C.E. FENWICK The Political Economy of Immigration and Welfare State Reform A collection of comparative political and economic essays on human mobility and social protection E.M. MEIJERS INSTITUUT INSTITUUT VOOR RECHTSWETENSCHAPPELIJK ONDERZOEK
The Political Economy of Immigration and Welfare State Reform A collection of comparative political and economic essays on human mobility and social protection
The Political Economy of Immigration and Welfare State Reform A collection of comparative political and economic essays on human mobility and social protection PROEFSCHRIFT ter verkrijging van de graad van doctor aan de Universiteit Leiden, op gezag van rector magnificus prof.dr.ir. H. Bijl, volgens besluit van het college voor promoties te verdedigen op woensdag 12 november 2025 klokke 11.30 uur door Clare Elizabeth Fenwick geboren te London, United Kingdom in 1989
Promotores: prof. dr. O.P. van Vliet prof. dr. K.P. Goudswaard Promotiecommissie: prof. dr. M.A.H. van der Woude prof. dr. A.L. Dimitrova prof. dr. M.J. Siegel (Maastricht University) dr. A. Afonso Lay-out: AlphaZet prepress, Bodegraven Printwerk: Ipskamp Printing © 2025 C.E. Fenwick Behoudens de in of krachtens de Auteurswet van 1912 gestelde uitzonderingen mag niets uit deze uitgave worden verveelvoudigd, opgeslagen in een geautomatiseerd gegevensbestand of openbaar gemaakt, in enige vorm of op enige wijze, hetzij elektronisch, mechanisch, door fotokopieën, opnamen of enig andere manier, zonder voorafgaande schriftelijke toestemming van de auteur. No part of this book may be reproduced in any form, by print, photoprint, microfilm or any other means without written permission of the author.
Table of Contents Aknowledgements VII 1 Introduction 1 1.1 Setting the Scene: the dissertation in context 1 1.2 A Reader’s Guide 6 2 The Political Economy of Immigration and Welfare State Effort: Evidence from Europe 11 Abstract 11 2.1 Introduction 12 2.2 Literature review and hypotheses 13 2.2.1 The theoretical relationship between immigration and the welfare state 13 2.2.2 The empirical relationship between immigration and the welfare state 14 2.2.3 Hypotheses 16 2.3 Research Design: Data and Methods 17 2.3.1 Dependent Variable: operationalising welfare state effort 17 2.3.2 Explanatory Variable 19 2.3.3 Control Variables 20 2.3.4 Method and Model Specification 21 2.4 Results and Discussion 23 2.4.1 Welfare State Effort 23 2.4.2 Sensitivity Analysis 26 2.5 Concluding Remarks 31 2.6 Appendix A – Supporting figures 33 2.7 Appendix B – Phillips-Perron test 36 3 The Devil Is in the Detail: Measuring Intra-EU Labour Migration 37 Abstract 37 3.1 Introduction 38 3.2 Exploring intra-EU labour migration 39 3.3 Current migration datasets 41 3.4 Limitations of current data on migration 42 3.4.1 Who is a migrant? 42 3.4.2 Stock versus flow measures of migration 44 3.4.3 Disaggregating migration statistics 45 3.5 The European Union Labour Force Survey (EU-LFS): creating intra-EU labour migration indicators 46
VI Table of contents 3.5.1 The EU-LFS 46 3.5.2 Identifying migrants 48 3.5.3 Identifying labour migrants 48 3.6 Descriptive and Comparison Statistics 49 3.7 Conclusion 55 2.8 Appendix C 58 4 Intra-EU Labour Mobility and the Welfare State: An Empirical Analysis of Embedded Liberalism in the Context of Free Movement 63 Abstract 63 4.1 Introduction 65 4.2 Literature and Hypotheses 67 4.2.1 Embedded Liberalism, immigration, and the welfare state 67 4.2.2 Welfare state effort and differentiating between types of mobility 70 4.2.3 Economic, political, and institutional factors 72 4.3 Data and Methods 73 4.3.1 Sample 73 4.3.2 Dependent Variables 74 4.3.3 Explanatory Variables – Measuring Intra-EU Labour Migration 76 4.3.4 Other Explanatory Variables 79 4.3.5 Method 80 4.4 Empirical Analysis 81 4.5 Robustness 87 4.6 Conclusion 93 5 Intra-EU Labour Migration and Attitudes Towards the Welfare State 95 Abstract 95 5.1 Introduction 96 5.2 Immigration and redistributive preferences 97 5.2.1 Societal solidarity and redistributive preferences 98 5.2.2 Job insecurity and compensation 100 5.2.3 Different effects for different groups? 101 5.2.4 Theoretical Conceptualisation and Hypotheses 102 5.3 Method 104 5.4 Data 105 5.4.1 Dependent Variables 105 5.4.2 Explanatory Variables 106 5.5 Empirical Analysis 108 5.6 Additional Checks 113 5.7 Conclusion 117
VII Table of contentss 6 Conclusion 119 6.1 Chapter Conclusions 119 6.2 Policy Implications 124 6.3 Future Research 126 Nederlandse samenvatting (Dutch summary) 129 Bibliography 135 Curriculum Vitae 147
