Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1401: Explaining the Rise of Populism in European Democracies 1980‒2018: The Role of Labor Market Institutions and Inequality

Andreas Bergh () and Anders Kärnä ()
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Andreas Bergh: Lund University, Postal: and Research Institute of Industrial Economics, Stockholm, Sweden
Anders Kärnä: Research Institute of Industrial Economics (IFN)

Abstract: This paper aims to find country-level factors that explain the rise of populist parties in European democracies. While populism is often connected to inequality, we note that right-wing populist parties tend to thrive on fear, including fear of job loss. If flexible labor markets mean that unemployment is dedramatized because finding a new job is easier, labor market flexibility could dampen populism, and inequality may be less important. We run country-level fixed effects regressions on populist party vote shares in 26 European countries 1980‒2018. We use two different classifications of right-wing and left-wing populist parties and control for employment protection strictness as measured by OECD, Gini-coefficients of disposable income, and a large set of control variables. Unemployment is positively associated with left-wing populism. Strict employment protection is positively associated with right-wing populism. Gini-inequality of income is unrelated to (both types of) populism. Strong employment protection and low-income inequality may not be the most efficient way to combat right-wing populism. A strategy that promotes flexible labor markets and job upgrading may be an alternative. More research on the link between labor market institutions and (in particular right-wing) populism is needed.

Keywords: Inequality; Populism; The welfare state; Social spending; Employment protection

JEL-codes: D31; D63; P16

Language: English

26 pages, First version: September 1, 2021. Revised: October 25, 2022.

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