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Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,The Welfare State in Crisis?,Lucio Baccaro,6 April 2021,Overview,What is going on?,Economy,Society,Politics,Ideational sphere,Is there really a crisis and what are its features?,Reform efforts,Pension reform,Labor market policy,The Usual Suspect:Globalization,Is globalization responsible for the increasing strains of the welfare state?,Trade liberalization,Liberalization of capital movements,Migration,The argument:,Globalization forces countries with extensive welfare states to compete with countries with lower levels of social protections and costs;the only way to compete is by reducing such social protections and costs,Race to the bottom,Demand for protection and protectionism,Does the Globalization Argument Hold Water?,In theory,globalization could lead to greater,not lower,demand for social protection(greater exposure to risk),David Cameron,1978;Peter Katzenstein,1985;Dani Rodrik,2000,Empirically,the correlation between globalization and welfare state strain seems spurious:,Welfare state tensions and globalization move together in time and thats what explains the empirical association,Looking at the Globalization Argument in Detail,Difficult to find a direct link between international trade and the welfare state,Unskilled unemployment may be the linkage,Unemployment increases financial pressures on the welfare state,Capital movement liberalization operates by limiting governments ability to run public deficits,True,but the accumulation of deficits was a feature of the years of welfare state expansion,The migration argument is very weak,Migrants may contribute to unskilled unemployment,However,they are largely excluded from national welfare states,To the extent that they increase birth rates and reduce the dependency ratio,they are actually a resource for the welfare state,Demographic Changes,Population aging,Lower birth rates,Increasing life expectancy,Tendency to grow of the two largest welfare state programs,Pensions,Health care,In addition,coming to maturity of major pension programs,Furthermore,the baby boom generation approaches retirement,Lower population of active workers+higher population of retired workers lead to financial pressures on the welfare state,The Challenges of a Post-Industrial Society,All advanced countries have shifted to a structure of employment dominated by services,The Baumols cost disease,Productivity growth in the service sector is lower than in the manufacturing sector,Employment share of services grows relative to manufacturing,Relative prices of services(including public social services)tend to grow,This by itself requires a growing share of GDP to finance services,Social Transformations Add to the Challenges,Increased female labor force participation in the labor market,Changes in family and marriage patterns,Greater rate of divorce,Greater proportion of single parent families(mostly headed by single mothers),Increased demand of care services(especially child and elderly care),Care services are mostly labor-intensive and thus fall squarely into the Baumols disease,Different Types of Welfare State,Three types:liberal,continental,and social-democratic,Three types of financing:,Minimalist,financed through taxation,Transfer-based(categorical),financed through social security contributions on wages,Universalist and service-based,financed through taxation,Impact of Baumols Cost Disease on Welfare States Models,The“trilemma of the service economy(Iversen and Wren,1997),Liberal welfare state:allows for the development of a low-wage(private)service sector,High employment rate,no deficit problem,high wage inequality,Continental welfare state:does not allow for the development of a low wage service sector,Low employment rate,no large deficit problem,low wage inequality,Social democratic welfare state:public provision of services by the state,High employment rate,fiscal problems(taxes or deficit),low wage inequality,In Synthesis,Endogenous dynamics(population aging,maturation of programs,de-industrialization,societal transformations)build pressure of the welfare state,Increasing number of recipients,lower number of active contributors,higher relative cost of services(due to Baumols disease),Increased female participation lead to new demand of care services,Financial sustainability of the welfare state is strictly dependent on high employment rates and low rates of dependence,Hence the biggest problems are with systems characterized by low labor market participation rates,Different types of welfare states are faced with different problems,Liberal:high inequality;Continental:low employment;Social-Democratic:fiscal problems,Political Changes,The transformation of European social democracy(Kitschelt,1994),E.g.New Labour in the UK,the German Social-Democratic Party under Schroeder,the Italian experience with the Olive Tree and the Democratic Party,Political Cleavages,Indi
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