Aknowledgements Over the last nine years that I have been writing this dissertation, I have seen first-hand the way that globalisation, and the ever-increasing interdependence of people across national boundaries, is transforming the way we live, work, and communicate. I can live in the Netherlands with my British passport, work and communicate with researchers across Europe, and keep up to date with my friends and family around the globe. What’s more, as the pandemic struck and Brexit began to function in earnest, I was cut-off from family in the United Kingdom and it became clearer to me that returning to a world without cross-border movement was not a future I was interested in. However, human mobility comes with both opportunities and challenges, and I hope this dissertation goes some way to addressing one such challenge – the effect of immigration on the welfare state – and in some small way, contributes to the future I hope to live in. This dissertation would not have been possible without the support of a great many people. First, I would like to thank my supervisor Olaf van Vliet for his support and guidance during the PhD process and for undoubtably strengthening the quality of my work, as well as Kees Goudswaard, my second supervisor, for his many thoughtful and helpful comments throughout. I would also like to thank the members of the reading committee for taking their time to read and comment on this dissertation, ensuring that it is a piece of research worth defending. There are also a number of individuals outside my institution that have had a hand in shaping the chapters of this dissertation. There have been numerous attendees and discussants at conferences, symposia, and workshops who have commented on the various articles that make up this dissertation. Moreover, without the help of my colleagues answering my endless number of questions there would surely be many more mistakes in this dissertation. Outside of academia, my family have played a crucial role in supporting me through this part of my life. They helped me to move internationally, again, and they were always on hand to provide their advice, love, and support. Thank you, Mum, Dad, Ceri, and Ewan, for being an important constant in this almost decade-long rollercoaster ride of a PhD. Finally, I need to thank Tobias Broich. Over the course of this dissertation, you went from boyfriend to fiancé to husband, and now father to our curious, brilliant daughter Eila. While your status might have changed over
X Aknowledgements time, your unwavering support never has. You were there to share in the happiness of my successes and the despair of my failures. Without you I would have been lost amidst words and code and never have made it out the other side.
1.1 Setting the Scene: the dissertation in context In most developed nations immigration has become a defining characteristic of open, interconnected, and interdependent economies. The European Union (EU) is one particular example of this in action, where the widening and deepening of European integration has created a unique system of mobility for its citizens. European citizens have the right to live and work in any Member State of the Union, and under EU law, mobile citizens have a range of rights afforded to them under the rules governing freedom of movement, such as equal access to the tax and benefit systems in which they reside. However, the extent to which European Union (EU) mobile citizens1 can or should be able to access the welfare systems of their host Member State is a controversial and highly sensitive political issue, one that has sparked heated public debates concerning the sustainability of increasing immigration and generous welfare states. While freedom of movement was broadly supported in the past and is widely considered the most important achievement of European integration (Vasilopoulou and Talving, 2018; Lutz, 2020; Sojka et al., 2023), following the financial crisis of 2008 and mounting fiscal pressures on states, arguments of who should be included and who should be excluded in order to preserve the advantages of the welfare state have come to the fore (Mulligan, 2017). Deciding on the specific boundaries to identify who is ‘in’ and who is ‘out’ continues to be a major point of political contention and is typically defined by polarised viewpoints, to the extent that freedom of movement has become a critical source of tension across the EU and is arguably one of the key drivers of increasing Euroscepticism (Lutz, 2020; Blauberger et al., 2021). For example, the governments of three EU member states and one former – the United Kingdom (UK), Germany, the Netherlands, and Austria – wrote a joint letter to express concerns over ‘welfare tourism’ and called 1 European citizens who move across borders but within EU member states or European Free Trade Association (EFTA) countries are typically referred to by EU Institutions as ‘mobile citizens’ rather than migrants. However, an immigrant is merely a person who moves from one geographical region to another, and the vast majority of migration never actually takes place across a border but rather internally within a country (McAuliffe and Triandafyllidou, 2021). For the purpose of this dissertation therefore, I use terms such as mobile citizen, intra-EU labour migrant, and immigrant somewhat interchangeably depending on the chapter and the context in which ‘human mobility’ is being discussed. 1 Introduction
