Unemployment Benefits

I begin this section with the presentation of the results with unemployment benefits as independent variables (see tables 7.9 and 7.10). The effects on employment shares in manufacturing are partly surprising. As ex-pected, unemployment benefits for standard workers have a positive impact in the short run (yet insignif-icant), but the long run multiplier is negative and significant. This runs counter to the hypothesis that high unemployment benefits for standard workers are a necessary condition for the creation of specific skills among the workforce and thus for a large industrial sector. The parameters of the accessibility variables are more in line with our expectations, though on a much smaller scale than theory had predicted. The long run multiplier is negative and significant as expected, but the parameter of the differenced accessibility variable is significant positive. The overall effect is small (one additional index point lowers the manufacturing em-ployment share by 0.063 percentage points) and neg-ative. The effect of minimum income is strong and significant in the long run and stays so even when the insignificant positive short-term effect is subtracted from it (a one percentage point increase in minimum income raises the manufacturing employment share by 0.075 percentage points) which is widely in congru-ence with expectations. The reason why the immediate effects of benefits, accessibility, and minimum income have different signs than the long-term effect may be that in the short run higher benefits and lower min-imum income support are perceived as greater, albeit transitory, incentives to take up jobs, whereas the effect

RESULTS 113

of unemployment protection on skill acquisition needs more time to play out.

The assumed positive impact of higher central-isation of wage bargaining is confirmed by the data.

Likewise, productivity and state consumption show the correct signs as predicted by theory both in the short and in the long run, although in the former they are significant only for state expenditure. This implies that the state has a more immediate capacity to influence employment shares while structural change happening through productivity growth is more incremental. EPL, however, was insignificant in all estimations and thus dropped from the regressions.

When unemployment benefits for atypical employ-ees are inserted in the estimation instead of standard benefits, results hardly change, except that the negative long run effect of benefits is growing larger. Falling un-employment benefits for fixed term and part-time em-ployees therefore seem to be more conducive for manu-facturing employment than falling support for standard workers.

From this we can conclude that the hypothesis that generous unemployment protection for standard workers is needed to make manufacturing thrive is not directly confirmed by the estimations. Rather, manufac-turing sustains its employment share particularly when first-tier benefits are curtailed. Even though it is impos-sible to tell from the regressions whether manufacturing employment holds up as a result of or in spite of decreas-ing benefits, it is safe to conclude that unemployment protection is not only and not most crucially provided by unemployment benefits. Instead, rising minimum incomes seem to be associated with higher employment in manufacturing, leading us to the tentative conclu-sion that it is primarily minimum income schemes that offer the financial protection needed for workers to ac-quire specific skills. It is important to note, however, that trimming atypical workers’ benefits does more to bolster manufacturing than standard workers’. That is, a situation where standard workers can receive higher benefits than atypical ones, even when both are subject to a general downward trend, is conducive to

manu-facturing employment. Hence, the incentive to prefer standard over atypical jobs may be preserved when ben-efits accrued from standard employment relationships will still be relatively greater compared to benefits from atypical work. The discouragement of non-standard employment is further amplified by restrictive accessi-bility rules.

Summed up, the results imply that first-tier bene-fits are not the primary defenders against income loss due to unemployment, but that this task is primarily performed by minimum income schemes. Nonetheless, despite their vanishing function as financial protection measures, unemployment benefits still appear to serve the purpose of privileging standard over atypical work by erecting high obstacles for atypical employees to become eligible and by offering higher (or less sharp-ly dropping) benefits to standard workers. In this way, they still put a premium on standard employment and discourage the take up of atypical jobs which helps the acquisition of specific skills. Manufacturing thus has the inherent tendency to produce dualisation in form of atypical employees being treated less favourable by unemployment insurance both in terms of access and, albeit less pronounced, benefits. The tendency towards dualism is only alleviated by generous minimum in-comes. One caveat to this interpretation is that the time series begins in the 1990s; a period, in which most countries cut back on their unemployment protection schemes. It might be interesting to observe a longer pe-riod, e.g. starting in the 1960s, to analyse whether there had been a different trend prior to 1990 and when there (possibly) was a turning point.

