This paper was prepared for the 11 th European Consortium for Political Research (ECPR) General Conference, 6-9 September 2017, Universitetet i Oslo, Norway. Abstract Key words: Political economy; welfare state; government spending; immigration; Europe Acknowledgements I would like to thank Olaf van Vliet, Kees Goudswaard, Koen Caminada and Alexandre Afonso for their thoughtful and insightful feedback and suggestions on previous versions of this paper. Additionally, this study is a part of SOLID: Solidarity Under Strain and is funded by Interaction between Legal Systems (ILS 2.0). The Migration-Welfare Nexus To what extent does immigration influence national welfare state generosity in Europe? Clare Fenwick Department of Economics, Leiden University The question of whether immigration undermines native support for welfare provision has received considerable attention in the academic literature. Remarkably, only a few studies have explored if changes in support are echoed by changes in policy, such as the retrenchment of the welfare state. This study explores whether immigration plays an influential role in the determination of welfare state generosity. It investigates the relationship between stocks of migrants, the foreign-born population, on two different indicators for welfare generosity - social welfare spending as a percentage of GDP, as is common convention in welfare state literature, and a welfare generosity index. The results show that the foreign-born population has a positive and statistically significant effect on social welfare spending, but no effect on the welfare generosity index. Crucially, the findings provide no evidence to support the hypothesis that higher levels of immigration lead to reduced levels of social welfare provision. On the contrary, immigration may lead to welfare state expansion rather than retrenchment.
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This paper was prepared for the 11th European Consortium for Political Research (ECPR) General
Conference, 6-9 September 2017, Universitetet i Oslo, Norway.
Abstract
Key words: Political economy; welfare state; government spending; immigration; Europe
Acknowledgements
I would like to thank Olaf van Vliet, Kees Goudswaard, Koen Caminada and Alexandre Afonso for their thoughtful
and insightful feedback and suggestions on previous versions of this paper. Additionally, this study is a part of
SOLID: Solidarity Under Strain and is funded by Interaction between Legal Systems (ILS 2.0).
The Migration-Welfare Nexus To what extent does immigration influence national
welfare state generosity in Europe?
Clare Fenwick
Department of Economics, Leiden University
The question of whether immigration undermines native support for welfare provision has received
considerable attention in the academic literature. Remarkably, only a few studies have explored if
changes in support are echoed by changes in policy, such as the retrenchment of the welfare state.
This study explores whether immigration plays an influential role in the determination of welfare
state generosity. It investigates the relationship between stocks of migrants, the foreign-born
population, on two different indicators for welfare generosity - social welfare spending as a
percentage of GDP, as is common convention in welfare state literature, and a welfare generosity
index. The results show that the foreign-born population has a positive and statistically significant
effect on social welfare spending, but no effect on the welfare generosity index. Crucially, the findings
provide no evidence to support the hypothesis that higher levels of immigration lead to reduced levels
of social welfare provision. On the contrary, immigration may lead to welfare state expansion rather
than retrenchment.
2
Introduction
Milton Friedman famously once said “You cannot simultaneously have free immigration and a welfare
state” (Friedman, 1999). Indeed, it is to be expected that increasing immigrant inflows can present new
difficulties and challenges for the welfare state and solidarity among citizens. Some authors go as far to
argue that increasing immigration in Europe will eventually lead to the Americanisation of European
welfare states and politics (Alesina et al., 2001, 2004; Freeman, 1986).
The welfare state can be understood as a mechanism, or a social arrangement, which enables a
population to deal with collective risks and reduce social inequality. In Europe, it is something that has
been closely linked with the development of nation-states and has contributed to the forging of bonds
between citizens. The welfare state does, however, restrict rights and benefits to insiders and thus
exclude outsiders. As a result, increasing immigration becomes a challenge for modern social security
institutions built on inclusion, integration and homogeneity (Mau & Burkhardt, 2009).
Consequently, immigration can expose the tensions between the inherently closed system of the welfare
state and the relatively open economies of developed nations. This led Freeman to conclude “that,
ultimately, national welfare states cannot coexist with the free movement of labour” (1986).
