; both the Obama administration and the EU imposed a pay cap for firms in the need of a bailout after the Global Financial Crisis. Some countries have even tried to go further. For instance, there was a referendum in Switzerland to limit CEO pay to workers by a ratio of 12:1 (in most countries the actual ratio is much higher). The referendum failed.

These initiatives have become salient at a time of general increases in top income shares and growing overall inequality. Prominent economists have argued that TEC inflation significantly contributes to the growing income inequality by driving up the income at the top (Sabadish and Mishel 2012; Atkinson, Piketty, and Saez 2011; Piketty 2014). This can ultimately damage the legitimacy of democracies (Przeworski 2016).

However, governments’ attempts to regulate or even control TEC lead to very different outcomes across countries. While in some countries (e.g. X) the rise of TEC has been relatively moderate, in others (e.g. the U.S. or X?) TEC galloped away. The academic literature has targeted these cross-country differences and has given reasons why some governments are more successful in halting excessive wage growth for top managers: cooperation with strong trade unions, high tax rates on corporate and personal income, shareholder protection laws etc.

The importance of redistributive institutions

We argue, however, that one important aspect of such attempts is often overlooked: how do such attempts deal with the heterogeneity among managers and the income inequality among CEOs? We do know that there are huge differences between managers belonging, say, to the top 10, 1 and 0.1 percent respectively. However, the literature disagrees to which extent this inequality is due to inequalities between managers, between firms, or entire sectors. As an example for the latter, finance and real estate are often mentioned as those which have seen the highest growth in TEC. Therefore, there is a clear case of heterogeneity and inequality among managers, but not all government initiatives reflect this.

Just looking at the four main institutions mentioned (unions, corporate income tax, personal income tax and shareholder protection). Only two of these are robust to the problem at which level the heterogeneity arises (individual, firm or sector), and only these tackle inequality directly, because they are (potentially) redistributive: first, cooperation with unions, because, on average, (centralized) unions tend to care about wage inequality within firms and among individuals ; and second, personal income taxation, because this happens at the individual level (regardless to which firm or sector a manager belongs) and managers face a progressive tax rate. Neither (most) corporate taxation nor shareholder protection exhibits these features. They target the average manager, no matter who this is and in what type of firm or sector he or she works.

This leads to a simple prediction. While all four types of interventions might dampen average TEC, only personal income taxation and the role of unions also matters for inequality among managers. To show this we look at the effect of all four types for firms of different sizes, in terms of market valuation. This follows a large literature on the growing disparities between small and large cap firms

(Edmans, Gabaix, and Jenter 2017). If our argument about the power of redistributive institutions is correct, we should not only look at the direct (aggregate) impact of institutions on TEC, but also at the gap between very large firms (in market value) and the rest.

 

We test this idea with a new dataset on TEC for X countries over X years. The Figure demonstrates our main findings. All four interventions affect the average level of TEC, but corporate income taxation and shareholder protection have a stronger (more visible) effect on the  average level of TEC (as seen by the range on the y axis). However, only personal income taxation and the strength of unions affect small and large cap firms differently. In both cases, the redistributive effect sets in, i.e. very big firms see more of a depression in TEC. In other words, only these two types of interventions target the relative differences among managers.

 

 

graph_blogpost_renira_article

 

 

 

 

 

 

 

 

 

 

 

 

Consequences

Inequality is back on the political agenda, and TEC is an important driving force of overall inequality. Governments differ very much in their capacity (and political will) to influence TEC. We argue that redistributive institutions still play a significant role, but somewhat underappreciated role in moderating TEC in 21st century capitalism. The strength of trade unions and personal income tax rate in particular, matter precisely because they address the individual heterogeneity in pay among managers (as well as firms and sectors) directly. They are particularly relevant for “large-cap” firms. Other means, such as corporate income taxation and or regulation, do this much less. If inequality among managers is a key driving force for a general rise in TEC as diPrete et al. (2010) argue, initiatives that strengthen such redistributive institutions are an important and robust strategy for governments to respond to rising inequality.

