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Reversing the Continental syndrome of 'welfare without work'

By the late 1990s, the Continental type of welfare regime was seen as the sick man of Western Europe not only because of its costs, but above all because of inherent perversities, aptly captured by the metaphors of 'frozen Fordism' (Esping-Andersen, 1996) and the 'inactivity trap' (Hemerijck and Manow, 2001). The root cause of the Continental syndrome lies in the combination of four of its distinct institutional treats: the generosity and long duration of insurance-based income replacement benefits; the mainly 'passive' or compensatory nature of such benefits; their contributory pay-roll financing; and high minimum wages (see also Scharpf and Schmidt, 2000b; Huber and Stephens, 2001; Pierson, 2001a, b; Streeck, 2009; Eichhorst and Hemerijck, 2010). Honouring generous insurance entitlements (especially those of maturing pensions) required the maintenance of high contributory rates from the wages of standard workers. In the presence of strict labour regulation this harboured particularly adverse labour market consequences. Over the 1970s and 1980s, Continental regimes resorted to disability pensions, early retirement, and long-term unemployment schemes to remove older and less productive workers from their labour markets. Governments of different political outlook preferred to increase social contributions, making labour ever more expensive, rather than cut social benefits. Luring people out of the labour market by facilitating early retirement, increasing benefits for the long-term unemployed, lifting the obligation of jobseeking for older workers, discouraging mothers from job -eeking, favouring long periods of leave, easing the access to disability pensions and reducing working hours, conjures up the Continental predicament of 'welfare without work' that remained politically popular well into the 1990s. Bruno Palier and Kathy Thelen (2010) emphasize that, as Austria, Germany, France, and Belgium presided over strong industrial economies, domestic policymakers were unwilling to give in to the postindustrial high and low skill servicing. The main focus was to preserve the most productive industrial workers through augmented job and social protection at the expense of potential service-sector competitors (Rueda, 2007; Clegg, 2011; Eichhorst etal., 2011; for a critique, see Clasen and Goerne, 2011).

Backed by the unions and employers this strategy produced short-term gains but engendered a severe employment crisis across most Continental welfare states in the long run. Boosting international competitiveness by early retirement and placing a premium on high productivity substantially raised the tax and social contribution burden on labour, as ever fewer workers had to support ever more people outside the labour market. This led to a vicious cycle of rising wage costs and the exit of less productive workers requiring further productivity increases and eliciting another round of workforce reductions through subsidized early exit. This self-reinforcing negative spiral has had particularly dire consequences for low-skilled workers, the young, and women. Historically already characterized by low levels of female participation, the Continental welfare states were certainly not in the forefront of allowing women to combine work and family (especially childrearing) responsibilities at a time of growing marital instability and rising rates of single-income households.

From the 1990s onwards the policy of labour supply reduction came to be brandished as a policy failure, which, if uncorrected, would undermine the survival of the Continental welfare state and to the Rhineland model of 'coordinated market economies' more generally (Hall and Soskice, 2001). At both the cognitive and normative levels, a novel policy consensus emerged of expanding employment levels among women (and perhaps also older workers) as a sine qua non for the long-term sustainability of the inclusive welfare states of mainland Europe. Subsequently, the Continental employment predicament generated a long, complex, and cumulative recalibration agenda, including the containment of wages and social spending, trimming pensions and 'passive' benefits, reducing payroll charges, introducing 'active' incentives, updating family policy, increased means-testing, labour market deregulation to overcome insider/outsider cleavages, and financial restructuring more broadly (Ferrera and Hemerijck, 2003).

Despite the formidable forces of institutional inertia, Continental welfare states today are a fundamentally different condition than in the late 1990s when they were described as 'frozen'. The road of recalibration proved politically turbulent: 'defrosting' the Continental welfare status quo and neutralizing its inactivity traps has been compounded by the entrenched power positions of the social partners in the administration of Bismarckian social insurance funds as contributors, recipients, and key managers of Continental social insurance provision. But with benefit of hindsight, it is no exaggeration to say that the Continental welfare states, in comparison to their West European, Nordic, Anglo-Irish, and Southern counterparts, have undergone the most dramatic reforms and pathbreaking institutional changes over the past two decades (Palier, 2010a; see also Levy, 1999).

