Insiders versus outsiders in European job market

Compassion or cruelty?

That is the question raised by the Economist, when assessing Europe’s particularly rigid labour market.  Countries ranging from Italy, Greece, to Spain and Sweden, have been staunch defenders of its labour-market laws and social system.

Two problems are raised.

One is that the natural desire for social cohesion is being abused to justify the protection of “insiders”—those in permanent jobs, in trade unions or in privileged professions. But the cost of protecting insiders falls largely on “outsiders”—the unemployed and those in temporary work, especially young people and immigrants.

Essentially, the call to preserve social cohesion can be abused to protect the “haves”, and alienate the “have-nots”.  While existing contracts are protected, fewer new permanent ones are signed.  Therefore, temps do not receive the kind of training they need to be fully integrated into the labour market and move ahead.

The second common thread is that social cohesion has become a reason to defend the privileges and perks of the public sector, which is also now the last bastion of trade unions. … One result is that the state is taking a rising share of GDP, which is sure to lead to heavier taxes. Another is that public-sector pay and benefits have shot ahead as a cosseted caste extends its privileges.

While private businesses cut employee pays and lay off workers, many governments are reluctant to do the same with its public sector workers.  The paper then suggests troubled economies in Europe look to Ireland and Germany for solutions to halt the “decline, entrench divisions and thus threaten the harmony” of the very cohesion it’s trying to protect.

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