Dismantling labour markets from above: the case of wage policy in the European Union

Abstract

Are countries reforming their labour market constrained by external political or financial institutions? This article analyses the supranational pressures impacting wage policy in European member states. Theoretically, it takes inspiration from the literature on international financial markets to analyse the key phases of a nascent multi-level policy cycle, where the European Commission plays a pivotal role. Empirically, it distinguishes between wage policy prescriptions (CSR database, 2011–2019, complemented with EUR-Lex) and reform events (LabRef database, 2008–2019) granting more or less protection to workers. Methodologically, it employs mixed regression models with country and year random intercepts finding out that: (a) the Commission, when recommending wage policy, unambiguously prefers reforms reducing workers’ protection, thus displaying preferences aligned with those of international financial institutions; (b) through external conditionality, the pressures stemming from such biased approach exert a tangible impact on national policymaking, ultimately resulting in weakened labour market institutions and reduced well-being of workers.