Already in the 1980s, while employment security and social insurance protection for labour market insiders remained largely unchanged, many Continental welfare regimes turned to the use of more flexible jobs to allow for additional job creation. Fixed-term jobs, but also part-time employment, in countries such as France and the Netherlands, became increasingly prominent secondary segments in otherwise rigid labour markets. The massive entry of Dutch women into the labour market is inherently related to the changing status of part-time work. By the late 1990s, three-quarters of all female workers are employed on a part-time basis in the Netherlands (Eich- horst and Hemerijck, 2010). Dutch service-sector employers started to recruit part-time female workers as a means to strengthen organizational flexibility, but not to pursue low-price competition, as in the UK.

Another early change was the introduction of reinforcement of minimum income protection schemes in France (Palier, 2010d) and Belgium (Hemerijck and Marx, 2010). With the introduction of the French RMI ('minimum insertion income'), in 1988, the financing of French minimum income protection shifted from payroll contributions to general taxation, in part so as to reduce non-wage costs and encourage job creation at the low end of the labour market. In a rather incremental fashion, Belgian social insurance schemes have been transformed, since the 1980s, from a traditional Bismarckian social insurance system into one with an overriding emphasis on minimum income protection with quasi-universal coverage. In other words, the 1980s was a decade of some expansion of more universal social policy coverage, in particular in countries where outsider target groups, such as lone parents, the young, and long-term unemployed, were discriminated against in traditional social insurance schemes.

The Netherlands was the first country to adopt a more encompassing strategic approach to Continental welfare restructuring and employment creation with the revitalization of corporatist negotiations between the social partners and the government from the 1980s onwards. The Netherlands combined wage restraint, cuts in social benefits, and first steps towards activation with an expansion of flexible, part-time service-sector jobs while continuing to tolerate, at this stage, easy access to disability benefits as the Dutch exit route from the labour market (Visser and Hemerijck, 1997; Hemerijck and Marx, 2010). The Dutch experience with long-term wage restraint suggests that its employment effects have been the strongest in domestic services that apparently were previously priced out of the regular labour market. What is more, to the extent that wage developments in the private and public sector are coupled, responsive pay settlements also lowered the public sector wage bill, and thus curtailed social security outlays, while broadening the revenue basis of the Dutch welfare state (Ebbinghaus and Hassel, 2000). In many Dutch households, stagnant primary sector wages resulting from long-term wage restraint were compensated (or even overcompensated) for by additional family incomes that came from women's growing part-time job opportunities in the expanding service sector.

From 1994 onwards, successive Dutch governments, led by the social democrats, pursued a 'jobs, jobs, and more jobs' strategy, sought greater efficiencies in social security, including partial reprivatization of sickness pay, managed liberalization of administration, reducing social partner involvement, and introduced and intensified activation obligations for the long-term unemployed (Kuipers, 2006). In an attempt to end the heavy misuse of sickness insurance and disability pensions, these schemes were made more costly to employers (Visser and Hemerijck, 1997; Hemerijck and Visser, 2000). In order to activate social assistance claimants a contractual approach and stronger municipal responsibility in terms of measures and resources were implemented.

In addition, the Netherlands also managed to negotiate better employment protection for workers in flexible jobs in exchange for small adjustments in dismissal protection for employees on permanent contracts. This 'flexicurity' agreement between the trade unions and the employers in 1995 struck a winning balance between flexible employment (afforded by safeguarding social security and the legal position of part-time and temporary workers), and a slight loosening of employee dismissal legislation. In 2000, the flexi- curity agreement was transformed into the Working Hours Act, granting parttime workers an explicit right to equal treatment in all areas negotiated by the social partners, such as wages, basic social security, training and education, subsidized care provision, holiday pay, and second tier pensions (Hemerijck and Visser, 2001; Hemerijck and Sleegers, 2007; Houwing, 2010). The new 2002 Work and Care bill next provided for short-term paid care leave and paid adoption leave. The Dutch experience thus rendered a telling example of how, through a concerted effort at 'labour market desegmentation', problems of labour market dualism and gender marginalization could be avoided in a Continental welfare regime (Ferrera and Hemerijck, 2003; see also Vis, Kersbergen, and Becker, 2008).