With employment in non-dynamic services as de-pendent variable, both coefficients of short and long run effects of unemployment benefits for standard employees are significant positive. The same holds for accessibility, whereas minimum income has an overall negative impact. The hypothesis that minimum income schemes can hamper employment growth in non-dy-namic services by lifting the reservation wage is thus confirmed by the data. As to the question whether un-employment benefits provide further incentives for the

slim. The mere prospect of being integrated in social se-curity systems seems to represent an incentive sufficient to rise employment in a segment that otherwise would be considered unattractive. At least if benefits are not too generous–besides higher accessibility only benefits for standard employees have a weak positive effect on employment; financial support for atypical workers, by contrast, has a negative net effect, implying that benefits should primarily reward people who work longer while those with shorter hours and tenures should be handed less. Incentives stimulating work in non-dynamic ser-vices hence stem from an unemployment benefit system that is highly inclusive for atypical workers, opening up the perspective to become eligible to benefits quickly, yet with generosity being contingent on how much one has worked before. The minimum income should be low, making first-tier benefits more valuable. Just like manufacturing, non-dynamic services are prone to du-alism in unemployment benefits, although the specific shape of dualism is exactly opposite: it manifests itself in a gap between benefits for standard and atypical work-ers as well as a stingy minimum income, only mitigated by comprehensive accessibility (not necessarily resulting in generous benefits, however).

Productivity in manufacturing has a negative long run multiplier contradicting Baumol’s theory of cost disease. Since benefits are controlled for, we would have expected to see a positive sign of manufacturing pro-ductivity, indicating that manufacturing workers are take up of jobs in this segment or whether they

under-mine them, the results clearly show that the motivation effect of standard benefits outweighs the adverse effect of a higher reservation wage once minimum income is controlled for. In this context, accessibility has a larger incentivising effect than duration and amounts of the benefits.

Outcomes with benefits for atypical employees as independent variable further corroborate these results.

While coefficients for accessibility and minimum in-come barely change, benefits for fixed term and part-time employees have a small but positive significant im-mediate impact and a larger negative impact in the long run. Therefore, unlike benefits for standard workers, higher benefits for non-standard workers seem to erode work incentives in the long run by pushing up the reser-vation wage. The same calculations were also performed with the centralisation of wage bargaining as a further control which was insignificant in all estimations and consequently dropped.

Key to higher employment in non-dynamic ser-vices is thus a low minimum income, keeping the reservation wage down in combination with inclusive accessibility rules, exerting a markedly higher influence on employment than amount and duration of benefits.

Greater accessibility obviously does not discourage the acceptance of less well paid jobs, but rather seems to be the largest source of additional work incentives, even if the benefits atypical employees can expect to receive are

Strict Accessibility Divergence of First-tier Benefits Between Standard and Atypical Workers

Divergence between Minimum Incomes And First-tier Benefits for Standard Workers

Manufacturing ↑ ↑ ↓

Non-dynamic Services ↓ ↑ ↑

Dynamic Services ↓ ↓

-Welfare Services - -

-Table 7.9: Unemployment Benefits: Types of Dualisation Conducive to Sectoral Employment

Legend:

Increasing dualisation helps sectoral employment: ↑ Decreasing dualisation helps sectoral employment: ↓ Dualisation has no discernable effect: –

RESULTS 115

Table 7.10: Regression Results for Unemployment Benefits Manufacturing

Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Model 1 Model 2 Lagged Dependent Variable 0.825^***

(0.04) Δ Benefit for Standard

Employees 0.012 Δ Benefit for Atypical

Employees 0.004 Δ Minimum Income -0.019

(0.011) Minimum Income_t-1 0.016

(0.008) Minimum Income LRM 0.091^***

(0.01) Δ State Consumption -0.165***

(0.039) -0.165^*** State Consumption_t-1 -0.124^***

(0.028) State Consumption LRM -0.709^***

(0.03) Centralisation of Bargaining 0.012^***

(0.004)

0.012^***

(0.004)

R^² 0,73 0,73 0,67 0,67 0,67 0,67 0,99 0,99

N 299 299 299 299 299 299 299 299

*p < 0.1; **p < 0.05; ***p < 0.01 Standard errors in parantheses

absorbed by services. Yet this is not reflected in the data.

