1. Lecture #2: The Welfare State
Theories and Implications for Inequality

2. Goals of the lecture Introduction - Discussion Questions
- Think about capitalism
- Define the Welfare State
Theory
-To understand how and why different welfare states have developed.
Implications for inequality
-How do modern welfare states shape income inequality between different classes?
Why welfare states persist
- The role of public opinion?
Theory is important for two reasons:
Early interest was why welfare states look the way they do
Why they’re now changing.

3. Discussion questions Who benefits most from the Welfare state?
Do we actually need social policy?
Can a society function without it, and if so how?
If you work hard, is mobility possible (and likely)?

4. Inequality trends in Canada
Point:
Market inequality has risen drastically since 1980.
From85-90 there was a huge spike, but social policy counter ballanced this shift (green line).
From government taxes and transfers did not keep up with rising inequality.
However, from there was a plateau
Begs the questions, though, if market inequality increases will the government be able to counter ballance these trends?
Inflation has outpaced wage gains (more debt).

5. Interpreting the figure
Market inequality has risen drastically since 1980.
From there was a huge spike, but social policy counter balanced this shift (green line).
From government taxes and transfers did not keep up with rising inequality.
However, from there was a plateau
Begs the questions, though, if market inequality increases will the government be able to counter balance these trends?
Inflation has outpaced wage gains (more debt).

6. Income Gains by Social Class
Class Differences:
The top 20 percent increase in their average income by $49,400 between 1980 and 2009 (from $128,500 to $177,900).
The bottom 80 percent saw an average increase of only $5,450.
The bottom 20 percent gained only $1700.

7. The Welfare State: a response to market failure
Questions
Answers
1.Can private insurance solve the problem of negative income shocks due to unemployment and sick-leave?
2.Will private savings for old age be sufficient?
3 .Why is redistribution not left to private charities?
1.Adverse selection would create a situation of incomplete coverage.
2.Time-inconsistent preferences will generate innsufficient private pension saving.
3.Conditional altruism and co-ordination problems.

8. The point about policy:
A capitalist economy simply cannot be maintained without social policy.
A functioning economy depends on broader social institutions to help out.
Cannot be maintained by isolated pure market relationships of supply and demand.
Brother story home hardware.
Retail sector in France. Cheap retail product. Lower margin for the retailer.

9. The Welfare State
A definition…

10. The Welfare State: Defined
What is the welfare state?
“A social system in which the government (or state) undertakes the responsibility of providing for the social and economic security of its citizens”
This is done though the execution of different types of social policies and public provisions which include:
Pensions, health care, unemployment benefits, child care, job training, educational programs, university/college subsidies.
In other words, the welfare state is wide reaching. It effects everyone.

11. A Definition (2)
“A capitalist society in which the state has intervened in the form of social policies, programs, standards, and regulations, in order to mitigate class conflict and accommodate certain social needs”
Welfarism is an institutionalized response to the negative effects of capitalism and the needs of the new working class

12. What gave rise to the Welfare State?
Creation of a capitalist labour market and working class, and the freeing of this class from the means of production
A need to defend the working class against the exploitative nature of the capitalist class
Rise of industrial capitalism
Protecting the working class against unemployment and suffering from the business cycle’s economic ups and downs

13. The Decline in Canada Trade union decline
Withdrawal of federal funding in social programs (decline in federal transfers to provinces)
An attempt to get workers back into the labour force by diminishing rights of unions (inability to strike)
Toughening the qualifying criteria for social programs
Change in political ideologies of the state
Erosion of social rights, national identity, and democracy

14. To summarize: Why we should care
Why study the welfare state?
Implications for inequality and stratification:
Shapes individuals’ life chances.
Influences the overall level of income inequality.

15. Shaping life chances: Implications for inequality and stratification:
Shapes individuals’ life chances:
In part, though the process of decommodification.

16. Background: Connection to Marx
Marx’s and class development:
- independent producers to wage-earners.
- commodification of labour implied alienation.
Mainspring of modern social policy lie in the process by which both human need and labour power became commodities and our wellbeing came to depend on our relation to the cash nexus alone.
In the middle ages it was not a labour contract, but the family, the church, or the lord that decided a persons capacity for survival. The blossoming of capitalism eroded ‘pre-commodified’ social protection
Commodity – summers doing construction.

