Essays on the political economy of economic adjustment: austerity, labour market reforms, and inequality

Mushövel, Fabian (2020) Essays on the political economy of economic adjustment: austerity, labour market reforms, and inequality. PhD thesis, London School of Economics and Political Science.

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Abstract

The sovereign debt crises in European Union member states after the year 2010 saw a number of comprehensive bailout packages of unprecedented size. The various fiscal and structural reforms on which the bailouts were conditional substantially shaped welfare states and labour markets in the affected countries. Discussions about the reform programmes in the political economy literature mostly revolve around their effects on economic growth and fiscal sustainability. Much less has been written about the distributive effects of these reforms. This thesis puts the question of how the burden of the adjustment process was distributed among different groups at the centre of the analysis. Specifically, the thesis focuses on the economic adjustment programmes in Greece and Portugal and analyses their distributive effects, both with regard to the fiscal consolidation measures and the labour market reforms that went along with the austerity programmes. The PhD’s central claim is that the distributional consequences of these programmes were crucially determined by how much control over the reform process was exercised by the Troika of IMF, the European Commission, and the ECB, as their preferences and policy objectives differ substantially from those of elected domestic policymakers. Throughout the PhD it is shown, through a mix of descriptive statistics and microsimulation methods (EUROMOD), that the distributive effects – of both fiscal and labour market reforms – vary across and within countries as the degree of Troika control shifts. While the impact of the Troika seems to be progressive with regard to fiscal reforms, the case is more ambiguous for labour market reforms. The tighter the control exercised by the Troika, the more redistributive towards lower income groups became fiscal reforms; labour market reforms, on the other hand, focused largely on breaking up insider privileges when the degree of Troika control was high, but paid little attention to the potential compensation of more vulnerable groups of workers. This is in line with the policy preferences of the Troika institutions, which have adopted a more critical view of excessive levels of income inequality. Importantly, this appreciation of excessive inequality as an important issue for the Troika institutions stems mainly from the fact that it constitutes an obstacle for achieving other policy objectives, such as sustainable economic growth or ensuring a minimum degree of political stability in order to successfully complete the reform process. The Troika paradigm seems more agnostic towards the distributive effects of labour market reforms, which still follow the 7 economic orthodoxy built on the principle of labour market flexibilization. Overall, the actions of unelected technocratic policy makers seem to be governed by radically different rules based on ideas while elected policy makers seem to be governed by their interest to be re-elected. The thesis is divided into three stand-alone papers. The contribution of the first paper is to establish the distributive effects of the EAPs, measured with microsimulations, and the preferences of the Troika policy makers. The second paper decomposes the distributive effects of fiscal reforms and identifies the shifting degree of control exercised by the Troika as the key variable determining the reform design and effects. The third paper analyses the consequences of labour market reforms in the context of labour market dualisation. The thesis concludes by situating the findings in the current debates in political science and comparative political economy. It proposes to bridge the gap between the burgeoning electoral turn literature and the new institutionalist literature by re-focusing on the role of actors and ideas in institutional contexts in what the thesis calls ‘situated agency’.

Item Type:	Thesis (PhD)
Additional Information:	© 2020 Fabian Mushövel
Library of Congress subject classification:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor J Political Science > JN Political institutions (Europe)
Sets:	Departments > European Institute
Supervisor:	Schelkle, Waltraud and De Grauwe, Paul
URI:	http://etheses.lse.ac.uk/id/eprint/4266

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