This issue is especially salient in light of the fact that immigration is consistently one of the most pressing
issues for citizens and currently forms a central pillar in electoral campaigns in Europe (Afonso & Devitt,
2016). In particular, Western European countries tend to have well established welfare states, but have
also been dealing with large-scale migration for several decades and migration discourse is often fuelled
with controversy. As Burgoon et al. wrote “public opinion regarding the economic and cultural impact
of immigrants tends to be negative” (2012). Crucially, some authors predict that weakening solidarity
due to increasing ethnic diversity will undermine the welfare state (for a survey of the literature see
Stichnoth & Van der Straeten, 2013).
Despite this, Castles & Schierup (2010) wrote that “immigration and growing ethnic diversity are
important – but often neglected – factors in the evolution of welfare systems in Europe”. In globalisation
literature, most authors investigate the impact of trade and capital on the welfare state but ignore its
third facet, the movement of people. This paper aims to provide insight into the migration-welfare nexus
through investigating whether or not immigration plays an influential role in the determination of
welfare state generosity in Europe.
Earlier quantitative research is mixed, it is not clear to what extent immigration impacts welfare
generosity as most researchers use only social welfare spending as a proxy for generosity (Gaston &
Rajaguru, 2013; Lipsmeyer & Zhu, 2011; Soroka et al., 2006; Soroka et al., 2016). Starke (2006) argues
that studies researching welfare policy change should complement expenditure data with additional
quantitative measures. Consequently, this study extends previous research through complementing
3
social welfare spending data with a welfare generosity index developed by Scruggs et al. (2004, 2014).
Moreover, the analysis includes the years following EU expansion and so hopes to shed light on the
speculations and predictions that EU enlargement would have negative consequences for the European
welfare state. My empirical findings suggest that there is no evidence to support the conclusion that
increasing immigration is detrimental or incompatible with European welfare states.
In the following section I examine the previous literature surrounding immigration and the welfare
state. This is followed by a section on the research design, which includes my hypotheses, data and
method. Then, I present the results and analysis before finally concluding the paper.
Immigration and Welfare in Contemporary Debate
“National welfare states, whatever their internal principles, exist in a global political economy”
(Freeman, 1986).
The relationship between national welfare states and globalisation is complex, and previous literature
has tended to focus on the impact of capital mobility and trade liberalisation rather than on increasing
mobility. The research that has been conducted on how immigration impacts the generosity of welfare
states is typically split into two competing camps. One side advocates that increasing inflows should
lead to the retrenchment of the welfare state (e.g. Alesina & Glaeser, 2004; Alesina et al., 2001; Beine et
al., 2015; Burgoon, 2014; Schmidt-Catran & Spies, 2016), while the other proposes that increasing
immigration should actually drive its expansion (e.g. Brady & Finnigan, 2014; Finseraas, 2008; Steele,
2016; Walter, 2010).
However, political economy theory proposes that – in theory – empirical evidence should find increasing
immigration leads to reduced levels of welfare generosity.
Median Voter Theory
In 1981, Meltzer and Richard developed a political economy model in order to demonstrate that demand
for redistribution by voters is dependent on the level of economic inequality. The model predicts that
when the mean income rises relative to the median income, then demand for redistribution will increase
and taxes will rise. This is based on the assumption that voters act with economic self-interest, that those
with an income lower than the median income choose candidates who favour higher taxes and greater
redistribution. Whereas, voters who have an income above the median desire lower taxes and less
redistribution (Meltzer & Richard, 1981).
Magni-Berton (2014), uses Meltzer and Richard’s median voter model to show how immigration can
reduce demand for redistribution. First, it is assumed that immigrants to a new country have a lower
income than the median voter there. Subsequently, due to an absence of voting rights for immigrants,
this means that the income level of the median voter does not change, but the general mean income of
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the entire population does. Consequently, immigrants close the gap between the mean and median
income and subsequently reduce support for redistribution.1
Based on this theory and building on the concept that a higher proportion of immigrants in Europe are
considered low-skilled and work in lower-paid jobs (UN-DESA & OECD, 2013), I would expect that
immigration has led to reductions in welfare state spending and generosity. This notion is supported by
the welfare magnet hypothesis, which also relies on assumptions about the economic self-interest of
people.
The Welfare Magnet Hypothesis
The welfare magnet hypothesis proposes that if location choices made by immigrants are guided by
income-maximizing behaviour, then the generosity of a welfare state will act as a considerable pull-
factor in those decisions. As a result, states are expected to reduce their welfare effort in order to avoid
becoming a magnet for immigrants.