17. Background…
In pre-capitalist societies, few workers were proper commodities in the sense that their survival was contingent on the sale of labour.
As markets became universal and hegemonic, the welfare of individuals came to depend entirely on the ‘cash nexus’.
Stripping society of the institutional layers that guaranteed social reproduction outside of labour contracts meant that people were themselves commodified.
In the middle ages it was not a labour contract, but the family, the church, or the lord that decided a persons capacity for survival. The blossoming of capitalism eroded ‘pre-commodified’ social protection

18. To summarize: The class structure changed.
- labour was now the predominant commodity.
Capitalism shifted human needs from institutionally provided, to market driven.
- family, church, etc.

19. Decommodification of labour (1)
Esping-Andersen in ‘Three Worlds…”
Defined decommodification as the extent to which individuals and families can afford an acceptable standard of living independently of market participation (1990: 47).

20. Decommodification of labour (2)
Decommodification defined (again):
-- In a market economy, citizens (and their labor) are commodified. Given that labor is a citizen's primary commodity in the market, de-commodification refers to activities and efforts (generally by the government) that reduces citizen's reliance on the market (and their labor) for their well-being
-- It is the process of viewing utilities as an entitlement, rather than as a commodity that must be paid or traded for. In effect, a decommodified product removes itself from the market

21. Decommodification of labour (3)
Decommodification occurs when a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market.

22. How policies differ Cross national differences
All welfare states are different. This is because they approach policy in a different way.

23. Cross national differences (1)
‘Piggy bank’ versus ‘Robin Hood’
P.B – Collective assurance against social risks.
‘horizontal redistribution’
Social insurance has the goal of reallocating income across the life course.
-no attempt to redistribution between the ‘rich’ and ‘poor’.
-smooth lifetime income and guarantee well being (illness and old age).

24. Cross national differences (2)
Robin Hood model:
-- Vertical Redistribution
equalization will depend on the progressivity of the tax system and on the degree to which social benefits go disproportionately to the least well-off

25. Means tested versus Entitlement
Social welfare policies provide benefits to individuals, either through entitlements or means-testing.
Entitlement programs: Government benefits that certain qualified individuals are entitled to by law, regardless of need.
Means-tested programs: Government programs only available to individuals below a poverty line.

26. Theories of the Welfare State
Why have welfare states developed?
Industrialization
Power resources Theory
Regime Theory

27. Industrialization (1) (1) Industrialization
Erosion of kinship and patrimonial traditions.
Growing dependence on wage labour created vulnerability.
Goal of the welfare state: a new and expanded role for the state to maintain the labor force.
Main Cause: Economic growth mediate by demographic change.
2- if oyu have no labour to sell (the sick, the poor, the young).
- Key point: significant economic expansion and income growth meant taxes could be
Increased without much consequence. Rising productivity and changing labouyr force practices led to increased retirment and the need to the expansion of public pensions.

28. Industrialization (2)
These theories argue against the importance of social class.
the growing complexity of industrialization and the increasing specialization of the education and labour force “dissolve[d] the class structure of early industrial society”
the end of ideology and the “embourgeoisement” of the working class

29. Power Resources Theory (1)
Power Resources Theory (1970s)
-Marxist roots. “class matters” for political and economic outcomes in advanced democracies
“Politics matters” in explaining Welfare State diversity.
For workers, their only ‘power resource’ is their numbers.
The Mechanism: Unionization and the Left parties.
Requires mass organization in unions and parties to be effective.

30. Power Resources Theory (2)
“[p]ower resources are characteristics which provide actors – individuals or collectives – with the ability to punish or reward actors… [and can]…vary with regard to domain, which refers to the number of people that are receptive to the particular type of rewards and penalties” (1983: 15).

31. Power Resources Theory (3)
Main arguments:
1) The welfare state is a product of the historical legacies of working-class power and left party influence of government.
2) Inequality divides people (and social classes).
3) Unequal economic relationships facilitate the formation of social groups with distinct and competing interests.
4) Elections provide classes and unions with the opportunity to influence government and politics
Famous quote: “Politics is the democratic class struggle”

32. Power Resources Theory (4)
Emphasizes the role of class and income inequality in society
inequalities generated by the class structure drove political activism.
begins with the premise that workers are oppressed by capitalism, thereby transforming labour power into a commodity.

