Government Unemployment Insurance for All? The Fall of the Berlin Wall and Social Preferences Evolution

The paper makes use of the natural experiment of the length, and abrupt end, of the Cold War in Europe to examine empirically the persistence and evolution of social preferences. Using data from six West and four East European countries plus Germany in the 2016 wave of the International Social Survey Program, we focus on the role of government in providing living standard to the unemployed. We find an “East-West divide” of attitudes, still existing in 2016 across Europe, a generation after the collapse of communism. Perhaps surprisingly, the divide reveals less support in Eastern Europe for a role of the government in correcting adverse labor market outcomes, which we attribute empirically to preference persistence in the older generation (educated during communism). Nevertheless, we also show that social preferences do evolve, relatively fast, as the younger generation (educated after communism) does not reveal the same beliefs. We interpret the East-West Europe divide in terms of two hypotheses, reinforcing each other even if originating in the respective worldviews of the opposite social fractions that coexisted inside the communist society, and contributing both to preference persistence in the older generation: (i) the “lazy unemployed” stigma indoctrinated by the communist propaganda and those loyal to it; and (ii) the “defiance of the state apparatus” experience transmitted by dissidents and silent opponents to the regime. Our main results and their suggested interpretation are corroborated by several robustness checks and placebo tests.