Can Welfare States Compete in a Global Economy?

Abstract

Examines the challenges posed to European welfare states by the globalization of the world's economy, questioning whether there exists an alternative to the US trend -- toward labor market flexibility & low social protection -- & the mainland European model of social partnership & the welfare state. After clarifying the meaning of the terms welfare state, globalization, & competitiveness, crossnational empirical data are presented to examine the relationship between the size of the welfare state & unemployment rates in 20 Organization for Economic Cooperation & Development (OECD) countries. The findings strong positive effects of a nation's level of "benefit generosity" on long-term averages of national unemployment rates (eg, in studies like that of R. Layard, S. Nickell, & R. Jackman [1991]) are interpreted cautiously; numerous theoretical & methodological problems with such analyses are discussed. Economic theory on the welfare state is reviewed to explore the impacts of eliminating unemployment insurance & lower mobility costs on competitiveness (jobs) within the context of globalization. It is concluded that the evidence that welfare states cannot compete in the globalizing economy is not convincing. 2 Figures, 23 References. K. Hyatt Stewart