The French and German political economies have been significantly reconfigured over the past two decades. Although the changes have often been more piecemeal than revolutionary, their cumulative effects are profound. The authors characterize the changes that have taken place as involving the institutionalization of new forms of dualism and argue that what gives contemporary developments a different character from the past is that dualism is now explicitly underwritten by state policy. They see this outcome as the culmination of a sequence of developments, beginning in the field of industrial relations, moving into labor market dynamics, and finally finding institutional expression in welfare state reforms. Contrary to theoretical accounts that suggest that institutional complementarities support stability and institutional reproduction, the authors argue that the linkages across these realms have helped to translate employer strategies that originated in the realm of industrial relations into a stable, new, and less egalitarian model with state support.