According to the estimations, rising employment in non-dynamic services is no necessary outcome of grow-ing manufacturgrow-ing productivity. When the impacts of social protection measures and state consumption are controlled for, non-dynamic services rather appear as a way towards higher employment in all such economies where jobs in other, more productive segments–manu-facturing or dynamic services–are not available. It fits into this picture that state consumption has negative short and long-term effects on non-dynamic services, reflecting the state’s willingness to accommodate excess labour by public employment in social services.

We expect a much smaller influence of social pro-tection on employment in dynamic services as these are not affected by the reservation wage and do not depend on specific skills. In fact, this is broadly reflected in the results of the estimations, showing a significant positive immediate effect of both the unemployment benefit for standard and atypical employees, which is cancelled out almost entirely by a long-run effect working in the op-posite direction. The positive short term effect may be due to a transitory boost in motivation to accept jobs since rising benefits are perceived as a top-up to regular pay, but this effect is bound to fade out quickly. The total effect is nearly zero. Both kinds of benefits obvi-ously are not crucial determinants of dynamic service employment. Accessibility has positive coefficients for all time periods, of which only the long-run multiplier is significant. This result is thus in accord with theory, positing that specific features of unemployment protec-tion for atypical employees can serve to make atypical work more appealing relative to standard work. As we see here, just as we have seen with non-dynamic vices, it is primarily accessibility that makes private ser-vice jobs–and presumptively mainly atypical jobs–more desirable rather than the amount and duration of po-tential benefits. The influence of minimum incomes is insignificant across all time periods which is just as ex-pected. In a first version, centralisation of wage bargain-ing was included as additional control, but it turned out

to be insignificant in all estimations and therefore was dropped.

Rising productivity in manufacturing is significant-ly associated with higher employment shares in dynam-ic servdynam-ices in the long-run, also when social protection measures are controlled for. This suggests that more advanced industry production is also beneficial for the growth of dynamic services as both may complement each other. A surge of badly paid service jobs is hence not at all a necessary consequence of rising labour pro-ductivity in the industrial sector. The results confirm Wren’s (2013) alternative argument that employment in dynamic services may turn out to be a viable high-road strategy out of the service transition trilemma should the state not be willing to compensate the losses in man-ufacturing with public employment (the coefficients of state consumption are negative and significant). More-over, jobs in dynamic services do not require the exis-tence of welfare dualism to prosper.

Welfare services are thought to be little dependent on social protection given that major parts are public employment governed by political decisions rather than market forces. Both regressions with welfare services as dependent variable yield the results that accessibility and minimum income have neither short nor long term impacts significantly distinct from zero. Only the ben-efit variables have a positive significant effect, slightly greater for atypical workers, lending tentative support to the hypothesis that greater benefits for atypical work-ers make this kind of employment more appealing and thereby support job growth in welfare services. In gen-eral, however, all social protection variables, regardless of their significance, have a positive long run effect in these estimations, suggesting that the significance of the benefit variables might be spurious, since a more mu-nificent state may simultaneously spend more on public employment as well as on social support. As expected, the coefficient of state consumption is large, positive and highly significant both in the short and in the long term. Also the long run multiplier of productivity in manufacturing is significant in both estimations,

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One possible explanation may be that minimum in-come protection has taken over this function. Manu-facturing and services then fundamentally differ from each other in the structure of social security needed to expand employment: manufacturing can do without generous unemployment benefits and merely requires a well established minimum income scheme, whereas services (particularly those with low productivity) flour-ish with a more restricted minimum income in combi-nation with more accessible, but not necessarily more generous, unemployment benefits. Manufacturing and non-dynamic services then both have the inherent ten-dency to favour specific forms of welfare dualism where-as dynamic and welfare services may prove where-as segments allowing for more equal, yet not always more encom-passing, social protection.