The severe recession in the early 1990s, following German unification, produced a sharp rise in unemployment and ballooning public debt, constraining the scope for further labour supply reduction in a majority of Continental welfare states. By the mid 1990s, the EMU entrance exam served to shift policy attention more decisively to budget consolidation through social retrenchment and employment creation (Hassel, 2006; Natali and Pochet, 2009). So as to abide by the Maastricht criteria, more drastic social reforms were enacted: instead of increasing social contributions, governments turned to reducing social benefits, curtailing eligibility criteria, modify their financing, and tightening administrative control over social insurance funds and employment services. In terms of the political economy, the 1990s saw a major revival of negotiated welfare state reform via 'social pacts' in the Netherlands (Hemerijck and Marx, 2010) and Austria (Obinger andTalos, 2010), and stronger state intervention, by introducing a parliamentary vote on the social budget, in France (Palier, 2010d). Attempts at orchestrating organized wage restraint after the Dutch success were made in other Continental welfare states, but with little success. The German Alliance for Jobs of 1995-6 under Kohl and the Pact for Jobs, Training and Competitiveness of 1999 under Schroeder, failed to live up to high expectations (Manow and Seils, 2000). After the Belgian social partners failed to reach agreement, the government imposed a wage norm, based on developments in Belgium's main trading partners, the Netherlands, Germany, and France in 1996 (Hemerijck, Unger, and Visser, 2000; Hemerijck and Visser, 2000; Kuipers, 2006; Vis, Kersbergen, and Becker, 2008).

In the new millennium, many countries, notably the Netherlands and Germany, made an explicit U-turn away from the Continental pathology of 'welfare without work', towards embracing a more inclusive and activating welfare state. Activation programmes based on individual guidance and training opportunities—especially those that target 'outsiders' such as young, female, or low-skilled workers—gained special importance. Germany, the Netherlands, Belgium, and France brought in stricter activation targeted at recipients of minimum income support and implemented stronger in-work benefits for low-wage earners (e.g. the French PPE) or their employers via exemptions from social insurance contributions. Both France and Germany now have a repertoire of (a) less regulated work contracts such as fixed-term employment or temporary agency work and (b) areas with low social contributions or employer subsidies, e.g. low-wage jobs exempt from employers' contributions and a multitude of ‘contrats aides’ in France and Minijobs and different subsidization schemes in Germany. Employment policies have also been characterized by tighter eligibility conditions for unemployment benefit, a stronger reliance on activation policies, and increased efforts to create employment opportunities for the low-skilled (Obinger and Talos, 2010). In many respects, activation reforms paved the way to further deregulation of the highly regulated labour markets of continental Europe. In the many Continental welfare states, however, labour market deregulation remained biased, in the sense that open-ended contracts for insiders groups remained secure, reinforcing already existing 'dualization' between industrial workers and service-sector employees (Palier and Thelen, 2010). That said, the activation turn and increased labour market flexibility in the service sectors together contributed to making Continental welfare states more employment-friendly.

While the first Schroder Red-Green government (1998-2002) was not aggressive in correcting inherited Continental welfare problems, in its second term (2002-5) it adopted a much bolder reform stance. The publication of a critique by the Federal Audit Bureau of misleading placement statistics by the Federal Agency for Work (Bundesanstalt fur Arbeit—the German Public Employment Service), at a time when unemployment soared, evolved into a political scandal at the beginning of 2002. Immediately, the Schroder government seized the moment by appointing an expert commission led by the then Volkswagen head of human resources, Peter Hartz. In its final report, the Hartz Commission recommended the overhaul of the German social insurance system, restructuring of the governance of the German Public Employment Service, to further deregulate the labour market, while radically stepping up activation strategies, especially for labour market outsiders, and, ultimately, the establishment of a single 'unified gateway' for all unemployed and jobseeking persons in Germany (Hartz Commission, 2002; Weishaupt, 2010a). Together, the so-called Hartz reforms (2002-5) constituted a clear break with the traditional Continental social insurance legacy of high benefit dependency, low employment, reluctant activation, and truncated flexibilization (Seeleib-Kaiser and Fleckenstein, 2007). The most radical Hartz IV reform, enacted in 2005, involved the merger of the provisions of unemployment assistance for the long-term unemployed and social assistance for those in need without an employment record into a new, tax-financed, Unemployment Benefit II (Arbeitslosengeld II [ALG-2]) to complemented the more traditional unemployment insurance provision, termed 'Unemployment Benefit I' (Arbeitslosengeld I [ALG-1]). The introduction of a general assistance scheme for all those of working-age, inactive but capable of working, by merging former unemployment assistance and local social assistance provisions, complemented with tight eligibility criteria and strong activation requirements for all long-term unemployed (Hinrichs, 2010). In the same instance, the duration of unemployment insurance payments was reduced from 32 to 12 months (18 months for older workers). To consolidate the shift away from early-exit, in 2007 the government decided to raise the early retirement age in all three major schemes from 60 to 63. The removal of the entire unemployment assistance pillar from German social insurance system, which previously offered income-related (but means-tested) benefits to jobseekers with an employment record, trampled on both the insurance and equivalence principles of the Bismarckian welfare state (Trampusch, 2005; Eichhorst and Kaiser, 2006; Eichhorst etal., 2008a; Weishaupt, 2010a, 2011a; Dingeldey, 2011). The Hartz IV reform was intended to remedy two key problems of the old separation of long-term unemployment assistance and municipal social assistance, namely to reduce the comparatively high levels of long-term unemployed persons and to provide equal access to employment services to an ever larger number of social assistance recipients. To this end, the responsibility for ALG-2, the vast majority of jobseekers, was transferred to newly created job centres (Fleckenstein, 2008; Boyle and Schunemann, 2009; Knuth, 2009).