The hypothesis finds its roots in George J. Borjas’ seminal work. Borjas (1999) investigates the location
decisions made by immigrants arriving in the United States of America (US) using the 1980 and 1990
Public Use Microdata Sample (PUMS) of the U.S. census. He finds evidence to suggest that immigrant
welfare recipients in the US are more heavily clustered in welfare-generous states than natives or
immigrants who do not receive welfare benefits. Borjas suggests this is because of migration costs;
immigrants have already decided to incur these costs and so choosing the state that offers the highest
benefits is costless. Whereas for native welfare recipients, the cost of migration deters them from
seeking out welfare-generous states.
Borjas concludes then that a relatively generous state becomes a “magnet” for immigrants and “will lead
to a very different geographic sorting of welfare recipients in the immigrant and native populations”
(1999). He does stress, however, that the statistical significance of his results is weak and that there may
be alternative explanations for the evidence.
To investigate the welfare magnet theory in a European context, De Giorgi and Pellizzari (2009) use data
from the European Community Household Panel (ECHP). They find that the relative generosity of a
welfare state influences the decisions of migrants. However, the results also show that the number of
migrants influenced by the welfare state of a particular country is minor when compared to other
reasons for emigrating. Regardless, the authors conclude that their findings may present serious
implications for further expansion of the EU.
In addition, Razin and Wahba (2015) develop two theoretical models, the first a free-migration regime
and the second a restricted-migration regime, and then test them empirically and find support for the
welfare-magnet hypothesis. They conclude that in a free-migration regime, a generous welfare state
1 For more political economy models involving immigration, taxes and redistribution see Hansen (2003), Ortega (2004), Felbermayr and Kohler (2007), Nannestad (2007) and Razin and Sadka (2012).
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attracts unskilled migrants while skilled migrants are deterred. Thus, they conclude that in a free-
migration regime such as the EU, benefit levels should act as a pull factor within the EU labour market.
The welfare magnet hypothesis is crucial in the debate on how migration will impact welfare generosity
because in particular, the public and politicians have become increasingly concerned that the welfare
systems in Europe will be negatively affected through welfare migration. One such result of this, is the
hypothesis that governments may enter into strategic interactions with neighbouring districts, states or
countries in a race to provide the lowest levels of welfare to avoid becoming a magnet for poor
immigrants. This has been dubbed the “Race-to-the-Bottom”.
In America, Schram and Krueger (1994) and Brueckner (2000) both present evidence to show that
strategic interactions between states have taken place, and both papers conclude that it is due to belief
in welfare magnets.
Likewise in Europe, Kvist (2004) argues that EU 15 member states have been engaging in strategic
interactions and, in light of further EU enlargement, concludes that this may intensify in the future.
Similarly, Dahlberg and Edmark (2008) investigate whether or not there is a race-to-the-bottom
between municipalities in Sweden. They conclude that if a neighbouring municipality reduces welfare
spending by 100 SEK, then a municipality reduces their welfare spending by approximately 41 SEK.
Although, benefit levels between municipalities or US states are more transparent than benefit levels
between countries and may explain the differing evidence on strategic interactions. Interestingly, based
on a comparative analysis of the EU-15 and 7 non-EU OECD countries, van Vliet (2010) determines that
rather than a social race-to-the-bottom, social expenditures in the EU-15 have converged and increased
on average.
In addition, using EU-LFS data, Skupnik (2014) find no evidence of a race-to-the-bottom in benefit levels
due to the mediating effect of transitional labour market restrictions on new EU members. Since 2014
however, these restrictions have all been lifted, and so the impact of immigration on benefit levels may
have changed.
However, whether or not a social race-to-the-bottom is taking place, there is a hypothesis that also
supports the belief that increasing immigration should lead to reduced levels of welfare generosity, just
through a different mechanism.
The Anti-Solidarity Hypothesis
“The individuals who agree to share according to need have to experience a sense of solidarity that
comes from common membership in some human community.” (Freeman, 1986)
Solidarity is considered important for the survival of the welfare state – to support this, previous
research has found that solidarity is significantly and positively related to support for the welfare state
(Burgoon et al., 2012; Crepaz, 2007; Kymlicka & Banting, 2006). Consequently, the anti-solidarity
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hypothesis proposes that increasing racial heterogeneity challenges solidarity and thus undermines
support for the welfare state.
