Social Democrat Dilemmas in an Era of Sorting and Stagnation

• In Event: Social Democracy. From Transformation to Demise?

Abstract

This paper argues that two core shifts in the economy have put pressure on social democratic economic policy: social, economic and geographic sorting by high productivity workers and regional stagnation created by declining birth rates and a general economic slowdown. In the last two decades, the well-known trends towards skill-biased job polarization have increasingly given way to a new phenomenon, the sorting of high productivity workers into high-productivity firms, next to a slowdown in the reallocation of productivity across firms. This sorting has a well-known geographic component, with high-skilled work concentrated in cities, a social component, as high productivity workers not only co-locate but also make social choices (schooling, marriage) that are increasingly homogamous. Next to sorting, slowing birth rates, rising income inequality, and changing structures of production, have created problems of `secular stagnation’ in peripheral regions, with low levels of private investment in productive capacities or skills.

This paper argues that these two features of the contemporary economic structure create (yet another) set of trade-offs for social democrats aiming to create an electoral coalition around equity producing policy. Kitschelt’s (1994) seminal contribution to understanding social democratic trade-offs theorized the divergence of class-based preferences in part through the lens of increasing productivity divergence across firms. Yet, the increasing geographic and social sorting of high productivity workers, next to diverging paths of stagnation, hardens these trade-offs, creating an economic conflict between the preferences of the urban and suburban middle classes and working classes.

The paper develops these argument theoretically, showing that achieving a more equitable distribution of income requires investing a in new policies `reallocating’ of productivity at both the firm-level and geographic level: including wage policies, promoting vertical reintegration of supply chains, and public investment in declining regions. While high minimum wages aimed to discourage low productivity work often attract votes among the urban base, they may be more resisted by suburban or rural voters. By contrast, policies targeting product or financial market regulation or inter-regional transfers create conflict among the urban and rural social democratic constituencies. The paper tests these propositions using aggregate electoral data and attitudinal data from the ISSP.

Author

• Jane R. Gingrich, University of Oxford