2 Chapter 1 on the EU to revise freedom of movement rules in order to make it more difficult for EU mobile citizens to access welfare in other EU countries2. The letter argued that the EU members with more generous welfare systems attract larger numbers of EU citizens from those EU members where the standard of living may be lower and benefits less generous, thereby affecting the sustainability of Western welfare states. In 2016, concerns regarding immigration and the welfare state played a critical role in the UK’s EU referendum campaign (Heath et al., 2020). At times, the politicisation of EU citizens’ rights appeared to follow traditional cleavages between left and right, but between the choice for a “hard Brexit” over a “soft Brexit” in order to ensure barriers are in place to stop the free movement of people from the EU and the fall of the “red wall” in the 2018 British general elections (traditional Labour voters switching their vote to the Conservative Party), it has become clear that it is no longer such a straightforward division. Those who traditionally supported the left and greater socio-economic redistribution were voting for the right in order to express their desires for greater border controls and restrictions on immigration (Goodwin et al., 2022). Furthermore, this concern is not isolated to the UK. There has been a much wider, general increase in Euroscepticism alongside the rise of Eurosceptic politicians, public figures and political parties such as Marine Le Pen (National Rally – France), Geert Wilders (PVV – Netherlands), Heinz-Christian Strache (FPÖ – Austria), and the Alternative für Deutschland (Germany) who have garnered support from across the political spectrum. The rapid transformation of our societies brought about through globalisation seems to be a key trigger, with individuals on both left and right, working class or elite, taking either an anti-globalisation (protectionist) or pro-globalisation (open) stance. On the one hand, the removal of barriers to trade, capital, and mobility have been economically vital and enabled the European Union to become progressively more interconnected, interdependent, and to grow in economic power. On the other hand, it is becoming more and more apparent that despite this increase in overall wealth, it has not been shared equally, with certain segments of society left behind through increasing inequality and rising costs of living. As a result, more and more political battles have been won and lost on platforms that support or oppose one or more of the facets of globalisation. In particular, and especially since the economic crisis of 2008, these public and political debates have increasingly intertwined globalisation and migration as nation states find their labour markets and social security systems under pressure and with fewer options at hand to address inequality within its borders. So perhaps it is of no surprise that immigration and intra-EU mobility are challenging the way we govern. 2 Austrian Federal Ministry of the Interior, German Federal Ministry of the Interior, Dutch Ministry of Security and Justice, UK Home Office (2013), ‘Letter to the Irish presidency’, available at: http://docs.dpaq.de/3604-130415_letter_to_presidency_final_1_2.pdf
Introduction 3 Alongside these key public debates, the globalisation of movement and its relationship with the welfare state has also become a central focus of academic debate. While, increasing openness for flows of trade and capital on the transformation of the boundaries of the welfare state has been an important theme within the literature on the evolution of the welfare state, it has not been until more recently that the study of globalisation has started to incorporate increasingly open borders and how migration shapes the way the welfare state is organised. In 1986, Freeman published the article ‘Migration and the Political Economy of the Welfare State’, one of the earliest contributions to this particular stream of literature. He opens the debate by arguing that increasing inflows of labour fundamentally challenge the viability of the welfare state. Freeman presents the idea that as labour mobility and globalisation are in general open systems, while the welfare state must be a closed system in order to survive, that ultimately, the free movement of labour and the welfare state cannot coexist. Later, Alesina et al. ’s (2001) influential article ‘Why Doesn’t the United States Have a European-Style Welfare State?’ and Alesina and Glaeser’s (2004) follow-up article present evidence to support Freeman’s argument and provide the foundations for much of the subsequent research on this topic. Both articles aim to explain the lack of a developed welfare state in the United States (US) and show that the high ethnic fractionalisation of the population in the US is a crucial factor limiting the development of a welfare state. They determine that European nations were able to develop mature welfare states thanks to the relatively homogenous nature of their populations and the shared solidarity between peoples of a similar race, language, and culture. Based on their findings, they reason that an increase in the movement of people or an increase in the ethnic diversity of European nations will ultimately diminish the generosity of European welfare states. However, despite this argument, the empirical evidence is not rooted in an analysis of European data on European welfare systems and immigration regimes. As such, the overarching research question that this dissertation seeks to answer is: to what extent does immigration structurally and conceptually challenge the boundaries of welfare states in Europe? To answer this question, this dissertation draws on a wide range of theory and empirical evidence that comes before it. There are a number of competing theories that endeavour to explain how immigration, and/or globalisation more broadly, may affect national welfare states in Europe. At the macro-level, the efficiency hypothesis and ‘Embedded Liberalism’ are two central but opposing theories. The former argues that increasing globalisation will force governments to retrench social protection schemes in order to keep taxes low, stay globally competitive, and reduce the fiscal burden of migrants (Gaston & Rajaguru, 2013). The latter argues that governments in open economies must expand the welfare state in order to insure citizens against the risks posed by globalisation if they wish to ensure continued support for policies of openness (Ruggie, 1982). While Ruggie’s theory of