Following the French example, a new, layered social protection system thus emerged, combining Bismarckian social insurance for core workers, supplemented by Beveridgean minimum income protection support systems in Germany (Clasen and Clegg, 2006; Eichhorst et al., 2008a). Hereby traditional limitations of social insurance coverage for new social risk groups were increasingly compensated by strengthening universal, citizenship-based provisions of social protection, giving a larger role to tax-funding in noncontributory benefits, i.e. universal and means-tested assistance schemes (Palier, 2010d). In more institutional terms, the Hartz reforms triggered a major restructuring of the much criticized Bundesanstalt fur Arbeit. Under the new Bundesagentur fur Arbeit, active and passive labour market policies were thus reorganized to establish a more unified system of job search assistance and placement services, based on new public management principles and reinforced by stricter job search requirements (Fordern and Fordern). Under the Hartz I and II reforms of 2002, restrictions on fixed-term contracts had already been eased and temporary work agency further liberalized so as facilitate and expand job placement via commercial work agencies.

The Hartz reforms also helped to expand the low-wage sector through new 'in-work benefits', tax and contribution exemptions and reductions. A new direct low-wage job-creation programme included public employment opportunities through so-called One-Euro Jobs, which provide additional income of €1.00 to €2.00 per hour, in combination with full benefits. The rise in subsidized low-wage service sector employment through One-Euro Jobs, alongside Minijobs and Midijobs, low-wage part-time work, and subsidized start-ups, seems quite successful. However, it should be pointed out that the unemployed and low-skilled hardly benefit from these programmes, as they are crowded out by new entrants to the labour market, especially students.

Altogether, the Hartz reforms were extremely unpopular, particularly with the traditional social democratic electorate. Popular discontent ultimately resulted in the defeat of the Red-Green government in the 2005 German elections. In German industrial relations no fundamental structural changes have occurred over the decade following the failed 1998 Alliance for Jobs, Vocational Training and Competitiveness (Hassel, 1999; Streeck and Hassel, 2003b; Trampusch, 2005; Streeck, 2009). The flexibility within the sectoral wage-setting system did grow due to wider provision and use of opening clauses and frequent instances of concession-bargaining in exposed sector industries as union density and membership in employers' organizations declined. As a consequence, wage increases were moderate, making Germany being one of the EU countries with the lowest level of wage growth over decade leading up to the global financial crisis.

After 2000, Dutch governments took increasingly bold steps to foster activation. In 1998 the activation reform widened the comprehensive approach for all jobseekers (not only the young as was implemented in the early 1990s). Counselling, training, and job offers were provided for all jobseekers after six months of unemployment from 2001 onwards. Since 2004, the elderly unemployed are required to look for work. At the same time, employers are no longer obliged to pay premiums for disabled employees aged over 55. In 2005, the introduction of the Work and Income According to Labour Capacity Act (Wet Werk and Inkomen naar Arbeidsvermogen [WIA]) government significantly reduced disability benefits for partially disabled individuals, but also expanded training opportunities and created wage subsidies for partially disabled workers and their employers (Hoogenboom, 2011). In the same year, tax benefits for pre-pension schemes were replaced by a life-course scheme that stimulates employees to accrue 210 per cent of their annual salary by saving a yearly maximum of 12 per cent of their annual income, so as to enable employees to receive 70 per cent of their annual salary while away on leave (parental, educational, sabbatical, or early retirement) for three years. The Gatekeepers Act, introduced in 2007, raised the stakes by obliging recipients to find work after three months.

