Corporate Governance Reforms and Labor Market Dualization in Europe.

The process of financial integration led to a strengthening of institutional investors in decision-making structures. During the last decade, all advanced OECD countries adopted reforms intended to strengthen the power of minority shareholders within firms. Minority shareholders are in favor of an active market for corporate control (Aguilera and Jackson, 2003). In the line with further financial integration in Europe, the European Commission has been willing for thirty years to create a unified active European market for corporate control (Callaghan and Höpner, 2005). In most European countries, such as in Germany (Höpner and Jackson, 2006), a market for corporate control was created during the 1990s with the aim of increasing company performance in Europe. The aim of the financial integration at the European level is based on a project of harmonization among countries. The objective of this research project is to assess the political-economy and institutional obstacles to this process of harmonization at the European level. The contribution made by Callaghan and Höpner (2005) has shown that the debate over takeover liberalization rather reflects a clash between liberal and coordinated national varieties of capitalism (‘clash of capitalisms’) than a traditional left-wing cleavage (‘class conflict’). The two authors predict an increase in the salience of the clash-of-capitalisms cleavage in the future.

These conflicts can stem from a potential institutional incoherence between institutional changes in corporate governance and other institutional domains, such as labor market arrangements as underlined in the Varieties of Capitalism literature (Hall and Soskice, 2001; Amable, 2003). My argument is based on the idea that that the increasing economic and financial integration in the European Union have put central institutional arrangements under pressure. The social compromises supporting existing institutions have been undermined, thus making institutional change inevitable. A change in institutions such as the labor market, product market competition, innovation and financial systems and social protection systems (Amable, 2003), can thus be traced back to a change in social demands and balance of power between social groups, and the reaction of political actors. Despite these changes, central institutional specificities remain strong: the system of codetermination in Germany, the role of the State in France, the role of trade unions in the Northern European countries. All these institutional changes, especially in the financial and banking sector, have not all the European countries uniformly affected. In other words, some European models, such as the Continental European model, have more impacted than others, which refers to the ‘clash-of-capitalism’ thesis (Callaghan and Höpner, 2005).

In a previous paper, I have shown that the rise of shareholder value, as a central principle in corporate governance, has impacted central labor market institutions, i.e. collective bargaining institutions and employment protection legislation drawing on the comparative capitalism literature (macro level) and the human resource management literature (micro level). The empirical results indicate that the process of financialization has gradually contributed to a weakening of workers’ bargaining power in the direction of an ‘erosion-decentralization’ and is also associated with a reduction in the level of employment protection legislation (Darcillon, forthcoming). Following these empirical results, the aim of this contribution to explore the impact of shareholder-oriented corporate governance reforms on the labor market dualization in line with the contributions of Höpner et al. (2005) on ‘hybrid’ corporate governance regimes.

In order to analyze the institutional coherence between these emerging institutional arrangements and the existing ones, I want to test the idea that financial and corporate governance reforms have increased or not the labor market dualization on labor market and produced more inequalities. A growing literature argues that core employees (or ‘insiders’), have benefited more particularly from the rise of the financial markets (with the employee stock ownership for instance). Concessions conceded by the insiders have been compensated by the introduction of new payment mechanisms. As a result, variable pay reinforces the institutional strength of some workers and also introduces greater flexibility at the firm level (Jackson et al., 2006). In that sense, the rise of the financial markets – and more particularly the rise of shareholder value a key principle of corporate governance – should have created more insider-outsider conflicts. In Germany, the introduction of increased rights for minority shareholders has contributed to stronger codetermination institutions that serve more insiders’ interests than the interests of all employees (Höpner, 2007). Firms and trade unions have adjusted to financialization so that central social compromises, such as ‘co-determination’ in Germany, have been left intact (Ahlering and Deakin, 2007). More generally, the introduction of HRM practices and increased labor market flexibility in many OECD countries, such as in France, in Italy or in Spain, have increased the growing dualization of labor market. Alternatively, another processes of institutional change have proposed by a recent work of Thelen (2013): ‘deregulation’ and ‘embedded flexibilization’. This raises the question of the sociopolitical stability of this hybrid model emerging in some European countries.

I want to analyze empirically the relationship between specific forms of employment protection and the adoption of pro-shareholder reforms. Beyond the impact on specific institutional arrangements, such as employment protection, another empirical strategy would be to focus on the wage growth using OECD-EU-KLEMS database between high-skilled and low-skilled workers. It would be expected a positive relationships between the adoption of corporate governance and wages growth of high-skilled workers and a differentiated effects for low-skilled workers.