The Liberal Road to High Employment and Low Inequality? The Dutch and Swiss Social Models in the Crisis

Abstract

This chapter analyses patterns of policy change and employment performance in the social models of the Netherlands and Switzerland from the 1990s until about 2012. We outline how these countries have been able to reconcile high employment levels, a lean welfare state and moderate levels of income inequality, three policy objectives that have been considered irreconcilable in standard accounts of employment performance in advanced political economies. In both countries, income equality is primarily achieved within the market rather than by redistribution. Low levels of market inequality are underpinned by high employment rates made possible by cooperative institutions for wage moderation, coupled with a series of entry routes into the labor market for specific groups often marginalized in Bismarckian welfare models, such as young workers and women. Divergent performance during the crisis, however, has revealed the importance of domestic demand-side factors. In Switzerland, high immigration stimulated demand and compensated for an adverse environment for exports. In the Netherlands, the debt-driven boom and bust in private consumption related to volatile housing prices was aggravated by the turn to austerity, These two factors raise questions about the long-term viability of recent developments in both countries.

Keywords: Employment, Unemployment, Inequality, Switzerland, Netherlands

JEL Classification: E24, P52, J38, H55, D63