How perceived distributive effects shape labor market policy support

Abstract

The growth of the knowledge economy alters the risks and opportunities citizens experience in the labor market. Governments attempt to steer and support the adaptation of the workforce, enhance and spread opportunities, and mitigate the negative implications of these changes, in particular via skill-developing labor market policies. However, many recent studies document a puzzling discrepancy between the needs of knowledge economy losers in terms of skill development and their policy preferences. In particular, those most threatened by the knowledge economy prioritize compensation and protection over investments in human capital. Our study theorizes and studies four mechanisms – two ego-tropic, one socio-tropic and one group-tropic – to explain this preference pattern: they a) may have distorted perceptions of the distributive effects of policy reforms, b) may assign less importance to human capital investment as opposed to transfers and protection, c) may think that investment reforms do not contribute to societal equality, or d) may feel that the reforms do not deliver social recognition for themselves and their social ingroups. To test the relative importance of these mechanisms, we analyze novel data from an original survey in nine European countries, using both observational and experimental evidence. Our findings provide evidence for the group-specific recognition mechanism. Knowledge economy losers do think that they would benefit from social investment, and they also think that investment would deliver on equality, but they do not perceive a distinctive benefit for themselves or their ingroups. In their eyes, compensation reforms are the only type of reforms that benefit their ingroups exclusively. Our findings suggest that the effectiveness of policy responses to the knowledge economy depends not only on material effects of reforms but is conditional on cultural and recognition-based mechanisms.