In the wake of the economic recession since 2008, the prevailing crisis narrative helped to install stronger surveillance and coordination at the supranational level to push for unpopular structural reforms in the social and labour policy domain. This paper investigates the question on how the new socio-economic governance, the so-called European Semester, facilitates the implementation of reforms questioning the foundations of the modern welfare state: making labour markets more flexible by deregulating employment protection, decentralizing wage setting, and shifting the emphasis of social policies away from passive transfers and toward work, training, and activation. This indicates a further shift to supply-side measures in labour market policies and emphasis the trade-off between a decline of unemployment and rising wage inequality (cf. Blanchard 2005), accepting potentially severe social consequences. Despite the increased competence of the European Commission and the European Council, it is still in the hand of national governments, on whether and how they are going to implement these reforms.
This paper examines two factors that help to explain why these reforms got the legislators consent: First, the new socio-economic governance regime strengthens the pivotal role of the executive towards sectional and parliamentarian opposition as well as social partners on the intra-national level (‘reversed two-level game’; in acc. to Putnam 1988). This effect should be even more pronounced if the national government follows the neoliberal ideological orientation of the European Commission. An econometric analysis is undertaken to test this claim. Second, the policy choice is shaped by the interplay of the changing economic system (e.g. deindustrialisation) and the electoral base of political parties. The paper argues, that the occurring labour market segmentation between middle class and low- and semi-skilled workers made neoliberal supply-side measure more likely, questioning the welfare state at its core (cf. Iversen and Soskice 2015).
