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What's left of the left? Partisanship and the political economy of labour market reform: why has the social democratic party in Germany liberalised labour markets?

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  • Patrick Lunz
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    Abstract

    The German social democratic party initiated in 2003 the greatest overhaul of labour market legislation in decades, severely cutting unemployment benefits and slashing employment protection legislation. How can we explain this radical policy shift? This paper will present a counter-intuitive answer, arguing that the SPD implemented the reforms because of electoral interests. The rationale is two-fold and relates to changes in labour market policy supply and policy demand. First, the German social democrats strategically adjusted their labour market policy supply, seeking to maximise their office pay-offs by appealing to the median voter in a competitive political space. Second, the shift in policy-supply is also a reaction to changes in labour market policy-demand, with crucial segments of the electorate turning more favourably to welfare state retrenchment. This shift disproportionally benefited the conservative CDU and liberal FDP and forced the SPD to reposition itself in the party landscape.

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    Paper provided by London School of Economics / European Institute in its series Europe in Question Discussion Paper Series of the London School of Economics (LEQs) with number 5.

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    Date of creation: 16 Jul 2013
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    Handle: RePEc:erp:leqsxx:p0065

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    Web page: http://www2.lse.ac.uk/europeanInstitute

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    1. Lucio Baccaro & Marco Simoni, 2010. "Organizational determinants of wage moderation," LSE Research Online Documents on Economics 33510, London School of Economics and Political Science, LSE Library.
    2. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135.
    3. Gijs Schumacher & Barbara Vis, 2012. "Why Do Social Democrats Retrench the Welfare State? A Simulation," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 15(3), pages 4.
    4. Garrett, Geoffrey & Lange, Peter, 1991. "Political responses to interdependence: what's “left” for the left?," International Organization, Cambridge University Press, vol. 45(04), pages 539-564, September.
    5. Philippe Askenazy & Catherine Bloch-London & Muriel Roger, 2004. "La réduction du temps de travail 1997-2003 : dynamique de construction des lois « Aubry » et premières évaluations," Économie et Statistique, Programme National Persée, vol. 376(1), pages 153-171.
    6. Eichhorst, Werner, 2007. "The Gradual Transformation of Continental European Labor Markets: France and Germany Compared," IZA Discussion Papers 2675, Institute for the Study of Labor (IZA).
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