Full Employment in Europe
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Full Employment in Europe

Managing Labour Market Transitions and Risks

Günther Schmid

Transitional Labour Markets (TLM) – defined as legitimate, negotiated and politically supported sets of various employment options in critical events over the life course – are an essential ingredient of modern full employment strategies. After assessing the European Employment Strategy, this book offers a detailed comparative analysis of employment performance for selected European member states and the United States. It suggests that successful employment systems arise from a new paradigm of flexibility and security (‘flexicurity’) the balance of which varies according to countries’ institutional paths. Whilst there is no ‘best practice’, TLM theory does provide normative and analytical principles that can be generalised for various institutional settings. The book also provides good practice examples for managing critical transitions over the life course – from education to employment, from one job to another, from unemployment to employment, from private activities to gainful work and from employment to retirement – and develops the contours for extending unemployment insurance to work–life insurance.
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Chapter 6: Perception and Management of Social Risks: ‘In the Past the Future Always Seems Better’?

Günther Schmid


Once a word has entered the public domain, there it will remain for the next nine years. (Zen Master Huang Long) In this chapter1 the intrusion of the term risk management on the employment policy discourse is taken as a moral opportunity to reconsider the balance between solidarity and individual responsibility in managing risky labour market transitions during the life course. The argument is developed in five steps. Section 6.1 covers the psychology of intuitive beliefs and choices pointing to the bounded rationality of risky choices. I demonstrate how the institutionalisation of opportunity structures recommended by the concept of transitional labour markets (TLM) can overcome various kinds of asymmetries in risk perception. Section 6.2 shows how imperfect or strategic information may also cause biased risk perception. I provide examples of how the analysis of labour market transitions throughout the life course can vastly improve the methodology of risk management. Section 6.3 explains that attention to risk asymmetries and the reduction of information deficits does not yet provide clues for acceptable institutions of risk-sharing. Normative principles of justice have to be revisited. I suggest complementing Rawls’s theory of justice with Dworkin’s ethical theory, enriched by Sen’s capability approach. Section 6.4 focuses on the labour market, making the point that the most important institution managing risks is social insurance, including unemployment insurance. Most modern welfare theorists argue for a replacement or at least a retrenchment of social insurance favouring individual savings accounts or even privatisation of unemployment insurance. I therefore discuss...

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