Institutions versus market forces: Explaining the employment insecurity of European individuals during (the beginning of) the financial crisis

In reaction to the recent financial crisis, the European Commission re-stated its view that the balance between flexibility and security is the key to success for the future of the European social economy, as well as its belief in the power of institutional arrangements it deems necessary for this balance.

However, do powerful institutions actually counter market forces where flexicurity is concerned? In this paper we address this question by analysing the impact of institutional configurations and market factors on perceived employment insecurity among workers in Europe.

We use the 4th wave of the European Social Survey for 2008/2009, which covers 22 countries, and implement a multi-level approach where contextual effects are taken into account and individuals are considered to be embedded within a country. We find that policies that secure one’s income and employability skills, such as passive and active labour market policies, are more important for providing employment security for individuals than institutions that secure one’s current job, such as employment protection. Of the economic and labour market factors, general market conditions (measured as employment rate average) and the strength of the financial crisis (measured as gross domestic product growth rate from 2008 to 2009) are both similarly influential in explaining cross-national variance in the employment insecurity perception of individuals.

More generally, and most interestingly, we find that institutional factors lose their significance when market factors are taken into account. Thus, it seems that differences in economic and labour market conditions between countries better explain why workers feel insecure about their employment, than the differences in employment and income policies. Although this result could be influenced by the time period under investigation, which is characterized by a financial crisis, results from previous studies using data from different periods suggest that it is not period-specific.