Not just compensation: How corporatist infrastructures shape the direction of structural change in the 21st century

Do institutions mitigate the polarizing tendencies of structural change? The recent literature has a bias towards focusing on policies, which compensate the “losers of change” after being negatively affected by structural change. Therefore, it is critical to better understand how institutions cannot only react but endogenously shape the direction of structural change in postindustrial societies. We argue that increasing institutional capacities to support firms adjusting to structural change inclusively is decisive. Corporatist institutions, like vocational colleges, are through their existing networks with firms uniquely positioned for that task. This is especially the case when they take over new roles like organizing social investment-oriented training schemes that are highly relevant for firms in knowledge economies. We test this argument by focusing on a unique period when Danish exporters experienced the “China-shock”. At the same time, their corporatist partners (vocational schools) developed new capacities in offering (re)training policies that are of strategic importance for firms. Danish register data on all workers, firms, and relevant labor market institutions enable aunique empirical test of our argument. We show that exposure to these institutional changes offsets the adverse individual employment effects of the China-shock and helps firms better adapt to changing market environments. However, these efficiency gains came at the expense of rising within-firm inequalities and indications of increasing gender training and wage gaps. Therefore, our results demonstrate that further developing corporatist institutions can shape the direction of structural change in postindustrial societies. While this benefits workers with occupational risk profiles in absolute terms, strengthening corporatist institutions also creates efficiency-equity trade-offs. Ultimately, our results have strong policy implications for how to proactively respond to structural changes in the economy.