The UK and Germany are two of the most frequently compared economies in labour market research. The institutional setup of the two countries is very different: In Europe, the UK is the prime example following a strongly supply-side oriented labour market policy approach. Market forces are supposed to lead to optimal outcomes and incentives are set in a way to foster market participation. While the labour market structure and welfare state arrangement of the UK are faced in that direction no later than the Thatcher-era, Labour governments have since only moderately countered these developments (Lindsay, 2007). Germany is often seen as the prototype of a strongly coordinated market economy and a status-preserving welfare state (Esping-Andersen, 1999, Hall and Soskice, 2001). German reform projects since the late
1990s are concurrently oriented towards re-commodification while keeping path-dependent idiosyncrasies (Dingeldey, 2007).
The crucial institutional arrangement for transitions on the labour market and thus for reintegration dynamics and career stability is labour market regulation and in particular employment protection legislation (EPL). Mainstream economics contend, that high levels of EPL inhibit easy firing of employees, which in turn leads to lower number of new hires as fewer positions free up and employers are more cautious in handing out permanent contracts (Layard et al., 2005). Thus, by slowing down the in- and outflow of the labour market, non- employment terms should be prolonged. On the other hand, EPL benefits workers already positioned in the labour market by impeding layoffs. Thus, longer and more stable spells of non-employment and employment can be expected under higher levels of EPL (Boeri and van Ours, 2008). In Germany, a comparatively high EPL is an integral part of what Hall and Soskice (2001) call the prototype of a coordinated market economy. Despite the international deregulation impetus and recommendations by the OECD and the EU, German governments since the 1980s still only relaxed regulations for temporary contracts. Being a representative of liberal market economy, the UK shows fittingly low labour market regulation (Hall and Soskice, 2001). Conservative governments further deregulated existing legislation until the Labour government reduced the qualification period, in which employees cannot claim unfair dismissal from two years to twelve months.
Hypothesis 1: A low level of EPL leads to shorter stays in non-employment, but also a
lower degree of stability after re-entries to the labour market in the UK. German trajectories after non-employment are characterized by relative stability and low numbers of different episodes.
However, recent literature detecting processes of dualization in European labour markets emphasizes that only insiders profit from high levels of regulation (Emmenegger et al., 2012b). In Germany the inner core of the labour market was spared from the institutional changes that increased flexibility and lowered regulations for temporary work contracts, part- time positions and self- employment (Eichhorst and Marx, 2011, Palier and Thelen, 2010). As insiders are usually regarded workers with permanent full-time contracts, individuals who lost or left their job are outsiders by definition. From a signalling theory perspective, individuals without employment wear the stigma of losing or leaving their job, which expresses lower productivity and human capital losses (Gibbons and Katz, 1991, Spence, 1973). In the light of
high levels of employment protection, employers might be more reluctant to hand out permanent contracts. Especially since regulations for temporary contracts have been lifted, they provide an opportunity to screen potential workers for up to two years and to build a buffer for times of economic downturns. Hypothesis 2 therefore contrasts Hypotheses 1 in the case of Germany.
Hypotheses 2: Strong regulation for jobs at the core of the labour market will lead to
less secure positions at the fringes and thus increase instability of reintegration for those who lost or left their jobs.
The level of decommodification, i.e. the degree of independence from labour market income that is provided by the welfare regime, is central for processes of labour market reintegration as well. Economic theory emphasizes the disincentives to work provided by “free” income, be it unemployment benefits, social assistance, pensions, or incapacity benefits (Layard et al., 2005). By raising reservation wages and labour costs, benefits are deemed to lower overall employment levels. Esping-Andersen (Esping-Andersen, 1999) subsumes the German welfare state under the conservative regime type. Unemployment benefits are rather generous but closely related to former earnings. But also social assistance provides individuals with a significant income in international comparison. The British liberal welfare state in contrast offers only low levels of decommodification (Esping-Andersen, 1999). Unemployment benefits are low and conditional. In the course of activation reforms in the mid-1990s, these conditions were tightened and a negative income tax was introduced to “make work pay” and to reduce entrapment in social assistance (Eichhorst et al., 2008). Benefits for disabled or long-term sick persons are a special case in the British welfare state. The relative ease and unconditionality with which invalidity benefits could be obtained until the late 1990s resulted in a disproportionally large number of individuals in this benefit scheme (Clasen et al., 2006, Erlinghagen and Knuth, 2009). In general, however, the welfare regime sets complementary incentives to labour market regulation in both countries. While low benefit levels force British workers who left or lost their job to seek a new job immediately, the more generous German welfare state provides income security to bridge longer breaks between employment spells. Thus, the expectation is, that individuals without employment will take longer to re-enter the labour market in Germany (Hunt, 1995). The welfare regime complements labour market regulation and strengthens Hypothesis 1. Also in line with Hypothesis 1, Gangl (2004) makes the convincing case that higher payments with
longer duration allow jobseekers to search for better job matches, thereby decreasing the probability of future separations and increasing employment stability (see also: Pollmann- Schult, 2005).
