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Workers' Worries and Labor Market Policies

This Policy Brief summarizes the latest evidence on active labour market policy (ALMP) spending and Employment Protection Legislation across the OECD. It then summarizes theoretical findings from Tepe & Vanhuysse (2013), arguing that unions but not left-wing parties today increasingly take into account the re-employability worries of their members and have therefore adopted ALMPs as a second-best priority. Where high levels of employment protection have not been achieved (the first-best goal), more powerful unions will promote activation spending as an alternative way to offer their members - labor market insiders - some state help. This may consolidate the tendency towards dual labour markets, and it offers a possible explanation for why insiders have seen a status quo their job protection levels since the 1980s, whereas outsiders have seen strong reductions in job protection levels.