 

References

Atkinson, Anthony B, Thomas Piketty, and Emmanuel Saez. 2011. “Top Incomes in the Long Run of History.” Journal of Economic Literature 49: 3-71. https://doi.org/10.1257/jel.49.1.3.

DiPrete, Thomas A., Gregory M. Eirich, and Matthew Pittinsky. 2010. “Compensation Benchmarking, Leapfrogs, and the Surge in Executive Pay.” American Journal of Sociology 115: 1671-1712. https://doi.org/10.1086/652297.

Edmans, Alex, Xavier Gabaix, and Dirk Jenter. 2017. “Executive Compensation: A Survey of Theory and Evidence.” SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2992287.

Hassel, Anke. 2009. “Policies and Politics in Social Pacts in Europe.” European Journal of Industrial Relations 15: 7-26. https://doi.org/10.1177/0959680108100163.

Oswald, Andrew J. 1985. “The Economic Theory of Trade Unions: An Introductory Survey.” The Scandinavian Journal of Economics 87: 160. https://doi.org/10.2307/3439820.

Piketty, Thomas. 2014. “Capital in the Twenty-First Century.” 685.

Przeworski, Adam. 2016. “Democracy: A Never-Ending Quest.” Annu. Rev. Polit. Sci 19: 1-12. https://doi.org/10.1146/annurev-polisci-021113-122919.

Sabadish, Natalie, and Lawrence Mishel. 2012. “CEO pay and the top 1%: How executive compensation and financial-sector pay have fueled income inequality | Economic Policy Institute.”

Shin, Taekjin. 2014. “Explaining Pay Disparities between Top Executives and Nonexecutive Employees: A Relative Bargaining Power Approach.” Social Forces 92 (4): 1339-1372. https://doi.org/10.1093/sf/sou004. https://academic.oup.com/sf/article-pdf/92/4/1339/17164390/sou004.pdf.

—. 2016. “Fair Play or Power Play? Pay Equity, Managerial Power and Compensation Adjustment for CEOs.” Jorunal of Management 42 (2): 419-448.

Streeck, Woflgang. 2001. The Transformation of Corporate Organization in Europe: An Overview. Cologne.

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New comment on #dualization and stratification in labour markets out

Marius Busemeyer and I wrote a comment published in Political Science Research Methods (link) on the scholarly debates about dualization and insider-outsider problems in labour markets. We make the point that the discussion sometimes conflates the microlevel (How has labour market stratification changed in recent years and to what effect?) and the macrolevel (How do changes in regulation, social benefits and taxation benefit or hurt different segments in the labour market differently?). We argue that it is still to be seen whether contemporary process are best characterised by dualization or (partial) liberalization. This difference is crucial for the future evolution of welfare states.

https://www.cambridge.org/core/journals/political-science-research-and-methods/article/dualization-stratification-liberalization-or-what-an-attempt-to-clarify-the-conceptual-underpinnings-of-the-dualization-debate/C20383B2A41D6C45EA3D32234174256D?utm_source=Twitter&utm_medium=Social&utm_campaign=ram&hootPostID=8ff7413058879ab85f9e2bbd7d5bcba3

It’s part of a symposium on the politics of new labour divides coming out soon…

 

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Postdoc on politics and policies of generations and populations in Denmark

2-year postdoc position in politics and policies of generations and populations at CPOP-SAMF

The SDU’s interdisciplinary Centre on Population Dynamics (CPOP) and the Department of Political Science and Public Management invites applications for a 2-year postdoc position in politics and policies of generations and populations as soon as possible.