Yet, high benefit levels can also be seen to strengthen the arguments made for Hypothesis 2. From an insider-outsider perspective, higher reservation wages strengthen union bargaining strategies, again increasing the gap between insiders and outsiders (Bertola et al., 2007). The social protection connected to stable insider positions in Germany also causes extra costs for employers. This might increase their willingness to offer only temporary contracts and thus unstable reintegration. The same line of reasoning not only contradicts Hypothesis 1 but also suggests bigger social differences in the reintegration process in Germany. Based on signalling arguments, employers provide individuals with the opportunity of stable labour market re-entry relying on the signals they omit. Social groups send different signals of work commitment and human capital. Typically, women, low educated individuals, youth and older workers are considered to be less productive in this sense. According to human capital theory, it is not only individuals with low levels of educational attainment who are equipped with low human capital (Becker, 1964). Human capital arguments also apply to discrepancies in employment prospects of different age groups. Younger workers have disadvantages at entering the labour market as they can show educational credentials but not work commitment and experience (e.g. Mincer, 1974). Older workers usually can signal more experience and willingness to work with previous employment spells, but employers are reluctant to invest in further education of individuals whom they do not expect to stay long-term (Taylor and Walker, 1994). Their specific human capital might also be not well adjusted to technological development. Human capital theory furthermore extends to gender discrepancies. The notion of human capital deprecation highlights the negative consequences of work interruptions. Career breaks caused by motherhood are discussed extensively in the labour market body of research (e.g. Goldin and Rouse, 2000, O'Neill and Polachek, 1993). In a regulated labour market with high costs of social protection, employers can be expected to be more cautious and thus more selective in their choice of workers.
Hypothesis 3: The social differences between men and women, age groups and
educational levels in being able to establish a stable re-entry to the labour market will be larger in Germany than in the UK.
In the discussion of achieving employment security, the notion of employability, i.e. having the necessary set of skills to take on a new job, is paramount. Comparative studies on the integration into the labour market put emphasis on the differences in the educational systems and how they connect to labour market structures (Gebel, 2010, Hillmert, 2002, Scherer, 2001). One important aspect for education-job fits is the generality or specificity, respectively, of acquired skills (Shavit and Müller, 1998). Vocational specificity that is stated in highly standardized certificates sends clear signals about an individual’s skills to potential employers. This close link can be found between the German educational system with its emphasis on vocational training and the occupationally structured German labour market (Blossfeld and Mayer, 1988). Jobs that require vocational training are disproportionally frequent in the manufacturing industries and usually connected to permanent full-time positions. Skill specificity, however, might also lead to longer waiting periods, since matching job demand needs to arise. Furthermore, the German labour market is strongly segmented according to different skills due to the strong connection between education and occupations. The skill divide therefore results in uncertain work arrangements in lower labour market segments for those with lower skill levels (Gebel, 2010) In contrast, the link between education and employment is weak in the UK. Since education is rather general and certificates are not tailored to employers’ needs, the educational system only provides unclear signals (Kim and Kurz, 2003). The internal labour market facilitates entry by supporting on the job training and high mobility levels. The consequence of the uncertainty in the matching process on the British labour market should be high number of job changes and lower stability in work careers. The large secondary labour market in the low-wage sector gives chances to low educated persons but without any guarantees for stability (Brown, 1990). In general, the differences in the educational systems and their connection to the labour market lock in with labour market regulation and the welfare regime. They support the expectation that both non- employment terms as well as employment should be more stable in Germany and thus strengthen Hypothesis 1. The social distribution of stable labour market re-entries should be more stratified according to educational credentials in Germany with special advantages for individuals with vocational training, which adds another dimension to Hypothesis 3.