4 Chapter 1 embedded liberalism originally intended to be applied to the openness of trade and capital, it is also generalisable to the increasing openness of migration regimes. If immigration is perceived as an economic risk by natives and those who benefit from open borders wish to maintain support for immigration, then the same deal meant for trade and capital could be struck for immigration. The current empirical evidence on these macrotheories is mixed and existing research provides reasons as to why we can expect immigration to in some ways increase and in other ways decrease the generosity of the welfare state (Gaston & Rajaguru, 2013; Lipsmeyer & Zhu, 2011; Nannestad, 2007; Soroka et al., 2006; 2016; Stichnoth & Van der Straeten, 2013; Römer, 2023). However, perhaps the prevailing view is that immigration puts a strain on tax and benefit systems, which spells bad news for welfare state generosity and thus the ability to address economic inequalities. Both macro-level theories discussed above focus on the ‘supply-side’ of social policy, they emphasise a government’s potential policy response to global changes and are perhaps less studied than the ‘demand-side’, which focuses on the way that individuals within societies demand social policy change as a result of global changes. Key theories at the micro-level are the compensation hypothesis, the anti-solidarity hypothesis, and welfare chauvinism. The compensation hypothesis theorises that in light of increasing economic insecurity from greater competition on the labour market, natives will demand greater compensation and consequently welfare state expansion (Brady & Finnigan, 2014; Fenwick, 2019; Marx, 2014; Paskov & Koster, 2014; Rodrik, 1998; Römer, 2023; Vlandas & Halikiopoulou, 2021; Walter, 2010, 2017). If immigration is (perceived) to lead to reductions in wages, increase the likelihood of becoming unemployed, or decrease the likelihood of securing a job, then this increased risk is what could lead to individuals seeking increased security through a more comprehensive social security net. The anti-solidarity hypothesis theorises that because support for the welfare state is grounded in solidarity between citizens, a desire to pool and share risk across individuals, then anything that may challenge this solidarity such as changing the ethnic, linguistic and cultural make-up of society as a result of increasing ethnic heterogeneity, can thus erode citizens’ support for the welfare state (Burgoon & Rooduijn, 2021; Heath & Richards, 2020; van Oorschot, 2008). Welfare chauvinism theorises that rather than retrenching or expanding the welfare state as a whole, native-born residents may wish to ring-fence benefits from foreign-born residents in order to maintain more generous benefits for themselves (Brady & Finnigan, 2014; Cappelen & Peters, 2017; Eger, 2010; Eger & Breznau, 2017; Eick & Larsen, 2022; Hjorth, 2016; Larsen, 2011, 2020; van der Meer & Reeskens, 2021; Negash & van Vliet, 2024; van Oorschot, 2000; van der Waal et al., 2013). This could happen because an individual may consider an immigrant as
Introduction 5 more “undeserving” of welfare support in comparison with the elderly, sick and disabled people, and the unemployed, also known as the immigrant deservingness penalty, (Bonoli et al., 2024; Ford, 2015; van Oorschot, 2008) or because they may consider migrants over-represented in their receipt of benefits, thus placing too much pressure on public services and questioning the sustainability of the welfare state (Magni, 2021). Again, the evidence base for these explanatory theories is mixed, likely because of the differences in the data used, the time periods and countries under study, and the methods utilised. Moreover, these relationships are typically moderated by national contexts such as levels of immigration and economic stability or institutional structures such as welfare regime or programme type (Burgoon & Rooduijn, 2021; Eick & Larsen, 2022; Mau & Burkhardt, 2009), as well as individual level contexts such as economic and cultural insecurity, as individuals respond to the circumstances in which they find themselves (Hays et al., 2005). It is the detail in which these preferences are shaped and how social policy may be affected in these varied contexts, which provides the many avenues for research to explore and understand. Nonetheless, despite the expanding body of literature, several important gaps remain theoretically, empirically, and methodologically that this dissertation aims to fill. With regards to theory, this dissertation is embedded not only within the literature on migration and the welfare state, but it also fits within the broader literature