Introduction

Building on the good economic performance of the US under Ronald Reagan and of the UK under Margaret Thatcher, at the beginning of the 1990s the Organisation for Economic Cooperation and Development (OECD) recommended that countries experiencing high and increasing unemployment rates should deregulate their labour markets in order to achieve a higher degree of flexibility. In particular, this was the prescription issued to heal ‘inflexible Europe’, as the OECD Jobs Study (1994) called it, from its low growth and high unemployment disease, Eurosclerosis. Indeed, at the zenith of the industrial age, just before the first oil shock in the early 1970s, most European countries had put in place strict job security regulation to protect open-ended workers (ie workers with open-ended contracts) against dismissal. The regulatory landscape of the 1990s was one of existing strong employment protection institutions.

While growth differentials between the US and Europe later appeared to have been mainly driven by population growth in the former (Turner, 2004), and some large European countries (France, Spain and, to a certain extent, Germany) had already started introducing flexibility into their labour markets in the 1980s through deregulation of fixed-term contracts, as a matter of fact labour market flexibilisation became the mantra in unemployment-plagued Europe of the mid-1990s, particularly in order to solve the youth unemployment predicament. It was thus all too natural that labour market flexibility, understood as deregulation, took the path of least resistance: that of ‘dual reforms’ or ‘reforms at the margin’, reducing regulation on fixed-term contracts while leaving employment protection for open-ended contracts untouched.

Actually, some advanced countries where the labour market was already relatively little regulated have engaged in slight reregulation in the past 20 years, either for open-ended workers (Australia and, to a lesser extent, the UK), or for fixed-term workers (Ireland, Poland and Hungary), or both (New Zealand). All other advanced countries have made their labour markets more flexible, although mostly by deregulating fixed-term hires.

The political economy explanations for reforms at the margin generally revolve around the insider–outsider cleavage (Lindbeck and Snower, 1988), highlighting the role of the median voter (Saint-Paul, 1996), or of social-democratic parties (Rueda, 2005, 2007) and trade unions in the pursuit of their membership interest.