In contrast to Germany, the Netherlands and France, Belgium remained ensnared in a vicious circle of ever higher social spending, higher taxation, labour shedding, and mounting public debt and deficits. Timid activation measures were adopted between 1999 and 2005, but without great success. Attempts to curtail employment protection remained blocked because of disagreement between the social partners (Hemerijck et al., 2000; De Deken, 2011). This set Belgium on a course of progressive shift to a minimum protection model for all the unemployed in Belgium, what Johan de Deken terms 'preserving inclusiveness through residualisation' (De Deken, 2011; see also Hemerijck and Visser, 2000; Hemerijck and Marx, 2010). In Belgium the liberal-left government of 1999-2003 advanced the idea of an 'Active Welfare State', but this lead was not continued by successive conservative-liberal governments. As a result, the low activity rates of older workers remains the

Achilles heel of the Belgian welfare state. Also Austria held on to an insider- biased social insurance and labour market by restricting access to inactivity benefits. Alongside this, job subsidies and expanded training measures were introduced to improve the labour market potential of women, the young, and the elderly long-term unemployed (Obinger and Talos, 2006; Korthouwer, 2010). During the office of the right-wing OVP/FPO coalition government, between 2000 and 2006, a series of cutbacks in unemployment benefits was carried out. The abolition of early retirement schemes, to be implemented with longer contribution periods, was met with fierce social protest (Afonso and Mach, 2011).

By 2003, the French government transformed the RMI into the RMA ('minimum activity income') for those who have been entitled to RMI for two years, with the intention to combat social exclusion by increasing incentives to work. This reform failed, but in 2009, the government replaced RMI (as well as the lone-parent benefit) by RSA (revenu de solidarite active) (Palier 2005). Payable only to over-25s (under-25s with dependent children are also eligible for the RSA, as they were for the RMI previously; since September 2010 a 'youth RSA' also exists, but has extremely stringent conditions of prior work activity—see below), the amount of RSA is calculated on the basis of family size, household means, and the beneficiary's employment situation. With respect to the latter point, and unlike the RMI that it replaced, the RSA makes a clear distinction between those beneficiaries that are in work and those that are not, with the latter group receiving benefits at a lower level ('RSA socle') than the former ('RSA socle et activity or 'RSA activite seul'). France has been in the forefront of the development from social insurance financing to general taxation, as a means to reduce payroll taxes and to improve social security for citizens not covered by traditional social insurance. However, it is important to emphasize that the Netherlands already presided over tax- financed universal social assistance and first-tier basic public pensions for all citizens.

The activation reforms pursued in Continental welfare regimes, highlighted above, have triggered important processes of institutional recalibration (Fer- rera and Hemerijck, 2003). Public authorities in most Continental countries have aimed for a more unified governance structure benefit payment, activation, and service provision for all jobseekers. To this effect local authorities have been strengthened, leading to mergers between municipal welfare offices and public employment services in France and Germany. These administrative reforms were at the expense of the privileged positions of the social partners in the Continental welfare fabric. The French government reformed the social insurance administration by establishing full parity of state appointees alongside the social partners. Since 1996, parliament has been obligated to vote every year on the social security budget. Rather than having to negotiate their interventions with the social partners, since the institutionalization of a parliamentary vote, government is now regularly able to plan adaptation measures, especially with respect to cost-containment (Palier, 2000). In 2001, French employers decided to withdraw from the administrative board of the social insurance funds (they came back by the mid-2000s, once the boards were replaced by purely consultative 'councils'). Despite the fact that the German social partners have been absent from the PES executive board since 2002, they are still represented in advisory bodies. In Austria, on the other hand, territorial Employment Pacts, which have been in operation in all nine Austrian federal states since 2001, continued to bring together PES, welfare offices, regional governments, the social partners, and other stakeholders (Weishaupt, 2010b). The proliferation of supply-side approaches to labour market policy has been accompanied by the demonopolization and regionalization of PES in Austria, Belgium, Germany, and the Netherlands. In the Netherlands a one-stop shop was provided by the 2002 Wet Structuur Uitvoeringsorganisatie Werk en Inkomen (SUWI; Law on the Structure of the Administration and Implementation of Work and Income) Act that brought to an end the turbulent change in Employment Services and Benefit Administration of the previous decades. Also, the delivery of benefit and the assistance of insurance benefit claimants to return to work were brought under one roof. In addition, the liberalization of public employment services and new regulation governing private temporary employment agencies has extended the use of market-type mechanisms, such as contracting out and organizational reforms, including, among other things, separating purchasers and providers (Weishaupt, 2010b).

