Social Democracy in a Third Wave World

Nowadays, with the global economy undergoing fundamental transformation, workers worldwide are coming under significant pressure. Particularly in developed economies, social policies must adjust to provide the support that lower-income groups need, while encouraging growth and advancing wellbeing.

The pressure has been unrelenting and inescapable. In the United States, real (inflation-adjusted) compensation for men with only a high school diploma fell by 21% from 1979 to 2013. In much of Europe, which provides stronger wage protection, unemployment has soared, especially since the euro crisis began in 2008. Germany and some Northern European countries remain an exception, although the German labor market contains a large low-wage, mini-jobs segment.

Driving these trends is the changing nature of work. For starters, services have been gaining ground worldwide, especially in developed economies. From 1970 to 2012, the GDP share of services in the OECD countries increased from 53% to 71%.

New technology and “intelligent” machines are not only displacing many types of workers in both the manufacturing and services sectors; they are also facilitating the rise of new business models, in which individuals perform (mostly low-paid service) jobs within loose networks, instead of as dedicated employees of structured organizations.

For example, the ride-sharing service Uber now has 162,000 active drivers in the US alone and is displacing traditional taxi services. The startup Handy hopes that its app achieves similar success in connecting customers to independent contractors providing various household services. As technology races ahead and value chains become globalized, workers must adapt, whether by changing jobs, relocating, or acquiring new skills – a challenge that is particularly burdensome for older workers, but demands a new approach to life planning for all.

Some people – especially those who acquired valued and flexible skills early in life, as well as those who are already in strong positions because of inherited wealth – can flourish in this new economy. Millions of others, however, are ill-prepared for the new age. And it is their growing anxiety that is fueling the rise of identity politics, with populist leaders and movements appealing to ethnic or religious solidarity in the face of the impersonal forces of change.