The effect of economic globalization on compensatory and social Investment policies compared : A multi-level analysis of OECD countries

Abstract

The debate on effects of economic globalization on welfare states is extensive. A prominent hypothesis is that generous welfare policies buffer the negative externalities of globalization, but recent empirical evidence confirms a negative association between globalization and public social spending. Attempting to reconcile these conflicting findings, we broaden the perspective by investigating not only the impact of globalization on traditional compensatory social policies (e.g., unemployment benefits) but also on future-oriented social investments (e.g., education). We argue that instead of demanding compensation for globalization-induced job-loss ex post, people try avoiding unemployment ex ante by demanding increased skill-investments. We find a positive association between globalization and individual-level demand for public spending on education, but not for unemployment. Nevertheless, we show that this demand is not translated into policy output. Thus, a potential mismatch between popular demand for and supply of welfare is revealed, which challenges conventional wisdom in the policy responsiveness literature.