More recently, old-age pension provision moved to the centre of the Continental social reform momentum. Pension reform in Continental welfare states, especially in the large pay-as-you-go (PAYG) defined benefit systems of Austria, Belgium, France, and Germany, adds up to a very cumbersome exercise in distributive recalibration (Immergut, Anderson, and Schulze, 2007). Unlike transfers financed from general revenue, PAYG schemes are financed from payroll taxes, imposing the costs of ageing societies on the wages of current, younger employees. In a context of low wage growth, policymakers face an intergenerational distributional dilemma, as they must try to reconcile the needs of retirees with the downward pressure on the wages of active workers. Well into the 1990s, the dominant approach to improving the sustainability of these PAYG systems has been to increase contribution rates in France, Germany, and the Netherlands. Austria extended the reference period as part of a larger package of reforms. In addition, Germany moved from gross to net wage indexation and France has shifted from wage to price indexation, while it also extended the reference period as well as the wage reference on which pension were calculated (Palier, 2010d). The Netherlands and Belgium also started building reserve funds to sustain pension provision when the baby-boom generation retires (Hemerijck, 2002). Germany took first steps in establishing a multi-pillar system of pension provision, including a partial privatization of pensions with a greater emphasis on occupational pensions in 2001. The so- called Riester pension reform included restrictions of the level of public pensions, but also created the possibility for complementary future pension rights through private personal or occupational pension plans. The pension replacement rate was further reduced in 2004. Austria and Germany have also taken important steps towards transferring risk associated with ageing to retirees by indexing future benefits against the life expectancy of the retiring cohort. In Austria, successive reforms in the first half of the 2000s closed early-exit options, harmonized the pension system by integrating federal civil servants into the general scheme, diminished the level of pay-as-you-go benefits, and progressively introduced a supplementary private pillar, financed through the conversion of previous severance payments (Obinger andTalos, 2010). Policymakers in Austria, Belgium, France, and Germany began to encourage younger cohorts of the workforce to participate in fully funded occupational pensions schemes through the use of direct transfers and tax advantages. Finally, in Austria and Germany a new basic pension scheme has been implemented for low-income retirees. Since 2000, activation has become the prevailing goal in pension reform. Austria, France, Germany, and the Netherlands have extended contribution periods while granting bonuses to people who work beyond the legal retirement age and reductions to those who retire early. However, in France the legal retirement age was still set at 60, until the most recent change in 2010, when it was set at 62, while in most other countries it has been pushed to 65. Germany, which was formerly the quintessential case of policy immobility, has been the first European country to increase the retirement age from 65 to 67. Germany also introduced several options for partial retirement in the 1990s for workers over the age of 55. In Belgium, once employees reach a set age, they can opt to reduce their work hours progressively until they reach retirement age in exchange for a partial pension. Tax credits have also been introduced in Belgium and the Netherlands to make it more attractive for older people to work. Throughout the first half of the 2000s, really only France remained an exemplary case of political immobilism in Continental old-age pensions. Due to the absence of consensus among mainstream parties and between unions and employers, the 1993 and 2003 pension reforms did not add to more than a timid retrenchment of public pensions. On the other hand, it needs to said, that reference period for full pension at 41.5 years of employment, makes the so-called legal age of retirement at 62 a rather symbolic age limit (Bonoli and Palier, 2007). And with the latest 2010 reform, the real age of retirement at full pensions will move up to 67 years between 2012 and 2029. Bernard Ebbinghaus (2010b), in summarizing the Bismarckian pattern of pension reform, highlights the shift from defined benefits to defined contribution, together with the enactment of reforms in the governance of pension funds, facilitating further substantive reforms.

