What Is the Evidence of Welfare State Retrenchment ?

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  • Topic: Unemployment, Welfare state, Social security
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  • Published : January 14, 2013
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What is the evidence of welfare state retrenchment
in western welfare states?

1. Introduction

1. Crisis of Welfare State

At the end of the 1970’s, the welfare state moved into crisis (OECD, 1981; Rosanvallon, 1981). As the period of high economic growth ended and stagflation appeared, governments couldn’t afford the social expenditure which had been expanded before. Fiscal deficit appeared and unemployment rate started to increase with economic depression.

The idea shared by neo-Marxists and neoliberals was that the redistributive logic of the welfare state was contradicted by the logic of capitalism and that the welfare activities of the state would have to be rolled back or reconfigured so as to conform to the needs of capitalism.[1]

2. What does Welfare State Retrenchment mean?

Similar to the neo-Marxists’ and neoliberals’ insistence, since the economic crisis of the mid-70s, governments have seemed concerned above all to reduce spending levels and implement retrenchment policies.[2]

Retrenchment is defined "to include policy changes that either cut social expenditure, restructure welfare state programs to conform more closely to the residual welfare state model, or alter the political environment in ways that enhance the probability of such outcomes in the future".[3]

A number of comparative studies on welfare-state development have used the size of social expenditures to the GDP, "the welfare state effort" indictor, as their central dependent variable. However, while this indicator is relevant, as is widely recognized, it has some limits for explanation of the welfare state effort.

2. Has ‘Welfare State Retrenchment’ happened?

As noted above, the expenditure-based welfare-state effort indicator used in most studies of retrenchment is associated with serious problems, which are aggravated in the context of retrenchment. For example, rising unemployment levels have tended to raise social expenditures thereby increasing the numerator, while lower GDP growth rates negatively affect the denominator in this indicator. The consequences of an economic crisis may therefore appear as increases in welfare-state efforts.[4]

There have been many studies using various factors as indicators instead of using social expenditure. One of those studies brings in the concept of social citizenship rights as an indicator reflecting the extent of welfare state retrenchment, using preliminary data from the Social Citizenship Indicator Program (SCIP). Preliminary data from this source have been used to analyze retrenchment in social insurance programs in the 1975-1995 period (Korpi & Palme 2000, 2001, 2003).[5] 18 countries with uninterrupted political democracy after Second World War were selected as subjects for this study.

The nature of the social citizenship rights have been legislated via major social insurance programs in 18 countries and the ‘social citizenship right’ indicator reflects entitlements that here have been quantified in terms of net replacement rates for model households. Net Replacement Rate(NRR) is defined as

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The analysis is based on three social insurance programs giving benefits during short-term absences from work, that is, sickness cash insurance, work accident insurance, and unemployment insurance. Decreases in net replacement rates reflect at least three types of factors: (1) politically made decisions to cut benefit levels, (2) political "nondecisions," that is, the failure to raise benefit levels and ceilings in the face of increasing wages, and (3) taxation of benefits that is "claw-back" via taxation[6]

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Figure 1

Figure 1 shows the development of average net replacement rates in sickness, work accident, and unemployment insurance during the period 1930-95. We can easily find roughly similar patterns of change in the three programs, but at different levels. The downward...
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