The successful applicant will be affiliated with the Societies and Demographic Change research section of the Danish Centre for Welfare Studies at the Department of Political Science and Public Management, SDU. Furthermore, the new employee will be affiliated with the Business and Social Sciences unit of the Centre for Population Dynamics (CPOP-SAMF). We encourage applications from early-stage researchers with a strong methodological background who do innovative and theory-driven research in political sociology, political economy, economic sociology or political demography, on key aspects of generations and populations in aging societies. Relevant research topics may include intergenerational resource transfers and human capital investments, intergenerational solidarity and equity, intergenerational social norms and social comparisons, intergenerational mobility, intergenerational public policy conflict, and age group relevant politics, policies and feedback processes across the lifecycle (ranging from education to pensions), as well as implications for policy reform and policy innovation.

 

Candidates are expected to:

  • Be curious and willing to actively engage in interdisciplinary research activities. Centre for Population Dynamics includes scholars from demography, health, biology, humanities, as well as the social sciences.
  • Present a 2-year research agenda that clearly links to the CPOP and CPOP-SAMF research agendas.
  • Document a strong research outcome and publishing experience with international peer-reviewed journals/presses.
  • Document the ability to engage in professional networks.

It is important to us that applicants have good interpersonal skills and are dedicated to taking part in the everyday academic and social environment at the department in general and the CPOP activities. Such engagement can be documented by, for example, past engagement in social and professional activities.

The department believes in fostering a stimulating and inspiring environment for both faculty members and students. The department’s ambition is therefore to recruit, develop, and retain talented scholars committed to both academic excellence and departmental development. Furthermore, the department aims to employ staff that reflect the diversity of society and, thus, welcomes applications from all qualified candidates regardless of personal background.

For further information, please contact PI Professor Pieter Vanhuysse: vanhuysse@sam.sdu.dk or Head of Centre, Klaus Petersen, klaus.petersen@sdu.dk.

Application, salary, etc.
Appointment to the position requires a PhD or equivalent and will be in accordance with the salary agreement between the Ministry of Finance and the Danish Confederation of Professional Associations.

An application must include:

  • Detailed CV
  • A research agenda (max 3 pages) for the next 2 years that describes:
    • the potential to advance the field (both empirically and theoretically)
    • relationships to the aim and goals of the CPOP/CPOP-SAMF
    • planned national and international collaborations
    • the potential of obtaining external funding
  • Certificates/Diplomas (Master and PhD degree)
  • Complete list of publications, indicating which publications are most relevant for the position
  • Up to 3 of the most relevant publications. Please upload a pdf for each publication. NOTE: If publications have been co-authored, co-author statements must be a part of this pdf and must include information like in this example. The statement is just for your inspiration
  • Please attach the PhD dissertation as a publication, if such exists.

All non-Danish documents must be translated into English.

Applications that are incomplete with regard to the above requirements may be rejected without any substantive evaluation.

Assessment of applications will be done under existing Appointment Order for universities. Applications will be assessed by an academic assessment committee that determines whether applicants are qualified. The committee may request additional information, and if so, it is the responsibility of the applicant to provide the necessary

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Resumen del Documento de Trabajo: Cómo combatir la excesiva competencia fiscal y las prácticas fiscales perniciosas – El caso de Ecuador

Esto es el resumen de un Documento de Trabajo escrito por estudiantes de la @BrandtSchool sobre competencia fiscal internacional. El documento completo se encuentra aqui (en Ingles).

02.05.2019: Ecuador es un caso instructivo de un país en vías de desarrollo que es vulnerable a la excesiva competencia fiscal y al uso de jurisdicciones de baja tributación. En una serie de reformas, Ecuador ha intentado combatir paraísos fiscales y el abuso de tratados de doble tributación; también ha participado activamente en la promoción de reformas fiscales a nivel global. En este estudio de caso, describimos el contexto y el resultado de estos cambios y obtenemos algunas conclusiones que podrían ser útiles para los responsables de la formulación de políticas en este ámbito.