Alesina at. al. (2001) argue that ethnic diversity is an crucial factor for explaining why the US does not
have a welfare state similar to those found in Europe. They find that if the probability of two people
drawn at random from a population will belong to different ethnic groups increases by just one
percentage point, then social spending as a percentage of GDP is expected to reduce by 7.5 percentage
points. Following their research in America, Alesina at. al. (2001) argue that as Europe’s heterogeneity
increases because of immigration, rising ethnic divisions will be used as a challenge to generous welfare
states.
Alesina and Glaeser (2004) further their argument through expanding their analysis to 54 countries and
directly comparing the US and Europe. They find a negative correlation between racial fractionalisation
and social welfare spending. They conclude that European countries, in particular those in Scandinavia,
are largely homogenous and have generous levels of welfare state spending. and argue that generous
welfare states are contingent on a homogeneous society because solidarity between citizens depends
on common linkages, such as culture and language. Alesina and Glaeser (2004) suggest that increasing
immigration in Europe, potentially through the expansion of the EU, will challenge Europe’s
comparatively generous welfare states, as they find it has in the US.
Focussing on European OECD Countries, Mau and Burkhardt (2009) believe that the conclusion that
migration poses a threat to European welfare states is over-exaggerated. While they find a negative
influence of ethnic diversity on support for the welfare state, it is very weak and when controlling for
certain factors, such as GDP and unemployment, there is a mediating influence. Mau and Burkhardt use
five different measures for ethnic diversity; “ethnic fractionalisation, the proportion of foreign
population, foreign-born population, non-Western foreign-born population and migration inflow”
(2009).
Additionally, Finseraas (2009) finds no evidence for the anti-solidarity hypothesis. Instead, he
determines that it is xenophobia which undermines support for the welfare state. 2 He finds evidence to
suggest that voters with typically left-wing views on redistribution but right-wing views on immigration
tend to follow their immigration preferences at the ballot box. The parties that tend to support tough
stances on immigration are usually right-wing, and those same parties typically advocate for reductions
in welfare state generosity.
2 There is a large body of research that focuses on prejudice, racism and xenophobia, which investigates people’s
tendencies to favour an in-group as reasons to why ethnic diversity may reduce support for social welfare and redistribution. This is also related to a strand of literature on trust and the trust of outside groups where there are a variety of empirical, observational and experimental studies (Banting & Kymlicka, 2006; Crepaz, 2007; Nannestad, 2007; van der Meer & Tolsma, 2014).
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Magni-Berton (2014) uses data from the 2008 European Values Survey covering 45 European countries,
and finds that immigration reduces support for redistribution primarily through concerns of expected
competitiveness on the labour market, which is increased when people believe there is a high number
of immigrants, while the impact of native’s solidarity with immigrants is comparatively weak.
Furthermore, Burgoon (2014) finds that the relationship between stocks of foreign-born and support
for redistribution is conditional upon the level of economic integration of immigrants; the less
economically integrated immigrants are, the more likely natives are to oppose redistribution.
Support for Redistribution: The Compensation Hypothesis
The flip-side of the anti-solidarity hypothesis is the compensation hypothesis, which advocates that as
immigration is perceived to increase the risk of income loss, then support for redistribution should
increase as a result.
Proponents argue that governments in open economies expand the welfare state order to insure citizens
against the risks posed by globalisation. For example, Finseraas (2008) finds evidence to support the
compensation hypothesis. Using the European Social Survey, he shows that individuals who believe
immigration lowers average wages are more likely to support higher benefit levels.
In Switzerland, Walter (2010) finds differences between globalisation ‘losers’ and ‘winners’. She shows
that globalisation ‘losers’ are more likely to experience feelings of economic insecurity and also support
greater expansion of the welfare state. Moreover, Walter’s results show that whether a person is a
globalisation ‘loser’ or ‘winner’ is highly dependent on their skill level, ‘losers’ typically have lower levels
of education than that of ‘winners’.
Looking at survey data from 17 European countries, Burgoon et al. (2012) find that exposure to
increasing immigration at the occupational-level leads to greater support for government redistribution
because it can raise individual economic uncertainties. Whereas, at the national level, they find that an
increasing foreign-born population has little to no effect on an individual’s support for increasing
welfare benefits.
