“The Three Worlds of Welfare Capitalism”, part 4: Ending with Post-Industrial Development

See the last part here, and read on for the ending to this summary!

Chapter 8: Three Post-Industrial Employment Trajectories

Theories of Service-Employment Growth

A clear tendency in developed countries is that innovations and automation in industrial labor advance productivity, making industrial goods cheaper. This, coupled with a continued increase inaverage income, means there is a clear shift over time towards spending on services. A key question is whether the jobs lost to higher productivity (you need less workers to make the same amount of stuff, after all) will be made up for in an expanding service sector. Economist William Baumol proposed the idea of Baumol’s cost disease: as productivity increases in some jobs, wages in other jobs will go up due to competition, even if those other jobs experience no productivity gains. One issue in the application of this concept to the service sector is that service productivity is hard to measure. You can clearly see how many cars a factory produces, and how much those cars sell for. But what exactly is the value of, say, a teacher or doctor? Also, if workers become more productive, then service work that helps produce or rejuvenate workers (from medical care to education) would naturally be more productive too!

We also need to be careful to differentiate between types of service work. It’s not like services are new: some service work even existed before the Industrial Revolution, like bartending or cleaning services. We are concerned with post-industrial work here. As we’ll examine, in developed countries, most employment growth has come from health, education, and welfare (HEW), some from leisure and eating, and some from business service and FIRE (finance, insurance, and real estate).

Three Trajectories of Service Employment Growth

We’ll be focusing on the US, Germany, and Sweden here: the prime examples of our three welfare regimes. Also, we’ll look at changes over approximately the past few decades [before this book was published]: 1960–1985. We should note some differences in overall work structure in these countries. First, the labor force participation rates for folks aged 16-65:

And the change in total work hours from 1960–1985:

Now, let’s look to some post-industrial data, first on overall employment growth.

And second, on different occupational groups.

Occupational Trends in Employment Growth

First, let’s address a key question that comes to mind when looking at HEW employment, which governments often have a lot of involvement with: What is the government’s role in the structuring of employment growth? As seen below, these countries give very different answers to that question.

One note to add onto the Swedish data: 87% of HEW employment growth in Sweden comes from women. Combine that with the high percentage of female public sector workers, 67%, and you get a unique feminization of the welfare state. On the flipside of this is the US, where public employment rates actually shrank. But luckily, women have found plenty of new employment opportunities in the private sector.

Post-Industrial Structures

A couple of main differences are clear. First, Germany is about 50% less de-industrialized than the US and Sweden. Second, employment in producer and fun services (entertainment, dining, hospitality) is about twice as large in the US. Lastly, Sweden employed around twice as many HEW workers.

The Post-Industrial Occupation Structure

We also might want to know the quality and kind of jobs that people have across these countries.

What accounts for the US’ high number of managerial positions? The US lacks a developed welfare state, as noted many times elsewhere. A lot of benefits, like paid leave or health insurance, are instead fringe benefits. Administration of these benefits creates more managerial positions. Second, industrial relations are combative, with no overall structure to manage labor disputes. So, more managers are added to police normal workers. Lastly, the US lacks agencies to match employers with employees, or to train workers. Companies must therefore hire folks to do this work themselves. Compare this to Sweden, with universal government benefits, centralized union negotiations, and ALMP, who have a massively lower number of managers.

Sweden notably has an extraordinary number of nurses, social service workers, and teachers, due to large public employment in those areas. They have significantly more professional workers too, and many less junk jobs (which are generally of low pay with tough working conditions).

9. Welfare State Regimes in the Post-Industrial Structure

Before World War 2, states were visible through their militaries and policing. In that time, traditional liberal or Marxist views of the state (emphasizing infringement on individual liberty and violent enforcement of private property respectively) made sense. But today, welfare plays an increasingly prominent role, in everything from child-rearing to retirement. Between social stratification, labor decommodification, control of working life, and employment, it’s clear that three broad models of welfare capitalism have evolved. All of them actively shape politics and the economy.

The Welfare State in Post-Industrial Employment

Social democratic welfare regimes generally have high employment, meaning less early retirement than elsewhere in Europe. However, their Achilles heel is that wage restraint is required to keep welfare generous and employment high. This leads to instabilities that capitalism has not shown an ability to resolve. Meanwhile, conservative welfare regimes combine a lack of full employment policy with generous (but stratified) pensions. In the long run, this leads to issues funding the welfare state. After all, less employment means less tax money, but more folks needing welfare. This has been supported by case studies of Sweden and Germany respectively.

Meanwhile, the US is in an unusual position, with highly expansionary policy, more protected markets, and higher population growth. This has meant fairly high growth and employment, even with their weak welfare state. However, that weakness has its drawbacks with regard to employment: the labor market is warped by fringe benefits like health insurance. Instead of direct provision of services like college or medical care, employment in those industries is subsidized through the tax code. The US does have more equal gender and race outcomes in the private sector, at least in some areas. But certainly, affirmative action programs and equal opportunity regulation helped there, moreso than welfare structure.

Stratification and Conflict in Post-Industrial Society

Notably, wage moderation is required of public employees too under the social democratic regime. In Sweden, new conflicts have developed between public and private unions, each largely representing women and men respectively. After all, higher taxes on the private sector could fund higher wages in the public sector. Meanwhile, Germany’s bargains to reduce employment of older folks and bring in foreign workers to increase productivity leads to several potential conflicts. First, there is a risk of tax revolt, as workers reject the extra tax burden needed to sustain an increasingly large population on welfare. Second, the scarcity of jobs risks attacks on foreign workers, and anger from the many without jobs. Lastly, we look to the US, where new potential conflicts are less clear. Gender disparities have broadly decreased, as have race disparities to a lesser extent. However, women and people of color remain disproportionally in worse, lower-paying jobs. This trend of less inequality between sexes and races, but greater inequality within them, is likely to continue.