33. Power Resources Theory (5)
Why are there differences?
Core class (industrial owners, farmers, manual workers) vary by nation.
Sweden: highly organized working class was allied with farmers.
Universal social security programs were implements in conjunction with price subsidies with farmers.
The USA: high levels of regional and racial/ethnic fragmentation that inhibited class alliances. Thus, the interest of employers became more central.

34. Regime Theory
“What is the explanatory power of industrialization, economic growth, capitalism, or working class political power in accounting for regime differences?: very little”.
The hope of finding one single powerful force must be abandoned.
History is important: Welfare states are a product of historical legacies.

35. Regime Theory
Where does Canada’s welfare state sit relative to other countries?

36. Liberal Welfare States Canada, U.S.A, and Australia
Welfare State Characteristics:
Means tested assistance
Tax financed public basic pension, supplemented by private coverage
Modest Universal transfers, modest social insurance plans.
Cater to lower income groups.
Entitlement rules are strict, and usually highly stigmatized.
The State encourages the market.
Emphasis on targeting.
Assumption: the majority of citizens can obtain adequate welfare from the market.
Role of Government: To nurture rather than replace the market.
Consequences:
Minimal decommodificaiton
Constrained social rights
Encourages inequality, and increase the likelihood of stratification.
Football clip. “We just want health care”.
Canada is typically considered a liberal social welfare regime characterized by fairly limited social spending (Esping-Andersen, 1990; Myles, 1998; Svallfors, 1997). Despite this label, Canada is clearly more statist than the United States (Grabb and Curtis, 2005), which is often deemed the best example of a liberal welfare state. The two countries have many differences in social expenditures (both in type and extent), most notably with respect to health care, where Canada’s universal health care system stands in stark contrast to the privatized health care system of the US.

37. Liberal Welfare States
Liberal regimes favor un-regulated markets under the assumption that this bolsters employment growth.
But it also promotes greater labor turnover, which heightens social insecurity, and greater wage inequality, which, in turn, increases the risks of poverty.

38. Conservative Welfare States Germany, Italy, France, and Austria
Welfare State Characteristics:
Goal: To cater to the new ‘post-industrial‘ society.
Liberal obsession with market efficiency was never prominent.
Social rights were never a contested issue.
- Built on mandatory social insurance, but revolve around narrowly defined occupational distinctions – depends on life long employment thus favouring men.
Consequences:
However, strongly concerned with the preservation of status differentials.
Shaped by the church, strongly comitted to family.
Excludes non working wives, and family benefits encourage motherhood. Daycare is underdeveloped. The state will only interfere when the families capacity to provided is exhausted.

39. Socially Democratic Welfare States Sweden, Denmark, Norway, Finland
high tax volume, based on infrastructure
characterized by extensive, generous and social spending programs
characterized by universalism and decommodificaiton
Eradicated dualism (state versus market; working versus middle) towards a welfare state that true equality.
Crowds out the market: all benefit, all are dependent, and all will (presumably) feel obligated to pay.

40. Study: U.S.A versus Sweden
Talk about wealth in Sweden

41. Income V. Wealth inequality
A huge part of the population of just about every country is going to have zero wealth — if you live paycheck to paycheck, for instance, or if you’re young and haven’t been earning money for long, or if you just spend a lot. That doesn’t mean you’re poor.
In countries like Sweden, indeed, the social safety net is strong enough that you don’t need to build wealth in the same way

42. Implications for Inequality
Korpi, Walter and Joakime Palme “The Paradox of Redistribution and Strategies of Equality: Welfare State Institutions, Inequality, and Poverty in the Western Countries.” American Sociological Review, 63 (5)
Targeted versus Universalism
- Organized around the poor or for all citizens?
Flat-rate versus earnings-related benefit levels
- Equal for all or based on pervious earnings and income?
The goal of social policy is to reduce inequality

43. Why is policy controversial?
Social welfare policies provide benefits to individuals, either through entitlements or means-testing.
Entitlement programs: Government benefits that certain qualified individuals are entitled to by law, regardless of need.
Means-tested programs: Government programs only available to individuals below a poverty line.

