Socio-Economic Review Advance Access originally published online on October 18, 2005
Socio-Economic Review 2006 4(1):1-33; doi:10.1093/SER/mwj029
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Social risk management through transitional labour markets
Director of the ‘Labour Market Policy and Employment’ Research Unit, Social Science Research Center Berlin (WZB) and Professor of Political Economy, Free University of Berlin, Berlin, Germany
Correspondence: Günther Schmid, Wissenschaftszentrum Berlin, Reichpietschufer 50, D-10785 Berlin, Germany. E-mail: gues{at}wz-berlin.de
This essay takes the intrusion of the term ‘risk management’ into the social policy discourse as a ‘moral opportunity’ to reconsider the balance between solidarity and individual responsibility. The argument is developed in three stages: first, the psychology of intuitive beliefs and choices provides evidence of the bounded rationality of risky choices. The paper demonstrates how the institutionalization of opportunity structures recommended by the concept of transitional labour markets can overcome various kinds of asymmetries in risk perception. Second, imperfect or strategic information may also cause biased risk perception. Examples, therefore, are provided of how the analysis of labour market transitions throughout the life course can considerably improve the methodology of risk management. Third, the consideration of risk asymmetries and the reduction of information deficits do not yet provide any starting point for constructing acceptable risk sharing institutions. Normative principles of justice therefore have to be reconsidered. It is suggested that Rawls' theory of justice should be enriched by Dworkin's ethical theory and Sen's capability approach.
Key Words: risk management • rational choice • prospect theory • justice theory • labour market • social policy • JEL classification: A130 relation of economics to social value, J400 particular labour markets, general, J650 unemployment insurance, J690 other (transitional labour markets)