When Labour Split Up: Economic and Political Consequences of Labour Market Dualization

Many people want to have a secure and well-paid job. Some people manage to reach their goals, but others work in precarious conditions. A widening gap called labour market dualization between these groups causes economic and political consequences. This essay argues that dualization threatens workers’ rights; however, it impacts political issues less. This article will examine scholars’ debate regarding labour market dualization to support this argument.

Labour market dualization or insider-outsider theory was first introduced by Lindbeck and Snower (1988). As mentioned earlier, it came from the assumption that the labour force is not a single entity; they have two different factions. Insiders are workers who are less worried about being unemployed and typically represented by the unions in negotiations with corporations–thus called insiders. Meanwhile, outsiders are the group that is less represented and consists of unemployed people and workers with insufficient protection (Lindbeck and Snower, 1988, cited in Emmenegger, 2009). Insiders are more concerned about continuing their employment protection, while outsiders care more about active labour market policies (ALMPs) — including unemployment benefits–that aim to improve their condition (Rueda, 2005). This divide inside the labour force has economic and political implications.

On the economic side, the dualization endangers labours’ rights. In the early 1970s, the number of insiders rose due to strict employment protection (Rueda, 2005). However, in the aftermath of the 1973 oil crisis, the number of outsiders were also soaring following the high unemployment and increasing labour supply (Rueda, 2005). Increased job demands benefit the employers because the unemployed get more desperate for jobs. Thus, the employers managed to increase short-lived contracts and part-time workers. In the context of less supportive insiders towards outsiders’ interests, outsiders will face more difficulty to escape their precarious situations.

The impact on political matters is more debatable. Rueda (2005) started the discussion by arguing that contrasting interests between insiders and outsiders ruin workers’ solidarity. It then leads to social democratic governments–which traditionally champion workers’ voices–taking sides on insiders because they are seen as the core constituent, have a more significant number, and are more active politically than outsiders (Rueda, 2005). Thus, social democratic governments support insiders’ demand for job security regulations while outsiders oppose it, and to some extent, they might vote for the right parties. Rueda’s view was challenged by Emmenegger (2009). Outsiders are still most likely to support social democratic parties because common interests exist between both groups that the parties accommodate. In particular, outsiders support employment protection because they also find it essential (Emmenegger, 2009). The simple division between insiders and outsiders fails to consider the bigger picture of overwhelming support within the outsiders (Emmenegger, 2009). Other critiques come from Gordon (2015). Rueda saw unions as equivalent to insiders, thus only concerned with insiders’ interests and ignoring outsiders’ demands. This is not true because unions have backed unemployment benefit systems and labour market protection (Gordon, 2015). In addition, Rueda findings that social democratic parties do not support ALMPs are also inadequate to explain why unemployment benefits were very generous in rich countries (Gordon, 2015). Gordon found that unions have a central role in influencing policy outcomes, thus proving that unions are not exclusively supporting insiders.

To conclude, the postwar economic and political situation created two groups of labourers: insiders and outsiders. There are unavoidable implications of these divisions. The employers’ tendencies to suppress labour costs with temporary contracts could aggravate unemployment and precarious working conditions. In political affairs, there is not enough evidence that insiders and outsiders compete against each other. However, from Reuda’s research, social democratic parties have only negligible support for ALMPs; thus, the most visible impact is that social democratic parties favour insiders rather than outsiders.


Emmenegger, P. (2009). ‘Barriers to entry: insider/outsider politics and the political determinants of job security regulations.’ Journal of European Social Policy, 19(2), pp.131–146.

Gordon, J. C. (2015). ‘Protecting the unemployed: varieties of unionism and the evolution of unemployment benefits and active labour market policy in the rich democracies.’ Socio-Economic Review, 13(1): 79–99.

Rueda, D. (2005). ‘Insider-Outsider Politics in Industrial Democracies: the Challenge to Social Democratic Parties’. American Political Science Review, 99: 61–74.



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Sayyid AM

Sayyid AM


International Relations Student at Universitas Gadjah Mada