44. Discussion Question What do you think the poverty line sits at?
In 2009, half of Canadians were living on less than $25,400
In 2009, the poverty line – for after tax incomes were as follows:  
1 person: $18,421
2 persons: $22,420
3 persons: $27,918
4 persons: $34,829

45. Income, Poverty, and Public Policy
Who’s Poor in America?
Poverty Line: considers what a family must spend for an “basic” standard of living.
In 2003 the poverty line for a family of three was $14,824.
Many people move in and out of poverty in a year’s time.

46. It isn’t just about ‘spending’
Using the most recent data, Figure 25.1 presents the association between net
social expenditure and the percentage reduction of income inequality (using the
Gini coefficient) after taxes and income redistribution for 15 OECD countries.
Some might interpret the graph as support for the size-redistribution thesis.
Regression estimation suggests that a 10 percent increase in social spending would
produce 1 percent more inequality reduction. Others, however, might stress the
presence of many important outlier countries, both above and below the line, and
the relatively modest explanatory power of spending (which accounts for only
25 percent of the variation). The USA, Spain, and Sweden are less redistributive
than one would have expected and, vice versa, the Czech Republic, Denmark, and
Finland are ‘overshooters’.

47. Targeting Dates back to ‘poor laws’
War on poverty was explicitly directed at the poor
Focus on the ‘poverty line’
Foundation for the ‘means tested model’

48. The Debate: Targeting versus Universal
Targeting social policy:
We can eradicated inequality if we focus on certain groups in need.
Cheaper (resources aren’t ‘wasted’).
Lower expenditures mean lower taxes.
Greater economic growth
Targeted welfare states are biased in favor of vertical redistribution.

49. Critique of targeting High administrative costs.
Monitoring trends and needs
Subject to higher ‘non-take up’
Stigmatization
Give rise to ‘poverty traps’
Recipients have little incentive to change, because benefits would be lost.

50. Critique of targeting (2)
In societies that target, taxation is lower and there are less resources to go around
i.e., the impact tends to be smaller.
A selective system creates class conflict between the least well off and the middle.
Misguided conflict.

51. The Benefit of Universal Policy
The ‘paradox of redistribution’ thesis argues that narrowly targeted policies are typically ungenerous and potentially stigmatizing due to lack of broad electoral support.
In contrast, universal benefits marshal broad citizen support and will, hence, offer more generous benefits that will reach all the needy with greater certainty (Korpi and Palme, 1998).
This explains why pro-targeting welfare states, like the American or Australian, produce less income equalization than universalistic ones.

52. Poverty and inequality are highest in countries with the targeted and basic security models and lowest in countries with the encompassing model.
By providing higher earners with earnings benefits, governments can reduce inequality and poverty more efficiently.

53. Why? Traditional arguments for targeting have overlooked three areas:
Budget size is not fixed, but instead depends on the type of welfare state
Trade off between the extent of low-income targeting and budget size
Private earnings insurance is heavily stratified (available to the rich).

54. Public opinion and Social Spending

55. The Big Picture Relationship between policy and public opinion
Two explanations:
Elected officials maximize chance of re-election by responding to public preferences (Stimson 1995, Wlezien 2004, Brooks and Manza 2007)
Economic and political factors influence public preferences (Andersen and Fetner 2008, Kenworthy and McCall 2008)
Regardless of causal interpretation one prefers, growing inequality within nations (Fisher and Hout 2006, Firebaugh 2000, Banting 2006, Myles 2010), and a general rightward shift in government policy underscore the importance of studying these relationships

56. Why do Welfare States Persist (1)?
Welfare state exist today because people want the government to spend (or not spend) on policy.
Social policy responsiveness
Elected officials have an incentive to incorporate policy preferences in order to reduce:
-- electoral losses for themselves (or members of their party generally).
-- reduce the possibility of public reprisals (public protest or disobedience).

57. Why do Welfare States Persist (2)?
Following this theory, public opinion should track closely to actual spending on social services.

