13
bread winners, it results in rising social security contributions and taxes. In the meantime,
non-wage labour costs have increased, which invites firms to review their productivity
again and leads to even more lay-offs. This ‘particular interplay between production and
social protection’ leads to overall low employment and high structural employment, low
female participation rates, declining participation of older workers, weak growth of part-
time employment and employment in the service sector (Hemerijck et al. 2000: 109).
The above described patterns of ‘insider-outsider’ labour markets, ‘vicious cycles’ and
‘welfare without work’ indicate a general difficulty or perhaps even inability of Continental
welfare states to cope with the challenges of a socio-economic nature, leading to loss of
employment. The following question is how Germany, as a prototype of this welfare state
type, has tended to react to these challenges. Two analyses of German economic adaptation
have taken a wider political economy perspective as their point of departure. Firstly, and
offering an alternative explanation for Germany’s poor employment performance, Manow
and Seils find a process of ‘dual externalization’ of costs by the state and firms onto the
welfare state in adjusting to external shocks, most recently German reunification, but also in
earlier crises (Manow/Seils 2000). In a broader study, analyzing the historical development
of the German political economy and its system of social protection at length, Manow iden-
tifies two patterns illustrating the use and misuse of the welfare state in coping with external
shocks, showing that the welfare state served as a buffer and shock absorber for both the
labour market and public finances (Manow 2001).8 These studies suggest that social policy
programmes have been instrumentalized by the state and by firms, indicating that these ac-
tors preferred additional burdens for the welfare state to substantial reforms, despite the risk
of endanger its financial viability in the long run. However, demonstrating that social policy
programmes are repeatedly used for buffering economic shocks does not yet provide a clear
explanation for the resilience of these programmes. I will cover these sources of resilience
in its social policy model in Section 3. Before that, however, I will consider the develop-
ment of German social policy over time.
3 Reacting to Pressures? A Summary of Policy Developments
Since the Mid 1970’s
The current section deals with the answers policy-makers formulated in response to the
pressures illustrated in Section 1.2. Did policy-makers attempt comprehensive reforms in
their reaction to slow growth and unemployment, demographic developments and other
pressures? Did they adjust policies or did they prefer to react by adopting incremental re-
8 First, governments used social insurance schemes to cope with the labour market consequences of the
crisis. Second, social insurance schemes are used (with a certain time lag) to cope with the financial im-
plications of the crisis which occurs through cost-shifting at the expense of the contribution-financed
social programs.