Explaining the Rise of Populism in European Democracies 1980‒2018: The Role of Labor Market Institutions and Inequality

Abstract

This paper aims to find country-level factors that explain the rise of populist parties in European democracies. While populism is often connected to inequality, we note that right-wing populist parties tend to thrive on fear, including fear of job loss. If flexible labor markets mean that unemployment is dedramatized because finding a new job is easier, labor market flexibility could dampen populism and inequality may be less important. We run country-level fixed effects regressions on populist party vote shares in 26 European countries 1980-2018. We use two different classifications of right-wing and left-wing populist parties, and control for employment protection strictness as measured by OECD, Gini-coefficients of disposable income and a large set of control variables. Unemployment is positively associated with left-wing populism. Strict employment protection is positively associated with right-wing populism. Gini-inequality of income is unrelated to (both types of) populism. Strong employment protection and low income inequality may not be the most efficient way to combat right-wing populism. A strategy that promotes flexible labor markets and job-upgrading may be an alternative. More research on the link between labor market institutions and (in particular right-wing) populism is needed.

Keywords: Inequality, Populism, The welfare state, Social spending, Employment protection

JEL Classification: P16, D63, D31