on globalisation. First, I question the persistent assumption that free immigration always spells bad news for generous welfare states (e.g. Freeman, 1986; Friedman, 1999; Alesina et al., 2001) and provide the alternative perspective that under certain circumstances, this does not seem to hold true. Instead, I hypothesise that dependent on the type of social welfare programme or type of mobility under study, we can expect to find the opposite effect and that immigration and free movement of labour in the EU could be positively associated with welfare state generosity. Second, much of the research mentioned above predominantly relies on aggregate social spending as the primary measure of welfare state generosity. Welfare spending (typically measured as a percentage of GDP) alone cannot adequately capture aspects such as benefit access, benefit conditionality, benefit adequacy. It is sensitive to demographic factors such as an aging population or rising unemployment and may also simply fluctuate based on changes to the denominator (rising or shrinking GDP) rather than changes in spending. However, it provides excellent cross-national comparability over time as it is well-recorded, widely available and regularly updated. As such, it provides an excellent indicator for both overall fiscal effect and disaggregated across multiple policy domains. To account for this so-called ‘dependent variable problem’, this dissertation incorporates alter-
6 Chapter 1 native measures of generosity, such as the generosity index from Scruggs et al. (2014) in Chapter 2 and replacement rates in Chapter 4, providing a more holistic approach to measuring welfare state generosity. Moreover, my research disentangles welfare state expenditures in Chapter 4 to provide a more detailed picture of how specific social policies may be influenced by immigration. In addition, previous research typically relies on broad indicators for immigration, in particular ‘foreign-born population as a percentage of the total population’, which identifies individuals born elsewhere than their current country of residence as migrants. While this approach provides a useful overview, it fails to capture the nuances of different types of mobility, such as the distinct impacts of labour migrants, refugees, or EU mobile citizens. These distinctions can be crucial, as different migrant groups may have varying degrees of access to welfare services, contribute differently to national economies, and be perceived (negatively or positively) in different ways. My thesis addresses this gap by developing more precise indicators for intra-EU labour mobility (EU citizens who reside in another EU country other than the one of their country of birth) in Chapter 3 and then testing this specific type of mobility, thus offering a more precise analysis of how different migrant populations interact with the welfare state in Chapters 4 and 5. In terms of methodology, this thesis uses a number of quantitative techniques to answer its research question. I follow the broader literature and use typical methods for working with cross-sectional, time-series analysis such as panel corrected standard errors and multilevel models for survey data and public opinion, but I also provide robustness checks utilising lesser-used methods in the political economy literature on migration, such as an instrumental variable approach and error correction models. By addressing these gaps, this dissertation complements and advances the current literature, thereby offering a detailed and comprehensive analysis of the relationship between migration and welfare states in Europe. Moreover, it embraces the macro- and micro-level mechanisms that may be transforming the welfare state as a result of changing levels of immigration. Having addressed the gap in the literature, the rest of this introduction now focuses on providing a more detailed description of each chapter. 1.2 A Reader’s Guide This thesis is structured around a collection of four independent, yet interconnected articles that intend to provide insight into the way mobility and immigration influence the structural and conceptual boundaries of the welfare state. They aim to contribute to the comparative political economy
Introduction 7 literature on the welfare state by analysing the effects of immigration on both social policies and social policy preferences. While the chapters can be read independently, they are closely related and have a continuous red thread that is outlined in this introduction. Following the introductory chapter, Chapter 2 of this dissertation is a soleauthored, published article and provides an overview of the macro-level relationship between the stock of immigrants across 16 European countries and the generosity of the welfare state. This article extends previous research (Gaston & Rajaguru, 2013; Lipsmeyer & Zhu, 2011; Soroka et al., 2006; 2016) by taking into account arguments from Scruggs and Allan (2006) and Starke (2006) that studies researching welfare policy change should complement expenditure data with additional quantitative measures. Consequently, specific attention is paid to the ‘dependent variable problem’ and operationalising the ‘generosity’ of the welfare state through two different indicators of welfare state effort: (1) social spending as