Este estudio de caso presenta a Ecuador como un ejemplo de un país en desarrollo que ha realizado cambios de gran alcance en sus asuntos fiscales nacionales e internacionales. Argumentamos que las reformas en Ecuador fueron impulsadas por condiciones económicas y políticas existentes y momentos específicos de inflexión social. Los resultados han sido en general positivos y se pueden extraer lecciones para los responsables de la formulación de políticas en otros países. A continuación, discutimos los siguientes puntos:

Antecedentes de competencia fiscal

La competencia fiscal global es particularmente importante para los países en vías de desarrollo como consecuencia de la indebida carga que supone para sus economías. Las diferentes definiciones de paraísos fiscales reflejan una falta de consenso en el rol de las organizaciones internacionales. La escala del problema de los paraísos fiscales ha sido revelada a través de las filtraciones de los Panama y Paradise Papers. Con la intención de reducir la carga impositiva, los acuerdos de doble tributación a menudo son usados para la doble exención fiscal y el treaty shopping. Se han introducido varias iniciativas a nivel internacional, incluyendo BEPS, el Índice de Secreto Financiero y los Modelos de Tratados Tributarios, para abordar y combatir los abusos fiscales. A pesar del apoyo de más de 135 países, ha sido infructuosa la creación de un organismo regulador a nivel internacional para tributación.

Ecuador como caso instructivo

Ecuador tiene muchas características a nivel económico y político comunes a países en desarrollo. Como país sin soberanía monetaria, Ecuador es particularmente vulnerable a los paraísos fiscales y a las consecuencias de los tratados de doble tributación. Al igual que otros países, la inestabilidad política y las críticas internacionales al gobierno ecuatoriano han creado problemas de reputación.

Paraísos fiscales

La crisis bancaria y la filtración de los Panama Papers fueron sumamente importantes en motivar los cambios relacionados con los paraísos fiscales. Las reformas regulatorias de 2007 (con modificaciones posteriores) definieron los paraísos fiscales e impusieron restricciones y regulaciones adicionales. En 2017, Ecuador se convirtió en el primer país en celebra un referéndum nacional sobre paraísos fiscales, y en adoptar una ley que prohíbe a todos los políticos y funcionarios públicos tener fondos en paraísos fiscales. Las reformas fueron exitosas, y una mayor eficiencia fiscal permitió a Ecuador incrementar los ingresos fiscales e implementar políticas redistributivas.

Tratados de doble tributación

Ecuador tiene 19 convenios de doble tributación. Entre 2005 y 2013, no se firmaron nuevos convenios, probablemente a una percepción negativa de inestabilidad política y económica por parte de la comunidad internacional. En uno de los convenios, entre Ecuador y Suiza, se identificó abuso por parte de China International Water & Electric Corp, una empresa subsidiaria de la empresa estatal China Three Gorges Corporation, a través de treaty shopping ilegal. Tras investigaciones de medios de comunicación y opinión pública, el mencionado convenio fue modificado en 2017 agregando un apéndice de provisión de información.

Debate fiscal global

Ecuador ha desempeñado un papel activo en el debate fiscal a nivel global. Ecuador se unió al marco BEPS y está haciendo cambios para cumplir con los estándares de transparencia fiscal requeridos. Como presidente del G77 más China, Ecuador surgió como una voz fuerte en apoyo a la creación de un organismo fiscal internacional. El país se mantiene activo en la defensa fiscal y alienta a otros países a replicar sus logros; promueve el mensaje de que es posible cambiar la mentalidad pública y construir una cultura de pago de impuestos.

Lecciones para responsables de formulación de políticas

Las reformas tributarias en Ecuador tienen implicaciones para los responsables de la formulación de políticas en otros países. Las posibles lecciones incluyen el rol desempeñado por la crisis y el escándalo como desencadenadores,  el poder de la voluntad pública para impulsar y generar cambio, el uso de herramientas políticas creativas, la importancia del apoyo internacional y los beneficios un mejor acceso a la información.

 

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Artículo: La Opinión Pública en Protección Laboral en América Latina

Resumen del Artículo: Labor Divides, Informality, and Regulation: The Public Opinion on Labor Law in Latin America, by Sarah Berens y Achim Kemmerling publicado en GIGA Journal of Politics in Latin America.

