Opinion Pieces

Are Segmented Labor Markets Feeding Populism?

In both Europe and the United States labor markets are becoming increasingly fragmented. The unequal concentration of social justice on temporary workers could be a contributing factor to the rise of populist political ideologies across the political spectrum.

While unemployment rates continue to fall in Europe and the U.S. after the 2008 recession, many workers have discovered that finding a job may not solve all of their problems. Bertelsmann Stiftung reports in its 2016 Social Justice Index that recent increases in employment that are driving the economic recovery in the European Union are not providing benefits for social justice and inclusion. The lag can be felt in the increasing numbers of working poor and workers caught in temporary or atypical jobs with little opportunity for advancement in the EU. This mirrors similar trends in the U.S.

The dual or segmented labor market theory was popularized in the early 1970s arguing that the U.S. and some large European labor markets at that time had split into primary and secondary markets. The primary labor market was characterized by relatively high wages, opportunities for advancement and stable work opportunity, while the secondary labor market saw low wages, high turnover and less opportunity for training and advancement. These two segments paralleled racial, gender and age inequalities with the secondary market seemingly dominated by minorities, women, immigrants and youth.

Dual labor markets carry obvious economic and social risks. They create wage gaps, lower job mobility, enforce differences in working conditions and tenure, and reduce productivity while leading to higher employment volatility. Firms are less likely to turn temporary jobs into permanent jobs, which can result in less investment in training and thus reduce the formation of human capital.

The risks of dual labor markets can be most brutally exposed when a recession hits. As firms look to cut costs by firing employees, permanent workers enjoy more legal and normative protections and the burden falls on temporary workers. Recessions compound these vulnerabilities as employers are more likely to rely on temporary contracts following a recession in order to rebuild employment due to concerns over uncertainty and liquidity constraints.

Overall, the segmentation of the labor market can dampen the economy while creating and exacerbating social justice concerns such as social participation opportunities and the risk of poverty. It concentrates the risks associated with job loss on lower paid workers and feeds a cycle of dual labor market formation.

Social justice concerns in the EU

The 2016 Social Justice Index (SJI) by the Bertelsmann Stiftung reveals that almost 10 years after the 2008 economic and financial crisis, the social concerns associated with dual labor markets are also materializing in Europe.

Overall, according to the SJI, the EU may be at an inflection point in regards to finally improving social justice indicators such as poverty prevention, equitable education, labor market access, social cohesion and non-discrimination, health and intergenerational justice. However, since 2008 European labor markets have suffered from widespread loss of participation opportunities. In only five states – the Czech Republic, Germany, Luxembourg, the UK, and Poland – social participation has returned to pre-crisis levels.

While the EU labor market continues to improve, a discrepancy is forming between southern Europe and the rest of the EU in terms of part time and atypical forms of employment which impacts participation opportunities. Crisis-hit countries including Spain, Italy, Bulgaria, Romania, and Greece remain at the bottom of the Social Justice Index due to continued poor performance on measures of equal participation opportunity and poverty levels.

In countries with highly dual markets such as Spain and Italy, temporary workers including youth and migrants, were disproportionately impacted with high unemployment rates after the 2008 recession. Experts note that in the Spanish construction sector, fixed-term or temporary employees suffered 35% decreases in employment while permanent workers’ real wages increased by 4%.

Meanwhile, youth unemployment rates in southern Europe remain sky high, with 49.8% in Greece (2015), 44.4% in Spain (2016) and 40.3% in Italy (2015). These figures are almost double their pre-crisis levels.

Are EU labor markets beginning to look more like U.S. labor markets?

The National Employment Law Project (NELP) showed that the U.S. has seen similar trends to the EU following the recession. In 2014, NELP reported that high and medium wage industries had lost nearly 2 million jobs, while low wage industries had seen an increase of 1.9 million jobs since the recession. This disproportionate impact on low wage industries and jobs are similar to the job losses reported in the EU, particularly southern European countries.

In the U.S. labor market there is a clear trend towards increasing inequality among workers. In 2011, the Urban Institute found that over the past 30 years the U.S. labor market has generally seen women and educated workers gain the most in earnings and employment, while men and less educated workers have gained the least. This reveals an overall increase in inequality.

The study also found that young and minority workers and those in the Midwest region have lost ground in terms of earnings and employment compared to other groups. The authors note further that following the recession in 2008, the large increases in unemployment have been experienced mostly by less-educated, younger and minority workers. 

Comparing the trends of increasing inequality in the U.S. with long term trends in the EU is difficult because of the relatively fast development and expansion of the EU over the past decades. However, the increases reported in youth unemployment and temporary worker contracts suggest that the EU may be following the path of the U.S. toward structural increases in worker inequality and dual labor markets.

Disheartened workers are finding a voice in political populism

With political outsiders and leaders rallying against lost jobs, income inequality and the ‘rigged system’ of wall street and high finance, some of these unemployed, working poor and otherwise socially excluded groups have rallied behind insurgent candidacies and policy platforms that run counter to the globalist agenda of many centrist parties.

Donald Trump seems to have benefited from support among rust belt workers and other middle and working class voting groups who found truth in his relentless criticism of the imbalanced recovery from the 2008 recession. Meanwhile, working class Brits have rejected the globalism of the EU project by voting to leave the EU, and a radical rightwing wave is sweeping Europe with the rise of leaders as Marine Le Pen in France and Geert Wilders in the Netherlands.

The insurgent campaign of U.S. Senator Bernie Sanders in the 2016 Democratic primary highlighted the strength of populist economic arguments on both sides of the political spectrum. EU leaders in Brussels have stated plans to provide for the working poor in the EU in order to drain support for right wing political movements. 

Europe and the U.S. seem to be at a crossroads both economically and politically. With the ongoing recovery from the 2008 recession building dual labor markets through its emphasis on temporary and atypical work, social and economic inequality are rising. This increase in inequality has found a voice in populist ideology in political insurgencies across the political spectrum in both Europe and the U.S. Leaders, policy makers, communities, and the public at large in both continents must act to address underlying causes of social and economic inequality.