Finally, the new policies of reconciling work and family life gained prominence in many Continental countries in the new millennium. Since the 1990s, parental leave schemes have been expanded, pressed, in many cases by EU gender equality directives (Falkneret al., 2005; Graziano 2011a). Family policy reforms, however, went far beyond these directives, both in terms of time and coverage, to include care for the elderly and sick children. Governments have increased spending and pushed for more flexible childcare facility opening hours in order to enlarge the number of available and affordable childcare places. In the Netherlands, in order to help reconcile work and family life, those using the life-course scheme during periods of parental leave are granted an additional payment worth 50 per cent of the minimum wage. Dutch childcare is characteristically a matter of subsidies, tax deductions, and exhortations to make employers pick up the bill. In 2005, the Christian-Liberal centre-right government has expanded childcare by creating additional facilities at schools and by paying one-third of childcare costs. The remaining costs are equally divided among employers and employees. Critics of the 2005 Childcare Act have shown that many employers fail to contribute and the benefits are unequally distributed. In response, a new Christian-Social Democratic coalition made contributions obligatory. A new tax rebate subsidy scheme proved so popular and costly that the government felt forced to scale it down in 2008. Limited availability of childcare provision and the early end of the school day in classes for young children had remained an obstacle for parents and in particular mothers wishing to work full-time (Plantenga etal., 2009). While the Netherlands developed the 'combination scenario' of childcare through the workplace for mothers working part-time, the Red-Green government, led by Gerhard Schoder, in Germany put childcare at the core of its policy platform with generous tax deductions for parents taking up childcare facilities so as to stimulate demand, especially among low- income families. The Grand Coalition of CDU/CSU and the SPD, under Angela Merkel, expanded tax reimbursements to cover childcare costs and introduced a new parental leave benefit, while expanding (public) childcare facilities. The Minister for Family, Seniors, Women, and Youth Affairs, Ursula von der Leyen (CDU), committed the Grand Coalition to expand childcare facilities rapidly to 750,000 places by 2013 with a subsidy of €4 billion, covering one-third of the costs. In 2007, despite fierce opposition by Catholic factions in German Christian Democracy, a new parental allowance came into force, modelled after the Swedish experience, granting parents 67 per cent of their previous wage for twelve months, with a ceiling of €1,800, with the intention of more equal gender roles, financial security for young parents, and higher levels of labour force participation of mothers. These new reforms demonstrated the German welfare state's new commitment to bringing more mothers and single parents into the world of paid employment in a country plagued by one of the lowest birth rates in the EU (Korthouwer, 2010). German and Dutch governments have introduced paid maternity leave, and improved social rights for part-time workers, as well as providing minimum income protection. Meanwhile, all Continental welfare states have come to equalize the legal retirement ages of men and women, or are in the process of doing so. In addition, Austria, Belgium, France, and Germany now add pension credits to the insurance records of workers who have children, in order to mitigate the adverse financial consequences of careers interrupted by childrearing. In 1994, Dutch policymakers also introduced the option of splitting the rights for occupational pensions in the event of divorce or the dissolution of a marriage during retirement.

The above social reform inventory across Continental welfare states, once characterized as highly change-resistant and veto-prone, shows that most mainland European welfare states have been radically transformed over the span of the past two decades (Vail, 2010). The recognition of the syndrome of 'welfare without work' in the early 1990s has since generated a complex, long drawn-out recalibration agenda over a large number of policy areas. In terms of functional recalibration, Continental welfare regimes have embarked on a paradigmatic shift away from social insurance systems, principally geared to passive, insider-based income protection and status maintenance towards activating, employment-friendly, gender-equal, and more working-family sensitive welfare systems. Functional recalibration suggests an element of policy convergence with the Nordic social investment model. The imperative to raise employment levels triggered the overhaul of compensatory Bismarck- ian social insurance in a number of successive, increasingly intrusive social reforms. Especially, the gradual shift from Bismarckian employment-related social insurance to basic universal income support, financed through general taxation, for the non-employed without prior employment record, thus weakening the equivalence and status preservation principles of Continental welfare provision, stands out. Also the shift from passive labour market policies aimed at reducing labour supply by encouraging early exit, towards activation and active labour market schemes, with increased conditionality, testify to the increased importance of paid work.

In terms of distributive recalibration, benefit cuts, high contributions, less generous pensions, together with heavier pressures on the unemployed to accept job offers, indicate an element of inspiration from New Labour. There has also been some liberalization of non-standard employment such as fixed- term contracts and agency work. In the process, fighting poverty has become a new distributive priority. There is a shift in attention from insiders (i.e. male breadwinners, their dependants, and societal representatives) to women, low- skilled groups, and other outsiders. Intergenerational distributive recalibration from older cohorts with secure pension rights to younger cohorts with less stable careers remains an important future challenge.

Institutional recalibration has primarily involved strengthening the role of the central government and local authorities, often at the expense of the social partners. The activation of welfare beneficiaries and labour market outsiders has also implied the activation of social security and employment service administration and service provision. Different branches of social policy provision have joined up to create 'one-stop shops' and 'single gateways'. The shift from income maintenance to social servicing has given rise to the devolution of social service structures to municipalities and enhanced professionalization of public and private social care provision with more individualized service delivery.

