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Virginia Doellgast

Research Findings

Product market liberalization and labour market inequality in Social Europe

March 6, 2018

Since the 1990s, policy makers across Europe have promoted product market reforms to reduce costs and improve market efficiency. These reforms most often targeted industries dominated by state monopolies, such as telecommunications, water, and electricity.

Studies have tried to measure how consumers and the wider economy benefit from these reforms, typically comparing their effects on service quality, prices, value added and employment. There has been less attention to their impact in the workplace: How did product market liberalization affect job quality, especially job security and wages? What kinds of jobs were created after the privatization of state monopolies? Were there differences across countries in worker outcomes – and if so, what explains these differences?

We have recently addressed these questions by comparing developments in the telecommunications sector of four European countries: Austria, Denmark, Germany and Sweden. Our findings are based on company publications and 76 interviews with union representatives and employers at the sectoral and at workplace level.

These four countries are often referred to in academic and policy debates as social market economies. They are all thriving capitalist economies that long sustained low wage inequality, thanks in large part to strong traditions of social partnership between well-organized employers’ associations and labor unions. In the telecommunications sector, pay and working conditions were regulated through collective agreements negotiated between these ‘social partners’. They are thus good cases to compare, to ask how industrial relations and labor market institutions filter downward pressure on wages and working conditions from more competitive markets – as well as how those institutions themselves change following product market reforms.

We found substantial variation in the evolution of collective bargaining structures and, as a result, in patterns of wage inequality across our four countries. In Austria and Sweden, unions were able to maintain and extend encompassing collective bargaining agreements across the telecommunications sector. In contrast, telecommunications workers in Germany and Denmark experienced increasingly decentralized and fragmented collective bargaining.

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