Migration and Social Policy
“We should consider how and whether broad public attitudes putatively shaped by immigration
actually influence party and policymaking agendas and ultimately revenue and spending policies of
states.” (Burgoon et al., 2012)
Much of the previous literature focuses on the demand-side of welfare - how demand/support for
redistribution changes as immigration increases. There is much less research, particularly in Europe,
focused on the supply-side of welfare, and whether supplied levels of social welfare – social spending
and generosity - have increased or decreased as a result of immigration.
To test this, Soroka et al. (2006) combine two OECD social spending databases to cover 18 OECD
8
countries over the period 1960-2000. They investigate the impact of changes in stocks of foreign-born
on changes in social welfare spending – changes being the current year minus the preceding year. They
find that in countries with higher rates of immigration, welfare spending grows less than in countries
with limited migration. Notably, they do not find that spending decreases in countries with higher rates
of immigration, just that the rate of growth in welfare spending slows.
Soroka et al. (2016) build on their previous research through separating social spending into nine
different sub-categories. They find that there are different effects in different spending categories and
that the areas most affected are those subject to moral hazard or rhetoric about moral hazard. Overall
though, they find further support to suggest that increases in immigration lead to smaller increases in
social welfare spending. However, the suitability of the model used by Soroka et al. (2016) has been
debated in previous literature (Plümper et al., 2005).
In a comparative study across 15 European countries from 1971-2007, Lipsmeyer and Zhu (2011)
investigate the impact of immigration on unemployment benefits – measured as replacement rates - and
find that domestic political pressures are more important for explaining variation in unemployment
compensation.
Gaston and Rajaguru (2013) use data on government social expenditures and migration from the
OECD's Social Expenditure database (SOCX) and the Continuous Reporting System on Migration
(SOPEMI) database and find no negative relationship between migration and social spending. Instead,
they determine that depending on the countries included in the sample, immigration can have a positive
effect on social welfare spending.
Research Design: Hypothesis
The relationship between migration and the welfare state is complex, as evidenced by the mixed results
and conclusions in the literature. However, there are two key directions in which this analysis could
turn.
Based on the theoretical arguments of the median voter, the welfare magnet hypothesis, the anti-
solidarity hypothesis, and the social “race-to-the-bottom”, I would hypothesis that increased
immigration leads to a reduction in welfare effort. Indeed, Soroka et al. (2006, 1016) find evidence to
suggest immigration reduces growth in social welfare spending.
However, the compensation hypothesis predicts the opposite result, and following empirical results
from Gaston and Rajaguru (2013) and Lipsmeyer and Zhu (2011), which fail to find support for the anti-
solidarity hypothesis, I could also hypothesise that increased immigration leads to an increase in welfare
effort.
Consequently, I formulate two hypotheses to examine in my analysis:
9
Hypothesis 1: Increased immigration reduces support for the welfare state. This change in
demand is reflected in reduced social spending and generosity.
Hypothesis 2: Increased immigration increases demand for greater redistribution. This change
in demand is reflected in increased social spending and generosity.
Research Design: Data
To test these hypotheses, I primarily draw on Organisation for Economic Cooperation and Development
(OECD) data, with spending from the OECD’s Social Expenditure (SOCX) Database (2017b), which covers
26 European countries3 that fall within the EU and/or the Schengen area, between the years of 1990 and
2015. Additionally, I have included the social welfare generosity index from the Comparative Welfare
Entitlements Dataset (CWED), developed by Scruggs, et al. (2014), which is available for 16 European
countries4.
I also use data on stocks of foreign-born from the OECD (2017a). Data on migration such as stocks of
foreign-born or immigration rates are consistently different between various sources. These differences
may arise from varying definitions between sources and countries, for example whether or not
returning citizens are included in immigration inflow data. Moreover, measurements may be taken at
varying times of the year between countries.
Data have also been gathered from the Quality of Government Dataset (Teorell et al., 2017), the ICTWSS:
Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social
Pacts in 51 countries between 1960 and 2014 (Visser, 2016), the KOF Globalization Index database
(Dreher, 2006), the Comparative Political Data Set (Armingeon et al., 2016) and the World Bank (2017).
The Dependent Variable Problem: operationalising social welfare generosity
The commonly used proxy indicator for welfare generosity or welfare effort is social spending as a
percentage of gross domestic product (GDP)(Allan & Scruggs, 2004). There are clear advantages to this
measure; for example, authors believe it provides a good indication of the generosity of a welfare state
as a whole, there is no need to correct for inflation and exchanges rates, and it is well recorded so data
is readily available for the majority of European countries over an extended period of time.