Coming finally to normative recalibration, the Continental reform experience has seen the erosion of two core policy values of the Continental welfare state: status maintenance and privileged support for traditional male-breadwinner families. In their stead came the promotion of equal opportunities via labour market participation and more inclusive poverty reduction strategies. Virtually all Continental welfare states are in the process of bidding 'farewell to maternalism' to use Ann Orloff's metaphor (2006). This is not merely the product of changing gender values, it is also part of a deliberate functional recalibration strategy to attract mothers, in the face of population ageing, into the workforce. This required reforms that enable mothers to participate in the labour market, to be supported by women- and child-friendly policies of affordable access to day care, paid maternity and parental leave, albeit under the provisos of 'free choice' and the confessional 'subsidiarity' principle, which prohibits the state from direct interference in family life (Morel, 2008; Morgan, 2008).

Creating a new and unified Continental system for all jobseekers turned out to be very difficult, but the expansion of public social assistance and the integration of social insurance funds and job placement agencies have resulted in a more coherent regime of social protection and labour market policy than ever before, I believe. While core workers continue to receive collectively bargained wages, have access to generous unemployment insurance, and are protected by high standards of job protection, a growing cohort of new entrants, youth and women, low-skilled and part-time workers, and immigrants are now at least covered by public social assistance and are entitled to active labour market policy and family service supports.

What explains the path-shifting Continental welfare recalibration momentum? Although a comprehensive analysis is not possible here, it is worth noting that policymakers, together with the social partners, in Austria and the Netherlands have, as small, open economies, been particularly receptive to the pressures of accelerated economic internationalization. In Belgium, however, traumatized by deeply entrenched internal divisions along both linguistic and ideological lines, this has resulted in a far more fragmented, complex, and conflict-ridden social reform record, hindering the full-fledged adoption of the active welfare state as advocated by the federal pensions and health minister Frank Vandenbroucke around the turn of the millennium. The Netherlands, already at an early stage, and Germany, much later, have moved furthest in the direction of social investment-oriented reform. In comparison to the Netherlands, path-shifting reforms were more difficult to enact and implement in Germany's rather fragmented political system (Bonoli 2001; Immergut, Anderson, and Schulze, 2007). Although the German Red-Green government was in office from 1998 until 2002, it lost its dominant position in the second chamber by early 2000. Hence the support of the Christian Democrats became imperative for substantive welfare recalibration. By forging an informal alliance with the Christian Democrats in the Senate (Bundesrat), Social Democratic politicians were able to enact important pension reforms (Schludi, 2005; Trampusch, 2009b; Korthouwer, 2010). Under the new Conservative-Liberal coalition of Angela Merkel, the reform in family policy was also kept moving (Stiller, 2010). In France a highly concentrated and highly centralized political system was not enough to venture path-shifting reforms. The high political salience of pension reform, triggering political polarization and social conflict, made it difficult for central governments to go beyond half-baked parametric reforms (Levy, 2000; Bonoli, 2001; Palier, 2010d). It is important to highlight that the more daring policy changes, such as the Dutch social insurance reforms of the 1990s and the radical and much maligned Hartz reforms in Germany in the mid-2000s were prefaced by expert reports that publicly exposed many drawbacks of the welfare status quo, thereby raising public awareness of reform urgency. By subsequently framing reform resistance as problematic, reform-minded politicians such as Ruud Lubbers and Wim Kok (Visser and Hemerijck, 1997) in the Netherlands and Walter Riester and Wolfgang Clement (Stiller, 2010) in Germany were able to go against the grain of entrenched policy stakeholders. This required these reform-minded policymakers to make consistent efforts to legitimize new policies and articulate novel normative principles of social fairness. Communicating will-power to reform, while propagating fair solutions, thus proved to be significant to changing prevailing policy repertoires (Schmidt, 2002).

A final key feature of the reform momentum lies in the sequential character of cumulative reforms across different areas of social and economic regulation. Since the early 1990s, most Continental welfare states have taken steps to reduce the volume of beneficiaries moving towards early exit: tightening eligibility criteria, reducing benefit replacement rates, and introducing stricter administrative controls, leading, in the early 2000s, to the abolition of early retirement schemes altogether. In a process of institutional layering, more far- reaching activation reforms were made possible by the cost-saving successes of earlier reforms. Fundamental to the latter more intrusive reforms was the cognitive redefinition of the employment problem away from managing unemployment towards the promotion of employment, on the basis of activation, active ageing, avoidance of early retirement, part-time work, lifelong learning, parental leave, gender mainstreaming, balancing flexibility with security (flexicurity), reconciling work and family life, and the generalization of minimum income protection support.

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