Changes in the labour market are seen as one of the most serious threats to the economic sustainability of European welfare states, and to the fulfilment of the ideal of ‘full citizenship’ among their citizens. Globalisation and technological change (sometimes described as the transition to a ‘knowledge-intensive society’) generate a marked decline in labour market fortunes among lower-skilled and other vulnerable segments of the labour force. This not only leads to social marginalisation, so the argument runs, but also becomes a barrier to economic growth: inflexible labour markets with high minimum wages mean that unemployment becomes structural so that an economic upturn leads to increased competition for skilled labour and thus to inflation rather than significantly reduced unemployment. This in turn undermines the financial foundation of generous social protection.

Because social protection of the unemployed contributes to high minimum wages and provides ‘poverty traps’, it unintentionally serves to reinforce labour market and social marginalisation. Thus, in the new global economy, European welfare states allegedly have to adapt by accepting larger wage differentials, imposing stronger work incentives, and/or providing activation of unemployed people to enhance their productivity (OECD, 1994, 1997; to some extent, this is even echoed in Esping-Andersen, 1999). Significant political differences prevail as to the proper combination of such measures, but in broad terms, the aboveoutlined diagnosis of unemployment and marginalisation has been dominant in the 1990s and around the millennium. Not least, comparison with the job-generating capacity of the American economy has been seen as an indication that European welfare states are caught by some ‘Euro-sclerosis’ which can only be cured by deregulation, increased wage differentials, improved incentives and more targeted social security. At the same time, such measures have been presented as the only ones that are able to solve the social problems of marginalisation and citizenship, which is the core dependent variable of this book. By citizenship, we do not only refer to social rights, but also to practices – to being effectively a ‘full member of society’ (see below).

This diagnosis could well be right. However, on closer inspection, solid knowledge about labour market change, its interrelationship with welfare policies and, in particular, its joint impact on citizenship appears quite rudimentary and fragmented (Gallie and Paugam, 2000, p 1).