The Relational Nature of Employment Dualization: Evidence from Subcontracting Establishments

Abstract

Scholars argue that the dual path to labor market flexibility protects the privileges of core workers at the expense of employees relegated to a peripheral employment sector. Yet whether core workers indeed benefit from workforce segmentation remains disputed. To scrutinize this question, I study how the wages of core workers with less than college education respond when their employer shifts employment out to subcontractors, using linked employer-employee panel data from Germany. Empirically, I find the effect of subcontracting on average to be either positive or neutral, but not negative. The presence and strength of the positive effect depends, first, on whether the type of subcontracting affords core workers with codetermination rights, second, on whether core workers are represented by a works council to exercise these rights, and, third, on whether these rights are exercised in a context that augments the bargaining position of core workers by rendering conflictual labor relations costly to the employer.2

The Relational Nature of Employment Dualization: Evidence from Subcontracting Establishments

“…In all analyses, I use weights to account for the stratified sampling design and weight establishments by their size (number of employees). A replication package documents these and all other coding decisions in full detail and is publicly and permanently available at the Harvard Dataverse (Ochsenfeld, 2018 Information on employees stems from the notification procedure that obliges German employers to report exact daily wages (including bonus payments) and a set of person characteristics to social security institutions (Heining et al, 2014). I restrict the sample to core workers: full-time social insurance covered non-apprentice employees of age 18 to 65 with a gross effective daily wage of at least 20€ 4 who are with their current employer for at least two years.…”

Skill matching and outcomes

“…Social policies and their effects have been studied for a range of individual labour market outcomes (e.g. Barbieri, Cutuli and Passaretta, 2018;Ochsenfeld, 2018;Giesselmann, 2012;Noelke, 2011). CHAPTER 3 investigates how social policies relate to optimal skill matching, examining potential macro-level determinants of individual skill-to-job matches.…”

“…While EPL was relatively strict at the end of the 1980s, an easing of regulation has been taking place since then: "The overall strictness of EPL continues to vary widely between countries and the regulation of temporary employment remains the key element in explaining cross-country differences" (OECD, 2004: 63). There is a common understanding in the literature that employment protection policies favour insiders on the labour market, leading to a situation in which particularly young workers are confronted disproportionally with adverse labour market situations and related risks (Ochsenfeld, 2018;Giesselmann, 2012;De Vreyer et al, 2000;Lindbeck, and Snower, 1988). Particularly less restrictive EPL could also be associated with higher mismatch, not only amongst young entrants to the labour markets.…”

“…Labour market policies may explain variation in allocation processes, and different education regimes may explain variation in the kind of skills that are rewarded on the labour market (Barbieri, 2009;Gangl, 2006;Estévez-Abe et al, 2001). In the literature, there is a common understanding that employment protection policies favour insiders on the labour market, leading to a situation in which outsiders, and particularly young workers, are confronted disproportionally with adverse labour market situations and related risks (Ochsenfeld, 2018;Fregin, 2013;Giesselmann, 2012;Lindbeck and Snower, 1988;De Vreyer et al, 2000). Labour market arrangements (and especially unemployment benefit schemes) have been reconfigured during the last decades and especially during the 'activation turn' in labour market policy, a paradigm shift that was accompanied by deregulation and increasing flexibility (Bonoli, 2010).…”

“…We enrich the PIAAC micro data with measures of social policies at the country level, more specifically, the degree of employment protection (EPL), unemployment benefits, and activating labour market policy (ALMPs), and the vocational orientation and vocational specificity as central characteristics of education systems. While we base our analyses on statistical models for workers of all ages, we put a specific focus on the situation of young workers, which we here define as labour markets outsiders, comparing their situation to labour market insiders (Ochsenfeld, 2018;Fregin, 2017;Palier and Thelen, 2012;Giesselmann, 2012;Wolbers, 2007;Lindbeck and Snower, 1988). We do so because young workers form a specific group of outsiders (de Vreyer et al 2000), since particularly young entrants to the labour markets have to compete for available jobs with those who have already gained experience with work and employment.…”