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European Social Models From Crisis to CrisisEmployment and Inequality in the Era of Monetary Integration$
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Jon Erik Dølvik and Andrew Martin

Print publication date: 2014

Print ISBN-13: 9780198717966

Published to Oxford Scholarship Online: January 2015

DOI: 10.1093/acprof:oso/9780198717966.001.0001

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When Institutions Reciprocate

When Institutions Reciprocate

Turning European Social Models Around

(p.306) 10 When Institutions Reciprocate
European Social Models From Crisis to Crisis

Erling Barth

Karl Ove Moene

Oxford University Press

The trends have turned. From a development with rising welfare generosity and declining earnings differentials, most European countries now experience stagnating welfare generosity and increasing earnings differentials. This chapter shows that a more equal wage distribution fuels welfare generosity via political competition (the equality magnifying effect), and that a more generous welfare state fuels wage equality via empowerment of weak groups in the labor market (the wage equalizing effect). Together the two effects generate what the chapter denotes as a mechanism of institutional reciprocity, explaining why welfare spending and wage equality move in tandem. Thus a serious shock can easily turn the trends, and once they are turned, welfare spending and wage equality move again together, but in the other direction. The chapter discusses how institutional reciprocity can explain the recent developments in Europe, and how it shapes the responses of the European countries to the current economic crises.

Keywords:   welfare generosity, earnings inequality, institutional reciprocity, earnings differentials, wage equality

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