The knowledge economy, deindustrialization, and the decline of Fordism have undermined the economic complementarities that once existed between skilled and semiskilled workers. The result has everywhere been a decline in coordinated wage bargaining and unionization and a notable rise in labor market inequality. Yet, the political responses have been very different across advanced democracies. While labor markets for part-time and temporary employment have been deregulated across the board, some countries have compensated losers through increased cash transfers and active labor market programs and others have allowed inequality and insider-outsider divisions to grow deeper. The article argues that the divergent government responses reflect differences in underlying electoral coalitions, and that these in turn mirror the structure of party and electoral systems. The authors support their argument with evidence for government responses to economic shocks in the period 1980 to 2010.
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