Abstract
Facing economic downturns and intense global competition, many advanced economies have implemented reforms that enhance labor market flexibility. Despite this commonality, the patterns of labor market reform and its impact on workers vary substantially across countries. The question is why. What has caused this divergence? To answer this question, Jiyeoun Song examines the politics of labor market reforms in Inequality in the Workplace: Labor Market Reform in Japan and Korea. More specifically, she explores why countries have responded differently to similar pressures and why some countries have been able to accomplish reform without worsening inequality, whereas others have not. Her analyses focus mainly on Japan and Korea, partly because these two economies have been under-studied and partly because the political economies of the two countries are similar in several important respects, even though they have followed different paths in reforming their labor markets. Thus, it is likely that the factors that have brought about these differences can be correctly identified.
In Chapter One, Song identifies four different paths toward labor market reform using two dichotomous variables: 1) the primary target of the reform (outsiders only versus all workers) and 2) the increase in labor market inequality and insider-outsider dualism (high versus low). During its reform, Japan targeted only outsiders, thereby increasing their inequality and dualism. Although Korea targeted all its workers, the results of its reforms were the same as in Japan: inequality and dualism worsened. The two other paths are 1) selective reform being directed only to outsiders but resulting in low degrees of inequality and dualism (e.g., Sweden) and 2) implementation of reform for all workers resulting in a low degree of inequality (Song does not provide an example for this path). She contends that previous explanations that have focused on political partisanship (e.g., the social-democratic party), political institutions (e.g., neo-corporatist institutions such as organized labor), or economic crises are not satisfactory in explaining these diverse paths.
Instead, Song suggests a new institutional explanation in Chapter Two. She emphasizes the role of existing institutional arrangements. She pinpoints two dichotomous institutional settings as a central condition that accounts for the four different paths of labor market reform. They are 1) institutionalization and the employment protection system (highly institutionalized and providing extensive coverage versus less institutionalized and providing modest coverage) and 2) the configuration of industrial relations (decentralized versus centralized). The former institutional arrangement determines the scope of reform and the latter one demarcates the outcomes of reforms. Countries with strong and broad employment protection will pursue selective reforms, targeting only outsiders because a majority of workers are institutionally protected and have political allies in government (e.g., Japan). On the other hand, countries in which only a small proportion of the workforce (e.g., union members in large firms) is institutionally protected and the level of protection is weak will deliver comprehensive reform to all their workers (e.g., Korea). During the reform process, countries with centralized industrial relations are likely to prevent the rise in labor market inequality preemptively by expanding social protections (e.g., Sweden), whereas countries with decentralized industrial relations will tend to deepen inequality and dualism (e.g., both Japan and Korea). In short, Song’s framework predicts that Japan and Korea will differ in their primary target of reform, due to their different levels of employment protection, but the labor market outcomes will be the same, due to their similarly decentralized industrial relations.
The origins and historical evolution of the institutional settings of labor markets in Japan and Korea are discussed in Chapter Three. Song’s historical review begins in the 1950s, right after World War II, and continues up to the early 2000s. Detailed investigations of the two countries based on her theoretical framework are described in the ensuing two chapters. She describes how organized Japanese labor and its political allies transferred the cost of reform to part-time workers in small firms. Economic regulation and public works projects, which used to protect outsiders, have been weakened by the reform process. A rise in inequality and dualism is the logical result. In the case of Korea, even though comprehensive labor market reform targeting both full-time regular workers in large chaeboŏl firms (insiders) and non-regular workers in small firms (outsiders) has been adopted by both authoritarian and democratic governments, the gap between insiders and outsiders has grown. To explain this contradiction, Song highlights the role of small but well-organized unions in large firms. Under decentralized industrial relations, militant chaeboŏl unions have power to protect their own interests at the expense of outsiders. The concluding chapter summarizes her argument and provides a brief review of reforms in the United Kingdom and Germany as proof that her framework is applicable beyond Japan and Korea.
Song’s argument relies on the labor market dualism of insiders versus outsiders. Song divides the workforce into insiders and outsiders using two criteria: 1) long-term and well-paid full-time work versus temporary and poorly paid part-time work, and 2) employment in large versus small firms. This kind of labor market dualism was a hotbed of labor market studies in sociology during the 1970s and 1980s but almost vanished after that. The segmentation of the labor market and the condition of workers in the different segments are much more complex than dualism suggests. Well-paid part-time jobs are not uncommon in many advanced economies. The importance of firm size has diminished, at least in the United States. Indeed, when analyzing the policies of Japan and Korea in detail, Song seems to struggle in dealing with reforms that do not fit her stylized insider-versus-outsider storyline. Interestingly, her predictions for the future of reform in Japan and Korea emphasize the constraints imposed by demographic changes and globalization more than the institutional settings that she proposes in the book.
Another point to ponder in the development of her theory is causality. Her argument implies that the different labor market reforms, regardless of whether they target all workers or outsiders only, do not affect labor market inequality and dualism. Rather, the outcomes are determined by previous labor relations, whether centralized or decentralized. Although she does not explicitly say this, her analyses show that the effects of reform policies are, at best, limited. In her framework, a country with decentralized industrial relations cannot reduce labor market dualism even if it introduces comprehensive labor reforms. Song’s account may explain the relative stability of labor market inequality and dualism. The question is, what are the sources of change in labor market inequality?
For future research, Song may want to expand her study to other countries. Although the brief examinations of Germany and the United Kingdom in the conclusion are helpful, these two countries, like Japan and Korea, have decentralized industrial relations. Countries with centralized industrial relations are not examined in her book.
Song’s Inequality in the Workplace: Labor Market Reform in Japan and Korea is a welcome addition to the study of labor reform. She apparently did a literature review, perused huge files of policy documents, and interviewed policy makers. Given the lack of studies on labor market reforms in Japan and Korea, the value of this book is quite high. Scholars who are interested in the history of labor markets in Japan and Korea, as well as those who are not satisfied with existing explanations of labor market reforms, will find this book extremely valuable.