Adding Another Level : Individual Responses to Globalization and Government Welfare Policies

Abstract

Literature on the compensation hypothesis overwhelmingly concentrates on either the macro or micro level of the relationship between globalization and welfare spending. This paper explicitly addresses this shortcoming by using individual citizens and country-specific characteristics in a hierarchical model framework. We start by examining individual’s context-conditional reactions to actual economic globalization and welfare generosity; after which, we make the effect of actual economic globalization (welfare generosity) conditional on whether the individual is a globalization winner or loser. In contrast to theoretical expectations, our results indicate that actual economic globalization does not affect people’s perception in the manner expected by the compensation hypothesis. However, individuals display more positive attitudes toward globalization if welfare state generosity is proxied using government spending on active labor market programs.