Shifting responsibility: How the burden of the European financial crisis shifted away from the financial sector and onto labor

Shelley Marshall

Research output: Contribution to journalArticleResearchpeer-review

Abstract

In light of the labor crisis that has unfolded in Europe with record level unemployment, growing precariousness of employment and increasing inequality, it would seem logical that measures be undertaken at national and international levels to ease the consequences of the crisis for workers. Governments have responded to such conditions the past by creating major social pacts with labor to bolster consumption and faith in the economic system. The U.S. New Deal came out of such a crisis. Yet instead of softening the burden of the crisis for labor, it has been amplified by most national labor law reform processes. There are numerous explanations for the U.S. led financial crisis of 2007 and the sovereign debt crisis of 2009/10 in Europe. No legitimate explanations focus on labor as the cause. Yet labor has been targeted in austerity measures that aim to rebalance national budgets and reduce indebtedness. The reason why austerity is being chosen over other policy options is because of the dominance of financial markets, combined with restrictions that the E.U. economic and monetary union places on countries to adjust to economic shock. Because the union has removed the tool of adjusting exchange rates, which is the normal way to effect external devaluation , internal devaluation at the member state level is the only means available to restore public finances and lower nominal wage costs. This is giving rise to a crisis of a different type. So much economic policy is currently focused on restoring confidence in the markets , yet it is now impossible to restore the confidence of the financial markets and the majority of citizens at the same time. Until financial interests less dominate nations, it seems likely that labor will continue to carry the burden of a crisis for which it was not responsible. This paper examines contrasting views about the causes of the 2007 U.S. financial crisis, and the 2009/10 European sovereign debt crisis. It presents data on the effects of the crisis on labor, showing that inequality has increased, although the wealth of the top quintile was reduced by financial market losses. Unemployment and informal work have also increased dramatically. It then briefly assesses alternatives to the labor law reforms that have been rolled out across Europe, focusing on financial re-regulation. It concludes by examining why these tools are not being employed by nation-states following the crisis, and why other measures have been preferred.
Original languageEnglish
Pages (from-to)449 - 478
Number of pages30
JournalComparative Labor Law & Policy Journal
Volume35
Issue number3
DOIs
Publication statusPublished - 2014

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