En este artículo, Sarah Berens y Yo discutimos una particularidad importante de América Latina. En general, esta región tiene un alto nivel de protección laboral, en muchos aspectos, es la región con las leyes de contratación y despido más estrictas. Sin embargo, es una región donde existe una amplia fracción de empleados que trabajan en el sector informal o que no están legalmente protegidos. Cuáles son las consecuencias de este sistema de dos niveles? Más específicamente, como es la percepción de las personas en América Latina sobre la legislación de protección laboral (LPL)? Conocen y aceptan la naturaleza de estos dos niveles (formal e informal), o existen principios de segmentación en la población con respecto a este tema?

De hecho, conocemos que en Europa, por ejemplo, existe una clara tendencia hacia la dualidad laboral, es decir, hay (al menos) dos niveles de trabajadores en el mercado laboral. Un nivel se encuentra bien protegido, principalmente por la LPL y los sistemas de seguridad social. Estos cubren a las personas con contratos típicos formales, como ejemplo, contratos con (más / menos) 40h a la semana, son contratos que se encuentran en el marco de sistemas de negociación colectiva y protegidos por leyes laborales individuales y colectivas. Existe también otro nivel, en el cual se encuentran trabajadores con contratos temporales, de tiempo parcial, y aquellos empleados autónomos considerados como marginados y vulnerables. Para estas personas, formas legales estándar y herramientas de protección laboral no aplican. Lo cual ha creado enormes problemas en los mercados laborales Europeos en caso de que el segundo nivel no cumple con su cometido: de ser un escalón en la vía para obtener un contrato estable, formal y bien pagado.  Interesantemente esta reciente tendencia Europea, en varias formas sigue anteriores tendencias de América Latina.

Los mercados laborales Latinoamericanos son bien conocidos por su estructura segmentada y dual. La forma más clara de dualidad se encuentra en la diferencia entre los mercados laborales formales e informales. Dada la gravedad del problema en el ámbito de políticas, es importante conocer lo que las personas conocen y piensan sobre la LPL. Ya que existen relativamente pocos estudios sistemáticos sobre este tema, incluso para Europa, no se diga para América Latina. Utilizamos evidencia recolectada en Latinobarómetro mediante encuestas en opinión pública en 18 países de América Latina. Utilizamos principalmente la información recogida en una pregunta concerniente a si la personas piensan que los trabajadores en sus países se sienten protegidos por las leyes laborales en un rango de 1 “muy protegidos” a 4 “no protegidos en absoluto”. A pesar de las claras limitaciones de esta pregunta, es la mejor fuente disponible para investigar la percepción o escepticismo público con respecto a las leyes laborales en la Región.

La figura 1 muestra la respuesta total en cada país en dos distintos años: 1997 y 2005. El grafico resalta varios problemas. Primero, en promedio, los latinoamericanos son bastante escépticos acerca de las leyes laborales en sus países. Por ejemplo, la respuesta promedio en toda la región fue de 3, es decir, “poco protegido”. En 1997, el valor no fue mucho menor, por lo cual el escepticismo tampoco fue más bajo. Incluso en algunos países como Argentina en 1997, el escepticismo fue mucho mayor y cercano a 4 “no protegidos en absoluto”. Por otro lado, mientras el escepticismo ha disminuido en algunos países como Argentina y Brasil, claramente ha incrementado en otros como México. Lo cual permite observar que existen diferencias considerables entre países en el tiempo.

Descriptive_graph

Ahora que conocemos la cantidad de escepticismo existente en la región, nos gustaría conocer porqué los individuos difieren en opinión. Si la idea de dualizacion tiene consecuencias reales, deberíamos observar una diferencia entre aquellos que están directamente cubiertos por las leyes y aquellos que no. Entre estos últimos asumimos hay personas desempleadas y aquellos que trabajan de manera informal. Existe incluso una polarización entre quienes están cubiertos y quienes no cubiertos por las leyes laborales como lo han argumentado algunos estudiosos/académicos?

