IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/41921.html
   My bibliography  Save this paper

Unemployment and Welfare State: What do the Data Tell Us?

Author

Listed:
  • DING, HONG

Abstract

The aim of this paper is to analyze the relationship between welfare expenditure by government and unemployment outcomes. Using a panel of 34 OECD countries from 1980 to 2010 and a two-way fixed effect model for panel data subject to endogeneity test and persistence test, the results of the paper suggest that total welfare expenditure as a percentage of GDP has a statistically significant positive impact on unemployment outcomes (total unemployment, long-term unemployment and youth unemployment). Among the four major components of national welfare expenditure, only income support and pension benefit are found to have the significant positive effect on all unemployment outcomes, public expenditure on health services has marginally significant positive impact on total unemployment rate, but not on long-term unemployment rate and youth unemployment rate and public social expenditures on other social services provided by government have no significant impact on unemployment. The econometric estimation results also provide evidence to support the hypothesis that one channel through which public social expenditure impacts unemployment is investment rate and the hypothesis that immigration can decrease a nation’s total unemployment rate.

Suggested Citation

  • Ding, Hong, 2012. "Unemployment and Welfare State: What do the Data Tell Us?," MPRA Paper 41921, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:41921
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/41921/1/MPRA_paper_41921.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Joshua D. Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 69-85, Fall.
    2. Agell, Jonas & Lindh, Thomas & Ohlsson, Henry, 1997. "Growth and the public sector: A critical review essay," European Journal of Political Economy, Elsevier, vol. 13(1), pages 33-52, February.
    3. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2011. "Trade and unemployment: What do the data say?," European Economic Review, Elsevier, vol. 55(6), pages 741-758, August.
    4. Alesina, Alberto & Perotti, Roberto, 1997. "The Welfare State and Competitiveness," American Economic Review, American Economic Association, vol. 87(5), pages 921-939, December.
    5. Folster, Stefan & Henrekson, Magnus, 1999. "Growth and the public sector: a critique of the critics," European Journal of Political Economy, Elsevier, vol. 15(2), pages 337-358, June.
    6. Lorenzo E Bernal-Verdugo & Davide Furceri & Dominique Guillaume, 2012. "Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(2), pages 251-273, June.
    7. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, January.
    8. Atkinson, Anthony B., 1995. "The Welfare State and Economic Performance," National Tax Journal, National Tax Association, vol. 48(2), pages 171-98, June.
    9. Muysken, Joan & Ziesemer, Thomas, 2011. "Immigration and growth in an ageing economy - version 2," MERIT Working Papers 037, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    10. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
    11. Heckman James J., 2007. "Comments on Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence by David Howell, Dean Baker, Andrew Glyn, and John Schmitt," Capitalism and Society, De Gruyter, vol. 2(1), pages 1-5, August.
    12. repec:fth:prinin:455 is not listed on IDEAS
    13. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    14. Beraldo, Sergio & Montolio, Daniel & Turati, Gilberto, 2009. "Healthy, educated and wealthy: A primer on the impact of public and private welfare expenditures on economic growth," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(6), pages 946-956, December.
    15. Peter H. Lindert, 2003. "Why the Welfare State Looks Like a Free Lunch," NBER Working Papers 9869, National Bureau of Economic Research, Inc.
    16. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
    17. Ljungqvist, Lars & Sargent, Thomas J, 1995. "Welfare States and Unemployment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 143-160, June.
    18. Dean Baker & Andrew Glyn & David Howell & John Schmitt, 2002. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2002-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    19. Atkinson, Anthony B., 1995. "The Welfare State and Economic Performance," National Tax Journal, National Tax Association, vol. 48(2), pages 171-198, June.
    20. Howell David R. & Baker Dean & Glyn Andrew & Schmitt John, 2007. "Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence," Capitalism and Society, De Gruyter, vol. 2(1), pages 1-73, May.
    21. Bruce Headey & Robert Goodin & Ruud Muffels & Henk-Jan Dirven, 2000. "Is There a Trade-Off Between Economic Efficiency and a Generous Welfare State? A Comparison of Best Cases of `The Three Worlds of Welfare Capitalism’," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 50(2), pages 115-157, May.
    22. repec:ilo:ilowps:374124 is not listed on IDEAS
    23. Tullio, Giuseppe, 1987. "Long run implications of the increase in taxation and public debt for employment and economic growth in Europe," European Economic Review, Elsevier, vol. 31(3), pages 741-774, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    unemployment; welfare state; endogeneity; IV estimation for panel data; public social expenditure; Durbin-Wu-Hausman test;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:41921. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.