Chapter 6: Integrating consumption and labour income
The classic arena for coping with labour market uncertainty in post-war twentieth-century societies was the national welfare state and system of labour law and industrial relations. In the scheme set out in Table 2.1 (see p. 27) this is the area covered primarily by Approach III, ‘Integrating consumption and labour income’, though the welfare state also includes item 14 (Public services and transfers as decommodifying) from Approach II, which we have already discussed in the previous chapter. Welfare states try to reduce uncertainty in three different ways. First, macroeconomic policy may make use of large public budgets to act counter-cyclically to stabilize demand, reducing fluctuations. Second, large parts of those large spending budgets are used to provide both welfare services and financial transfers that further reduce uncertainty in the lives of workers and their families. Transfers do this obviously by raising the incomes of people unable to find work or too old or too sick to do so. Public services, normally provided free at the point of use or at subsidized prices, reduce uncertainty by making capacity to enjoy basic facilities independent of fluctuating incomes. Third, the provision of these same services creates public-service employment that is itself protected from fluctuating demand because it is not purchased in the market. This does not mean that it is immune from uncertainty, because demand management sometimes requires governments to reduce spending and therefore create some unemployment among public employees. But this is expected to happen rarely and with extensive warning.
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