These measures have been criticised and there is a debate in the literature about whether or not this
measure is a suitable indicator for depicting welfare generosity (Allan & Scruggs, 2004; Caminada et al.,
3 Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, United Kingdom. 4 Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and United Kingdom
10
First, Allan & Scruggs (2004) argue that levels of spending are not directly relevant to the levels of
protection provided because changes in the number of beneficiaries, such as higher unemployment and
an aging population, can mask changes at the individual level and therefore may not reflect policy
changes. An example is early 1980s Britain where the Conservative Government rolled back individual
entitlements but aggregate spending actually increased. However, authors often argue that these issues
can be mediated by carefully chosen control variables (Allan & Scruggs, 2004; Scruggs, 2008; Stichnoth
& Van der Straeten, 2013; Wang & van Vliet, 2016).
Second, there are differences in the tax treatment of transfers and social benefits between countries -
such as varying tax structures and/or income tax exemptions. This could mean that levels of disposable
income of benefit recipients vary despite the same levels of social spending. The tax system is
increasingly used as an alternative transfer mechanism - a notable example is the United Kingdom’s
Working Families Tax Credit – and gross spending data do not capture this. Unfortunately, the data for
net social spending, which accounts for tax expenditures, is sparse. Consequently, this makes comparing
social protection systems using spending more difficult (Allan & Scruggs, 2004; Caminada et al., 2010).
Third, welfare effort is not completely restricted to the public domain; there is a large variety of private
arrangements that can act as substitutes to public programmes.
Finally, it may be that retrenchment in areas such as pensions may not be visible immediately because
they have a long phase-in period and do not affect the current beneficiaries but have a large effect on
the entitlements of future recipients (Pierson, 1996; Starke, 2006).
Taking into account the dependent variable problem, I use two different dependent variables to
approach the question of how immigration influences social welfare generosity. Initially, I use social
welfare spending as a percentage of GDP as is common convention. I then take the welfare generosity
index from the Comparative Welfare Entitlements Dataset (CWED) 5 developed by Scruggs et al. (2004)
in order to compare and contrast the results of the two different indicators for welfare generosity.
The welfare generosity index contains information on the generosity of social benefits. It covers
unemployment insurance, sick pay insurance, and public pensions. Unemployment insurance only
covers national insurance provisions that are earned without income testing and so excludes
programmes such as the UK’s income-based Jobseeker’s Allowance or Germany’s unemployment
assistance. Sick pay insurance covers the benefits that are paid in the instance of short-term non-
occupational illness or injury. Public pensions covers only mandatory public programmes except the
nominally private Finnish earnings-related fund (Scruggs et al., 2014).
5 See Scruggs, L., Jahn, D., & Kuitto, K. (2014). Comparative Welfare Entitlements Dataset 2 Codebook. Version 2014-03. University of Connecticut & University of Greifswald. for further information on the dataset, the countries included, the index and its methodology.
11
Limitations of this index includes the lack of recent data, it extends from 1990 to 2010 and it is only
available for 16 European countries. Additionally, it does not cover aspects such as maternity leave
benefits, certain child/family benefits and publicly provided health insurance/universal healthcare.
Thus, the index could underestimate the generosity of some welfare states.
Table 1 shows social welfare spending as a percentage of GDP as an average over the period 1990-2015
for each country. France tops the table with 29% of its GDP spent on social welfare, on average.
Unsurprisingly, the Scandinavian countries – Sweden, Finland and Denmark - also have high social
welfare spending. Notably, Norway is somewhat lower, with 22% percent of its GDP spent on social
welfare on average – this is the same as Luxembourg, Spain and Hungary, countries that are not
traditionally associated with generous welfare states.
Overall, it appears that Western European countries, those that are traditionally associated with more
generous welfare states, do indeed have higher welfare spending as a percentage of their GDP. Although
the welfare state typologies do seem to exist (Esping-Anderson, 1990), with the Social Democratic and
Conservative welfare state typologies dominating the top half of the table. In contrast are the post-soviet
states and the Liberal welfare state typology (United Kingdom, Iceland and Ireland), they spend a much
lower percentage of their GDP on welfare.