a percentage of gross domestic product and (2) an index of welfare state generosity (Scruggs et al. 2014). I find that immigration is positive and significantly associated with social spending and has no significant association with the generosity index. As a result, I argue that there is no evidence to support the idea that increasing immigration has led to the erosion of welfare state effort in Europe. Immigration in this chapter is operationalised as ‘foreign-born as a percentage of the population’, a broad measure that is indicative of the stock of immigrants in a country. A key reason this indicator is used is because it is one of the best reported, cross-country comparative indicators for levels of immigration. The drawback is that it lacks depth and cannot provide a more detailed insight into the relationship between types of immigration and the welfare state. Accordingly, the next chapter of this dissertation is assigned to developing more specific indicators for immigration to be utilised in later chapters. Chapter 3 is sole-authored and takes a closer look at data on migration and explores what existing migration data has to offer researchers studying migration related research questions in Europe. The chapter considers the main limitations of currently available migration data, and the solutions employed by other researchers to overcome those constraints. In addition, it presents how I have sought to fill one specific gap in migration data, and consequently the migration-welfare state literature, through the creation of an innovative operationalisation for intra-EU labour mobility using the EU-LFS. I create two indicators to help identify two different sub-flows of
8 Chapter 1 immigration – EU153 + EFTA4 labour migration and EU135 labour migration. These two particular sub-sections of European movement previously had been invisible in the macro-level statistics for international comparison. This chapter explains the creation of these indicators, their limitations, and provides descriptive statistics to showcase both their suitability and accuracy as useful indicators, as well as to present some key trends in intraEU labour migration that were previously assumed but not adequately supported by the data. It is following this chapter that the thesis narrows its scope to the effects of post-2004 EU expansion mobility on European welfare states. Chapter 4 is coauthored with Olaf van Vliet and specifically builds upon Chapter 2. We utilise the indicators created in the third chapter to provide a more specific analysis of the relationship between immigration and the welfare state. While we continue to observe the macro-level relationship between the generosity of the welfare state and the level of immigration in 16 European countries using pooled time-series, cross-sectional data and panel corrected standard error models, just as I do in Chapter 2, the aim of this chapter is to provide a more detailed picture of these associations through breaking down social welfare generosity and immigration into more specific component parts. Thus, this chapter expands upon previous literature by analysing a previously ‘missing’ population of interest (intraEU labour migration) and by disaggregating social welfare spending into separate subdomains capturing specific programme-related changes across countries. Moreover, we complement spending data with two replacement rates, unemployment from the OECD and original data on social assistance, in order to provide a more holistic approach to operationalising welfare state generosity. Again, this chapter finds no evidence of a negative relationship between immigration and European welfare states, indeed we find the opposite. In particular, we find positive associations between intra-EU labour mobility and unemployment spending and unemployment replacements rates, again indicating support for the compensation hypothesis. Chapter 5 is sole-authored and aims to examine at the micro-level mechanisms that under-pin the macro-level relationships we see in the earlier chapters. This paper explores how Central and Eastern European (CEE) labour mobility, a particular type of migration, affects attitudes towards the welfare state. Through the use of multilevel models and the European Social 3 The pre-2004 expansion member states: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, The Netherlands, Portugal, Spain, Sweden, United Kingdom. 4 European Free Trade Association (EFTA) members: Iceland, Liechtenstein, Norway, Switzerland 5 The post-2004 expansion member states: Bulgaria, Croatia, Cyprus, Czechia, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, Slovenia
