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Abstract

During the past decade, prevailing scholarship has portrayed France and
Germany as suffering from a persistent syndrome of ‘welfare without work’ entailing a
vicious circle between stubbornly high rates of unemployment and non-wage labor costs.
Scholars blame this disease on dysfunctional political arrangements, deep insider-outsider
cleavages and failed systems of social partnership.As a result, the two countries are said to
be more or less permanently mired in a context of high unemployment that is highly
resistant to remediation. This article departs from this conventional wisdom in two important
respects. First, it argues that France and Germany have undertaken major reforms of
their labor market policies and institutions during the past decade and remediated many of
their longstanding employment traps. Second, it shows that the political arrangements that
adherents of the ‘welfare without work’ thesis identify as reasons for sclerosis have evolved
quite dramatically. The article supports these arguments by exploring some of the most
significant recent labor market reforms in the two countries, as well as the shifting political
relationships that have driven these changes. In both countries, recent labor market
reforms have followed a trajectory of ‘buttressed liberalization’. This has involved, on the
one hand, significant liberalization of labor market regulations such as limits on overtime
and worker protections such as unemployment insurance. On the other hand, it has
entailed a set of supportive, ‘buttressing’ reforms involving an expansion of active labor
market policies and support for workers’ efforts to find jobs. The article concludes that
these developments provide reasons for optimism about the countries’ economic futures
and offer important lessons about how public policy can confront problems of labor market
stagnation.