When we compare welfare spending with Table 2, which shows the Total Welfare Generosity Index6, we
can see that they do not correspond exactly – the correlation is 0.4. Of particular note is Norway, which
leaps from 9th place in social welfare spending, to 1st place in the generosity index. Also interesting, is
Austria and Belgium. Both countries spend a similar amount of their GDP on welfare on average, but
when looking at the generosity index we can see that Belgium scores almost 8 points higher. However,
as discussed previously, this index could be improved through including a larger range of social
programmes, Austria may be generous in ways that the index does not capture.
Table 1: Social Welfare Spending as a Percentage of GDP, average: 1990-2015, OECD SOCX
6 There are a different set of countries as the OECD dataset covers more European countries than the CWED.
Country Mean Country Mean Country Mean
France 29 Luxembourg 22 Czech Republic 18 Sweden 28 Spain 22 Switzerland 17 Finland 27 Hungary 22 Slovakia 17 Belgium 26 Greece 20 Ireland 17 Austria 26 Netherlands 21 Iceland 15 Denmark 26 Poland 21 Estonia 15 Germany 25 Slovenia 21 Latvia 14 Italy 24 Portugal 20 Norway 22 United Kingdom 19
Average 22
12
Table 2: Total Welfare Generosity, average: 1990 – 2010, CWED
Country Mean Country Mean Country Mean
Norway 42 Denmark 36 Portugal 31 Belgium 41 Finland 35 Italy 28 Sweden 41 Germany 35 Greece 28 France 38 Spain 34 United Kingdom 27 Netherlands 37 Austria 33 Switzerland 36 Ireland 31
Average 35
Also of interest, is how social spending and welfare generosity have changed over time. Figure 1 shows
how social welfare spending as a percentage of GDP has changed over time. It appears that most
European countries have seen steady increases in spending levels or stayed reasonable stable. Welfare
generosity on the other hand, as shown in Figure 2, appears to be more heterogeneous. Germany,
Denmark and Finland have seen steady declines in their generosity indexes. Others like Greece and Italy
have seen steady increases. Sweden has seen a dramatic decrease, while Ireland has seen a dramatic
increase.
Figure 1: Social Welfare Spending as a Percentage of GDP, 1990-2015
Standard errors in parentheses * p < .1, ** p < .05, *** p < .01
The biggest change is that in the original estimation models, the KOF economic globalisation indicator
is not statistically significant. Yet, trade openness is statistically significant and negatively associated
with both social spending and welfare generosity. Furthermore, the effect of union density on spending
becomes insignificant when the KOF economic globalisation indicator is replaced with trade openness.
Despite these changes, the effect of foreign-born on spending and generosity remains stable.
In the original spending estimation the sample is restricted to the countries and date range found in the
CWED in order to ensure social spending and the generosity index can be compared. However, the OECD
provides spending and migration data on more European countries and for a larger time-frame. I have
expanded the sample step-by-step to see how the inclusion of more years and then the extra countries
affects the results.
Table 6 shows the original estimation with the two expanded samples. When I increase the years, the
magnitude of the effect of foreign-born on spending drops. This expansion in years means that the
22
results incorporate observations following the last round of EU enlargement and the last of the labour
market restrictions on Bulgarians and Romanians have been removed.
Successively, when the number of countries is then expanded to include Czech Republic, Estonia,
Hungary, Iceland, Luxembourg, Poland, Slovakia and Slovenia, the magnitude of the effect reduces again.
While the use of a more heterogeneous group dilutes the impact of foreign-born, the coefficient remains
statistically significant and positively associated with social welfare spending in both expanded samples.