58. Does this theory hold in Canada?
Canada, our Welfare State, and Public Opinion:
There has been a gradual move to the right in Canadian politics.
Canada is typically considered a liberal social welfare regime characterized by fairly limited social spending.
Following the theory of policy responsiveness, we should expect Canadians to be less supportive of government spending than citizens of countries with less liberal market economies

59. Policy Attitudes in Canada (1) Trends in public expenditures and public opinion

60. Explaining the trend (1)
Panel A:
A rising trend in spending from the early 1980s until 1994, with a following sharp decline until spending reaches approximately the same level as in the 1980s.
Panel B:
Rise:
Decline:
Rise again: present
Other research indicates this decline stemmed from paring back benefits for the unemployed and single parents

61. Policy Attitudes in Canada (2) Trends in Economic Indicators

62. Compare…

63. Canadian Public Opinion: Conclusions
No evidence that the decline in spending in the 1990s had anything to do with public opinion
Public opinion tracked most closely to the business cycle (measured by the unemployment rate, but also levels of income inequality)
When economy is strong, public opinion favours spending
When income inequality rises, people want more help.

64. Canada versus the U.S. (1) Class Differences in Public Opinion

65. Canada Versus the U.S. (2)
Differences in income effect between Canada and US also suggests that politics matters too, however
NDP in Canada may play a role
1) In Canada, people with lower than median incomes tend to be supportive of government redistribution;
2) they become less so as income rises until it reaches the approximate median income, at which point income has no further effect.
3) In the US, on the other hand, income has far less influence on attitudes.

66. Economic conditions matter
A breadth of research on the role of changing economic conditions:
-economic development
-income inequality
Changes lead to significant class differences in public opinion.
Theory of self interest.

67. Background (1)
Self-interest plays fundamental role in policy preferences related to government intervention
Individual economic position is negatively related to support (Blekesuane 2007, Durr 1993, Schneider and Jacoby 2007, Derks 2004, Fraile and Ferrer 2005, Svallfors 1995, 1997, 2008)
Near consensus that public support decreases with economic prosperity (Blekasuane 2007, Dion and Jaeger 2013, Jaeger 2013).
Assumed mechanism: smaller proportion benefits when society is affluent, thus average public opinion is less supportive
Other research suggests that public opinion is more supportive when inequality is high (Meltzer and Richard 1981, Finserass 2009, Joakim and Svallfors 2013, Kelly and Enns 2010, Lupu and Pontusson 2011, Shaw and Gaffef 2012).

68. Background (2)
Aside from rising inequality and welfare state retrenchment, theoretical and methodological limitations to previous research suggest more research is needed
We agree that preferences tend to reflect self- interest, but the widely accepted negative relationship between economic development and public opinion is not consistent with this premise
People should be most likely to favor government intervention when it has little consequence for their own living conditions
Simpson’s paradox (Simpson 1951)

69. Economic Development and Public Opinion

70. On economic development
If utility maximization is the mechanism driving the influence of economic context, people will be most likely to favor government intervention when it has little consequence for their own living conditions. We argue, then, the mechanisms of self-interest dictate that people will become more supportive of intervention as the economy strengthens because they will tend to have more resources of their own.

71. Income inequality

72. On income inequality
the self-interest argument that public opinion typically becomes more supportive of government intervention as inequality rises, a nuanced consideration of how public opinion is formed suggests that inequality does not affect the attitudes of people from all socio-economic positions equally.
This further implies that class differences in preferences will be highest at low levels of income inequality and converge as income inequality rises.

73. Other important work
Esping-Andersen “Three Worlds of Welfare Capitalism”
Brooks, Clem and Jeff Manza. Why Welfare States Persist
Andersen, Robert and Josh Curtis. “Attitudes towards Government Responsibility: Simpson’s Paradox and the Role of Economic Context”.
Pierson, Paul “Dismantling the Welfare State”

74. Possible research topics
The relationship between public opinion and social spending.
-Whose interests are being responded to? Is it the aggregate? Or specific classes?
How has gender responsiveness changed (if at all)?
Compare and contrast different theories of the welfare state. Which holds the most explanatory power and why?
Why have governments not responded to Canadian public opinion?

75. Paper Bonus Marks At least 1.5 pages double spaced.
At least 7 solid references all integrated into the text.
A strong argument (thesis statement).
A solid introduction. Where your going with the paper, and what you’re going to argue.