Probamos esta lógica con un conjunto de modelos de regresión multivariante, pero en este resumen simplemente queremos resaltar algunos de nuestros hallazgos. El más relevante es que, en efecto encontramos que las aquellas personas que se encuentran desempleadas o trabajan en el sector informal son más escépticos en las leyes laborales que el resto de la población. Más importante aún, las diferencias son mayores en países con mayores niveles de LPL. En otras palabras, la divergencia o talvez incluso la polarización en la opinión publica es mayor en países donde el tratamiento preferencial a personas que se encuentran cubiertas por las leyes laborales es mayor. La figura 2 muestra este resultado para los dos tipos de personas que no se encuentran protegidos por leyes laborales en relación al resto de la población. La línea con tendencia de pendiente ascendente muestra que las diferencias entre quienes están cubierto y quienes no están cubiertos por las leyes es mayor cuando el nivel de derechos laborales es mayor.

IAeffects

Realizamos muchas pruebas y verificaciones adicionales para asegurarnos que estos resultados no son un artefacto estadístico. Dado que nuestros resultados son robustos, argumentamos que tienen importantes implicaciones de política. Primero, los resultados ilustran un problema fundamental en la protección de trabajadores mediante leyes: Como se asegura niveles altos de cobertura? Muchas políticas sociales y de empleo en América Latina sufren de baja cobertura, es así que, solamente una pequeña parte de la población tiene realmente acceso a los beneficios de estas políticas. Para que las LPL funcionen necesitan tener una amplia cobertura de la fuerza laboral y no solamente aquellos en el sector formal y con formas tradicionales de empleo.

Segundo, las personas están molestas con el status quo. En promedio, las personas piensan que la protección no es suficiente. Esto no significa necesariamente que quieran abolir las leyes existentes. Incluso si no estás cubierto por las leyes, no necesariamente quieres que todos estén sin cobertura. Por el contrario quieres estar cubierto por las leyes también. En este sentido, la opinión pública debería ser leída como contraria a la dualizacion, pero no necesariamente a favor de una completa desregularización.

Tercero, nuevamente existe un dilema: Las personas están divididas. Hay aquellos que piensan que las leyes son para el beneficio de otros, y aquellos que no. En un grado significante, estas discrepancias en diferencias entre aquellos que se benefician personalmente y aquellos que no. No es que no sea un problema meramente de intereses establecidos: Las personas que están cubiertas generalmente ni si quiera se dan cuenta que el sistema de cobertura es limitado. Una reforma en protección laboral tiene que empezar por concientizar a personas que están protegidas por la ley sobre el privilegio que tienen. También es necesario construir coaliciones inclusivas, movilizando a los no protegidos. Un hallazgo adicional nuestro, es que los no cubiertos que se sienten desprotegidos generalmente se alejan de la política, por ejemplo, ellos no votan (o votan por soluciones radicales). Reformar la legislación de protección laboral es también un tema importante para políticas de inclusión.

 

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New Paper out: Public Opinion on Labor Law in Latin America

Here is the policy summary:

Summary of “Labor Divides, Informality, and Regulation: The Public Opinion on Labor Law in Latin America”, by Sarah Berens y Achim Kemmerling forthcoming GIGA Journal of Politics in Latin America.

In this research article, Sarah Berens and I discuss an interesting feature of Latin America. On many accounts, it is the region with toughest hiring and firing laws, and, in general, with a high level of employment protection. Yet, it is also a region where a large fraction of employees works in informal or legally unprotected jobs. What are the consequences of such a two-tier system? More specifically, how do citizens in Latin America perceive employment protection legislation (EPL)? Do they know about this two-tier nature and accept it, or do we find dividing lines within the population on this matter?

