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The causes of welfare state expansion: deindustrialization or globalization?

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  • Iversen, Torben
  • Cusack, Thomas R.

Abstract

An influential line of argument holds that trade exposure causes economic uncertainty and spurs popular demands for compensatory and risk-sharing welfare state spending. The argument has gained renewed prominence through the recent work of Garrett (1998) and Rodrik (1997; 1998). This paper argues that the relationship between trade openness and welfare state expansion is spurious, and that the engine of welfare state expansion since the 1960s has been deindustrialization. Based on cross-sectional time-series data for 15 OECD countries we show that there is no relationship between trade exposure and the level of labor market risks (in terms of employment and wages), whereas the uncertainty and dislocations caused by deindustrialization have spurred electoral demands for compensating welfare state policies. Yet, while differential rates of deindustrialization explain differences in the overall size of the welfare state, its particular character -- in terms of the share of direct government provision and the equality of transfer payments -- is shaped by government partisanship. The argument has implications for the study, and the future, of the welfare state that are very different from those suggestedin the trade openness literature.

Suggested Citation

  • Iversen, Torben & Cusack, Thomas R., 1998. "The causes of welfare state expansion: deindustrialization or globalization?," Discussion Papers, Research Unit: Economic Change and Employment FS I 98-304, Social Science Research Center Berlin (WZB).
  • Handle: RePEc:zbw:wzbece:fsi98304
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    1. repec:cup:apsrev:v:72:y:1978:i:04:p:1243-1261_15 is not listed on IDEAS
    2. Iversen, Torben, 1998. "Wage Bargaining, Central Bank Independence, and the Real Effects of Money," International Organization, Cambridge University Press, vol. 52(03), pages 469-504, June.
    3. Ramana Ramaswamy & Bob Rowthorn, 1998. "Growth, Trade, and Deindustrialization," IMF Working Papers 98/60, International Monetary Fund.
    4. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
    5. Garrett, Geoffrey, 1995. "Capital mobility, trade, and the domestic politics of economic policy," International Organization, Cambridge University Press, vol. 49(04), pages 657-687, September.
    6. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    7. Gordon, Robert J., 1989. "Comments 'political and economic determinants of budget deficits in the industrial democracies' by N. Roubini and J.D. Sachs," European Economic Review, Elsevier, vol. 33(5), pages 934-938, May.
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    Cited by:

    1. Berthold, Norbert & Stettes, Oliver, 2000. "Globalisierung und Strukturwandel - droht das Ende des Sozialstaates," Discussion Paper Series 35, Julius Maximilian University of W√ľrzburg, Chair of Economic Order and Social Policy.
    2. Kemmerling, Achim, 2001. "Die Messung des Sozialstaates: Beschäftigungspolitische Unterschiede zwischen Brutto- und Nettosozialleistungsquote," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 01-201, Social Science Research Center Berlin (WZB).

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