Table 6: Effect of Foreign Born on Welfare Spending – expanding the sample
16 European OECD Countries
1990-2010
16 European OECD Countries 1990-
2015
24 European OECD Countries 1990-
2015
Original (2) (3) Variable Spending Spending Spending Foreign Bornt-1 0.235*** 0.204*** 0.142*** (0.070) (0.056) (0.037) Population under 15t-1 0.574** 0.515** 0.610*** (0.275) (0.237) (0.120) Population over 64t-1 0.302** 0.392*** 0.388*** (0.122) (0.122) (0.094) Unemployment ratet-1 0.122** 0.093*** 0.075*** (0.058) (0.035) (0.027) GDP growtht-1 -0.194*** -0.182*** -0.116*** (0.048) (0.032) (0.015) Female labour force participationt-1 0.015 -0.022 0.014 (0.055) (0.043) (0.026) Left Seatst-1 0.006*** 0.006*** 0.006*** (0.002) (0.002) (0.001) Union Densityt-1 0.092* 0.122*** 0.076*** (0.050) (0.039) (0.025) KOF - economict-1 0.044 0.060* 0.022 (0.038) (0.033) (0.016) Intercept 2.041 1.310 3.719 (6.660) (5.519) (2.888) Country Dummies YES YES YES Year Dummies YES YES YES N 234 297 403
Standard errors in parentheses * p < .1, ** p < .05, *** p < .01
Further Research and Limitations
I believe further research could be conducted on levels and changes. Soroka et al. (2006, 2016) focus on
changes in their estimation models and state that levels of immigration (as measured by the proportion
of the population that is foreign born) do not matter for explaining social spending. However, my
analysis suggests that is incorrect, and that levels of foreign-born are important for explaining variation
in social spending and should not be disregarded.
23
The analysis could be improved by investigating a greater number of years, different proxies and a
greater range of countries. It would be interesting to see if the results I have found are replicable across
a greater range of OECD countries and other indicators of welfare generosity.
Furthermore, it would be interesting to further disaggregate the independent variable foreign born into
non-western and western as it is often the non-western foreign-born immigrants that are the most
visible, regularly encompassed in public debate and are often seen as the most ‘threatening’ or the most
likely to be utilising social welfare support (Sumino, 2014). Mau & Burkhardt (2009) found it was their
most relevant diversity indicator in the determination of individual support for the welfare state. Thus,
it would be interesting to determine if there is also an effect on welfare generosity.
In addition, Ortega (2004) states the importance of the make-up of skills in the immigrant population
for determining support for redistribution.7 As a result, it would be interesting in the future to include a
variable that identifies the relative skill composition of natives in comparison to immigrants arriving.
This is something other empirical papers have not done; however, Facchini and Mayda (2009) did use
it in order to determine individual attitudes towards immigrants. According to Ortega’s model, if the
majority of immigrants are skilled, relative to the natives, we should expect a less generous welfare
state.
These areas for further research also highlight certain limitations to my research. The data is only on 16
European countries, over the time period 1990-2010. Therefore, my results may not be generalisable to
other parts of the world, other selections of countries or other time periods.
Concluding Remarks
In this paper I have empirically examined the role that migration has to play in the determination of
welfare state generosity in Europe. I set out to investigate the relationship between stocks of
immigrants, as measured by the proportion of the population that is foreign born, and welfare state
generosity, as measured by social welfare spending as percentage of GDP and a welfare generosity index.
The initial results suggest that ethnic diversity has a positive, and statistically significant impact on
social welfare generosity, if spending data can be considered a good proxy for generosity. This provides
comparable results to authors who find support for the compensation hypothesis. However, these initial
results are questioned when I exchange the dependent variable for a welfare generosity index. This
alternative exploration suggests that there is little to no relationship between foreign-born and the
welfare generosity index. Hence, my results tell us that the two indicators are measuring different things
and thus authors should be careful of the conclusions they draw regarding welfare generosity from
either indicator.
7 Felbermayr and Kohler (2007) also use skill composition of immigrants in their political economy model.
24
For policy makers, these results should help shed some light on a topic troubled by xenophobia, racism
and discrimination. I hope what has been laid out here contributes towards evidence-based policy
making in the field of migration. It is important to note that immigration does not seem to be leading to
a race-to-the-bottom in Europe, nor should increased immigration mean that policy makers need to look
at benefits in neighbouring countries when drawing up their own welfare policies. Policy makers should
aim to continue delivering welfare benefits that work for improving social inequality and inclusion. This
is particularly crucial for the successful integration of migrants into society, and as immigration
numbers do not appear to be relenting, this will be fundamental for improving solidarity between
diverse populations.
My quantitative empirical study calls out for further research, particularly within the areas of further
disaggregating welfare generosity into component parts, such as labour benefits, health insurance,
sickness insurance, family and child benefits and so on. Additionally, more research within the realm of
how changes in migration patterns, such as the expansion of the EU, affect social welfare generosity
would be welcome to better understand the nuances behind the issue. Finally, I believe that this field of
study could benefit greatly from more innovative measures of social welfare generosity, as the results
from this study suggest that current methods are not necessarily presenting the true picture.
25
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