Indeed, we know that in Europe for instance, there is a clear trend towards dualization, i.e. there are (at least) two-tiers in the labour market. One tier is well protected, mainly by EPL and social security systems. This covers people with formal, typical work contracts, i.e. contracts with (plus/minus) 40h a week, contracts inserted into a collective bargaining system and protected by individual and collective employment laws. Then there is another tier, a tier that mainly includes people with temporary work contracts, part-time workers, and those kind of the marginally or vulnerable self-employed. Standard forms of legal and material protection don’t apply to these people. This has created huge problems in European labour markets, if this second tier does not live up to its promise: being a stepping-stone to a formal, well-paid and stable contract. Interestingly enough, this recent European trend in many ways follows earlier trends in Latin America.

Latin American labour markets are long known for their segmented, dual structure. The clearest form of duality lies in the difference between a formal and an informal part of the labour market. Given the severity of the policy issue, it is important to know what people know and think about EPL. Since there is relatively little systematic scholarship on this issue even for Europe, let alone Latin America we use evidence from a Latinobarόmetro survey on public opinion in 18 Latin American countries. We make use of a question that asks whether people think that workers in their countries feel protected through labour law ranging from 1 ‘very protected’ to 3 ‘not at all protected’. While this question has clear limitations, it is the best available source for investigating the public sentiment or scepticism on labour laws in the region.

Figure 1 shows the aggregate response in each country for two years: 1997 and 2005. The figure highlights several issues. First, on average, Latin Americans are very skeptic about labor laws in their countries. For instance, the average response in the whole region was 3, i.e. answering with only ‘a little protected’. For 1997, the value was not much lower, hence scepticism was not much lower. In some countries – e.g. Argentina in 1997 – scepticism was even much higher and closer to ‘not at all protected’. Second, while scepticism has declined in some countries such as Argentina and Brazil, it has also clearly increased in others, Mexico for instance. There are considerable differences across countries and across time.

Descriptive_graph

Now that we know how much scepticism there is in the region, we would like to know why individuals differ in their opinion. If the dualization idea has real consequences, we should see a difference between those who are themselves directly protected by laws and those who are not. Among the latter we presume there are unemployed people and those working informally. Is there even a polarization between insiders and outsiders as some scholars have argued?

We test this logic with a battery of multivariate regression models, but in this brief we simply want to highlight some of our findings. Most importantly, we do, indeed, find that those who are either unemployed or work informally are more sceptical about labour laws than the rest of the population. More importantly, the differences are higher in countries with higher levels of EPL. In other words, the divergence or perhaps even polarization of public opinion is higher in countries where the preferential treatment for insiders is higher. Figure 2 shows this result for both types of outsiders relative to the rest of the population. The upward-sloping trend line shows that the differences between outsiders and insiders are larger at higher levels of labour rights.

IAeffects

We did many additional tests and checks to make sure that these results are not a statistical artefact. Given that our findings are robust, we argue that they have important policy implications. First, the findings illustrate a fundamental problem when protecting employees through laws: How do you ensure high coverage rates? A lot of social and employment policy in Latin America suffer from severe under-coverage, i.e. only a small part of the population has real access to the benefits of such policies. For EPL to work it needs to cover a large part of the workforce and not only those in the formal sector and with typical forms of employment.

Second, people are unhappy about the status quo. On average, people do not think that protection is sufficient.  This does not necessarily mean they would want to abolish the existing laws. Even if you an outsider, you do not necessarily want everyone else to become an outsider. You rather want to become and insider as well. In this sense, public opinion should be read as being poised against dualization, but not necessarily in favour of full deregulation.

Third, again, there is a dilemma: People are split. There are those who think the law is to the benefit of others, and those who are not. To a significant degree, these differences with differences between those who personal benefit and those who do not. Not that this is not merely a problem of vested interests: Insiders are often not even aware that the system is limited in coverage. A reform of employment protection has to start with making insiders aware of their privilege. It also needs to build inclusive coalitions, mobilizing outsiders. One of our additional findings, for instance, is that outsiders who feel unprotected often turn away from politics, i.e. they don’t vote (or may vote for radical solutions in the future). Reforming EPL is thus also important for matters of political inclusion.

 

 

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