Job Market Polarization and Employment Protection in Europe

There is increasing evidence about polarization of national labor markets with employment and wage growth occurring in low- and high-skill occupations, but not in middleskill occupations. As polarization has been documented mainly for Anglo-Saxon countries, there is little evidence and discussion on cross-country differences in this process. I fill this gap by analyzing job polarization in 12 European countries using an occupational skill-intensity measure. Findings suggest large cross-country differences in the extent of polarization, which correspond to variation in educational attainment growth, industrial structure, and dissimilarities in employment protection legislation. The latter is particular important, as employment protection limits the possibility to adjust workforce in response to technological change and thus dampens the polarization effect. This finding indirectly confirms existing theories explaining polarization: routinization and off-shoring. Finally, it provides prediction for policy makers about future development of social and labor market inequalities, if policies toward more flexible labor market regulation are implemented.