Independent Variable: Labor Absorption Capacity

Labor absorption capacity tells us whether the economic institutions in the destination country support the integration of refugees into the labor market based on the compatibility of the skill set the asylee group offers, and the host economy demands. Hall and Soskice (2001, p. 9) define the institution as “a set of rules, formal or informal, that actors generally follow, whether for normative, cognitive, or material reasons, and organizations as durable entities with formally recognized members, whose rules also contribute to the institutions of the political economy.” Therefore, in my analysis, I will not only focus on the formal rules but also investigate the informal rules, business culture, and history of the political economy in my cases.

In accordance with the VoC approach, I argue that the labor absorption capacity of a destination country is determined by these formal and informal institutions that constitute the foundation of the interactions in five interconnected spheres: industrial relations, education, intra-firm relations, inter- firm relations, and corporate governance. However, only two of these spheres, namely industrial relations and skill training, are directly related to the structure and functioning of the labor market. I will focus on the indicators in these two spheres to determine whether a host country has high or low labor absorption capacity. These indicators demonstrate whether the equilibrium in that sphere supports general or specific assets, which in turn will guide my analysis and allow me to determine the labor absorption capacity in my cases.

5.2.1.1 Industrial Relations Indicators:

Industrial relations is the sphere where companies have to deal with “bargaining over wages and working conditions with their labor force, the organizations that represent labor, and other employers,” (Hall & Soskice 2001, p. 7). Since the product market strategy of the CMEs requires a highly skilled labor force with industry-specific knowledge, the companies operating in this

institutional setting need to give enough incentives to the labor to invest in specific skills while at the same time prevent other companies from poaching their trained workers. That is why, they rely on industry level bargains between the labor unions and the employer associations to set the wages equal at comparable skill levels across an industry (Hall and Soskice, 2001: p. 25). To be able to achieve the equilibrium where workers feel like they have the best deal possible at their current company, CMEs support strong labor unions and employer organizations, and as a result, usually have higher minimum wages.

On the other hand, companies in a typical LME solve their coordination problem in the industrial relations sphere through market competition. It means the wage negotiations are contract based, and employers, who have the full control over the firm, can easily hire and fire. Unions are weaker than their counterparts in CMEs, and the labor market is highly fluid. That is why workers are incentivized to invest in general, portable skills to be able to appeal to a broader employer audience and settle for lower wages in a “race to the bottom” to get the job.

Since the industrial relations in CMEs reflect company’s need for a labor force that is highly trained in a specific high-tech industry area, the labor absorption capacity in this institutional setting will be low. On the contrary, the industrial relations that depend on market competition and the final word of the employer –namely LME equilibrium- will be likely to have high labor absorption capacity. The indicators I use to assess whether my case studies fall under the former or the latter institutional setting are:

• Trade union density: The number of trade unions as well as their membership numbers and the regulations they are subject to.

• Collective bargaining or lack thereof: Is there an effective wage bargain between trade unions and employer organizations at the industry level?

• Are there other factors that might affect wage levels or working conditions?

5.2.1.2 Skill training:

Each economic institutional setting needs a labor force with compatible skills and therefore focuses on the education system that can produce those necessary skills. An economy supporting a fluid labor market with general skills, i.e., a typical LME, incentivizes workers to invest in a college degree or a certificate program that can be acknowledged across all firms and industries, and thus increase their chances of finding employment. Business elites in this institutional setting also support general education provided by mostly the state as they face the threat of losing their workers to other firms due to lack of collective bargaining. That is why they are reluctant to waste their resources on workers that can be poached by other companies.

Quite the contrary, firms in a typical CME depend on industry or firm-specific skills and do not face the threat of losing their trained workforce to another company in the same sector thanks to the collective bargaining system that equalizes wages at equal skill levels across the industry. In such institutional setting, workers have enough incentives to invest in firm or industry-specific skills because the collective bargaining guarantees them a fair wage and longer job tenures. Supported by generous unemployment benefits, workers have the luxury of staying unemployed until they find a suitable match for their skill set. On the flip side, firms in a CME will be willing to participate in collaborative vocational training schemes because they know that they will get the return of their investments from a highly skilled workforce that is likely to stay with the company for years. Therefore, vocational schools and apprenticeship are trademarks of a CME in need of industry- specific skills. If the institutional setting supports firm-specific skills, companies rely more on company training. While vocational training and apprenticeship programs result in certificates

widely applicable in that industry, firm-specific skills usually are of no use outside of that firm and therefore the least portable of all.

To sum up, the indicators for skill training systems are:

• General education system – vocational training or lack thereof

• Employment and unemployment benefit

• Job tenure