Lack of instrumental freedoms: Social exclusion from and unfavourable inclusion into the labour market – an empirical analysis for Germany Harald Strotmann (Pforzheim University) § Juergen Volkert (Pforzheim University) §§ July 2008, preliminary version, please do not quote! Abstract Unemployment is a major reason for social exclusion, particularly in Europe, and contrib- utes heavily to persisting social exclusion. Given the high importance of employment and exclusion from labour markets the question has emerged recently whether employment might deserve more attention in capability and human development analyses in particular for developed countries or may even be “a missing dimension” as Lugo (2008) asks. Based on the capability approach this paper gives an empirical analysis of socio-demographic and socio-economic determinants of social exclusion from the labour market in Germany. We conceptualise social exclusion as lack of instrumental freedoms (or social conversion fac- tors) and argue that Sen’s distinction between social exclusion and unfavourable inclusion may be very helpful when analysing labour market issues. Special emphasis is put on the fact that the phenomena of social exclusion and unfavourable inclusion can both be inter- preted within an individual and within a household context. Using representative micro-data for Germany from the GSOEP for the year 2004, the re- sults of multivariate probit estimation demonstrate that a lack of education is the most im- portant driver of social exclusion and unfavourable inclusion in Germany. Moreover, sin- gle parents and foreign people are exposed to a significantly higher risk of social exclusion and unfavourable inclusion. Key words: poverty, capabilities, Amartya Sen, social exclusion, unfavourable inclusion Acknowledgements: We thank the IAW-research team, Christian Arndt, Sabine Dann and Rolf Kleimann for the joint elaboration of the underlying basic indicator system. We are also grateful to Peter Krause and the team from DIW for hints regarding the GSOEP-data. § Corresponding author: Prof. Dr. Harald Strotmann, Pforzheim University, Tiefenbronner Str. 65, D-75175 Pforzheim, Email: harald.strotmann@hs-pforzheim.de, Phone: +7231 28 6105 §§ Prof. Dr. Juergen Volkert, Pforzheim University, Tiefenbronner Str. 65, D-75175 Pforzheim, Email: juer- gen.volkert@hs-pforzheim.de, Phone: +7231 28 6105