State‐led wage devaluation in Southern Europe in the wake of the Eurozone crisis

Abstract

South European labour markets have gone through a substantial level of downward adjustment in wages (internal devaluation) and liberalisation in the aftermath of the Eurozone crisis. Yet, there have been differences in the extent of change between Greece, Portugal, Spain and Italy. These differences cannot be explained by the size of the economic crisis alone. While existing analyses focus on the extent of external pressure or party ideologies, this article focuses on the pre‐existing level of regulation by the state as opposed to regulation by social partners. It shows that devaluation and liberalisation were the most extensive in countries where governments possessed more tools to force down wages (statutory job protection, state regulations of collective bargaining, minimum wages), sometimes even against the will of employers. In contrast, countries with a higher level of autonomy for social partners (and fewer policy instruments available to governments to influence wages) devalued less. In some cases, the crisis led to more power to the state, rather than less. The article shows that state intervention can be a facilitator rather than a barrier to wage adjustment.

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

“…This paper makes a twofold contribution to the debate on the political economy of labour market deregulation on the EU periphery. First, 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). Through this careful mapping exercise, we distinguish between the two elements of core deregulation of labour market policy common across Southern European countries (that is, loosening of EPL for open-ended contracts and decentralisation of CB), and the corollary measures accompanying this kernel of labour market policy liberalisation that vary across countries and party families (namely, the regulation of temporary employment and minimum wage setting, and the design of unemployment protection and ALMPs).…”

“…While the intensity of exogenous constraints has varied across countries and over time, it is beyond doubt that governments on the Eurozone periphery have been severely constrained in their policy options, producing a generalised trend towards liberalisation (Baccaro & Howell 2017). Nevertheless, more recent contributions have highlighted how, even at the peak of the crisis, elected governments have retained some room for manoeuvre in shaping the content of structural adjustment measures, leading to cross-country variation in labour market reform trajectories and outcomes (Afonso 2019;Cioffi & Dubin 2016;Moury & Standring 2017;Picot & Tassinari 2017). How can these seemingly divergent views be reconciled?…”

Beyond Conditionality: Policy Reversals in Southern Europe in the Aftermath of the Eurozone Crisis

“…This did not prevent the new government formed by the Movimento Cinque Stelle and the Lega, which took power in 2018, to actively decry the reforms passed under austerity and announce reversals. Hence, as Afonso (2019) show in this volume, Matteo Salvini promised to 'shred' the pension reform passed during the Monti government, while Luigi di Maio, leader of the Cinque Stelle Movement, promised to 'get rid of the Jobs Act'. The extent to which these declarations will be followed by radical policy reversals is unclear however.…”

“…Lastly, 'internal devaluation' became an overarching policy goal. This was fostered by a series of reforms allowing for a quicker downward adjustment of wages, such as a loosening of employment protection, the introduction of more flexibility within collective labour agreements, or the dismantling of collective bargaining (Afonso 2019). Under the auspices of the crisis and tight monitoring by international financial institutions, South European governments engaged in a massive programme of reforms in a wide array of domains, most importantly in the labour market.…”

Business Against Markets: Employer Resistance to Collective Bargaining Liberalization During the Eurozone Crisis

“…The case selection can be justified for the following reasons. First, these three countries were confronted with similar external pressures to liberalize their collective bargaining systems during the crisis, either through direct conditionality within the framework of a Memorandum of Understanding agreed with a Troika of international lenders (Afonso, 2019) or through implicit conditionality based on severe and unsustainable conditions on the bond market (Sacchi, 2015). The countries selected share many similarities in the setup of their political economies and welfare regimes, most notably the prevalence of small firms in the economy and within employer organizations, as argued above.…”