European Social Models and Labor Markets in the Era of Monetary Integration : From Convergence to Divergence

This paper analyzes the past quarter century changes in the employment relations pillar of West European social models and discusses how their interaction with the momentous changes in their economic-political context have influenced employment and inequality. Challenging the deregulatory, supply-side diagnosis prevailing at EU level, the book chapter on which the paper is based finds no trade-off between equality and jobs across countries. Job growth clearly depends on the interaction between labor demand and supply. In cases without sufficient demand, “structural reforms” brought more inequality than jobs, whereas income inequality often receded in cases with strong employment growth especially when supported by policies to upgrade skills and increase female participation. Employment performance was generally stronger outside than inside EMU, where “internal devaluation” is the main adjustment tool left, and the fallacies of financial deregulation and the EMU construction propelled divergence between core and periphery. With the crisis hitting regardless of social models, it argues that the surge in unemployment and inequality amid the euro-crisis, and the EU recipe for overcoming it by austerity and “structural reform,” raise the likelihood of deepening social cleavages within and across European countries.