Causes, Trade-offs and Policy Solutions
Chapter 4: Potential Solutions: Minimum Wages, Social Transfers and Childcare Policy
As indicated in Chapter 3, pervasive socio-economic factors have been affecting the living and working conditions in post-industrial economies; these structural changes vary in terms of degree and timing, but are broadly the same in all countries. Due to institutional factors, however, the practical challenges these countries face vary significantly. In some countries, these socio-economic changes translated into a strong income inequality upswing, while in other countries unemployment rates shot up. In further nations, the main problem consisted in the explosion of public expenditure and deficit. This ‘trilemma’ of post-industrial societies – that is, the impossibility to achieve income equality, employment growth and budgetary restraint simultaneously – leads governments to choose among three alternatives. They can promote freely operating markets and budgetary restraint, which eventually leads to an increase in earnings inequality (in the US for instance, workers lacking college education had their real wages reduced by 15 per cent during the 1980s) (Hemerijck, 2002); whilst other, mostly Christian democratic administrations promote budgetary restraint and income equality, at the expense of employment growth, by reducing labour supply (Germany being a typical example until recently). Another option has been chosen by social-democratic governments in Nordic countries: they tend to prefer a combination of jobs for all through public employment and income equality, which leads to higher taxes or deficits, which in turn can lead to a growing division between private-sector and publicsector employees (Iversen and Wren, 1998). Blank et al. (1999) state that policymakers have long struggled to achieve these three goals: that...
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