Polarization and marginalization during the Eurozone crisis: The persistence of Eurosclerosis

Abstract

The Great Recession and the Eurozone crisis taking place since 2008 are real-life tests for policies aimed at promoting inclusive labor markets in the Eurozone. Therefore, this article discusses first how the risk of being a labor market outsider evolved in the Eurozone during the crises, and whether this risk diverged between social groups. Using EU-SILC data, we describe the overall level of outsider risks before and during the crises - risks of being either unemployed, temporarily employed or earning a low wage - among the labor force ('polarization') and the concentration of these risks among vulnerable groups ('marginalization'). Our results show that the outsider risks have particularly increased in the Southern European countries, and for young workers throughout the EU, and in the case of unemployment, also for low-skilled workers. In the second step, we study how employment protection legislation, union density and wage bargaining systems influence polarization and marginalization in the context of an economic crisis. In contrast to discussions about the end of Eurosclerosis, we find that strict employment protection and centralized bargaining in-crease the marginalization of vulnerable groups while strong unions can reduce polarization.