Introduction 9 Survey (ESS), I test attitudes towards redistribution in light of increasing CEE labour mobility and aim to further understanding regarding the processes and mechanisms that may be leading to the adjustment of EU welfare systems and their changing boundaries as EU mobility intensifies. The mechanisms behind this specific relationship and the possible moderating effects remain unknown because indicators for intra-EU labour migration have not been available up until this point. Consequently, Chapter 5 takes advantage of the indicator created in Chapter 3 for CEE labour mobility and tests the validity of the compensation hypothesis in this particular context. Through the use of this more detailed indicator and in combination with foreign-born, I find that there is some evidence to support the compensation hypothesis, and I do not find significant negative associations between CEE labour mobility and social policy preferences except in the context of high immigration and high unemployment combined. The results provide a greater understanding of the way intra-EU labour mobility is linked to the changing boundaries of welfare states in Europe. Crucially, as attitudes towards redistribution are not being significantly eroded then I argue the legitimacy of European welfare states has not been undermined. Finally, Chapter 6 ends this dissertation through reflecting on how it contributes to the academic literature, providing a summary of the main results from the previous chapters, and by drawing together its overarching conclusions. Moreover, it touches on the societal relevance of my findings, some limitations of the dissertation, and discusses future avenues for research. Ultimately, this dissertation argues that there is reason to be optimistic regarding the coexistence of national welfare states and immigration in Europe. It is not as simple as to suggest that increasing immigration undermines the solidarity that welfare states are built on as there are multiple other complex mechanisms at work, and this dissertation attempts to explore several avenues through which changes in the boundaries of the welfare state may take place.
Abstract This chapter explores whether immigration plays a role in determining national welfare state effort in 16 European countries. It examines the relationship between stocks of migrants, the foreign-born population, on two different indicators of welfare state effort – social welfare spending as a percentage of gross domestic product (GDP) and a welfare generosity index. The nexus between immigration and welfare is a controversial and highly sensitive political issue, and as such it typically divides opinion. Traditionally, it has been argued that increases in immigration create pressures for governments to reduce levels of social welfare provision. By building on theories and results from the political economy literature, this article provides further evidence on the debate through using a fresh approach to operationalise welfare state effort. The empirical results show that the foreign-born population has a positive and statistically significant relationship with social welfare spending and no statistically significant association with the welfare generosity index. 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, these findings lend support to the view that increasing immigration leads to welfare state expansion rather than retrenchment, and that European welfare states remain resilient in the face of the globalisation of migration. Keywords: social protection; welfare state; immigration; Europe Acknowledgements: An earlier version of this paper was presented at ECPR’s 11th General Conference in Oslo, Norway (2017). I would like to thank all the participants, as well as Olaf van Vliet, Kees Goudswaard, Koen Caminada, Alexandre Afonso, Susanne Schmidt, and Tobias Broich for their thoughtful and insightful feedback. This chapter is published as: Fenwick, C. (2019). The political economy of immigration and welfare state effort: Evidence from Europe. European Political Science Review, 11(3), 357-375. 2 The Political Economy of Immigration and Welfare State Effort: Evidence from Europe
12 Chapter 2 2.1 Introduction Milton Friedman famously once said “You cannot simultaneously have free immigration and a welfare state” (1999). He argued that a country with open borders and access to generous welfare provisions would become a haven for poorer migrants which would place a significant fiscal burden on the host country. Consequently, increasing immigration may present serious challenges to Europe’s relatively generous welfare states by exposing tensions between the inherently closed system of the welfare state and the relatively open economies of developed nations. Indeed, some authors have gone so far as to argue that increasing immigration in Europe will eventually lead to the Americanisation of European welfare states and politics (Alesina & Glaeser, 2004; Alesina, Glaeser, & Sacerdote, 2001). On the other hand, current empirical evidence on the topic in Europe is mixed (Lipsmeyer & Zhu, 2011; Nannestad, 2007; Soroka, Johnston, & Banting, 2006; Stichnoth & Van der Straeten, 2013). In the political economy literature, there are two key competing theories that attempt to explain how immigration, or globalisation more generally, may affect national welfare states. They are known as the efficiency hypothesis and the compensation hypothesis. The former is linked to the arguments above and argues that increasing globalisation will alter the supply-side of social protection through forcing governments to retrench social protection schemes in order to stay globally competitive and reduce the fiscal burden of migrants (Gaston & Rajaguru, 2013). The latter argument focuses on how the demand-side for social protection is altered by globalisation, leaving governments in open economies no choice but to expand the welfare state in order to insure citizens against the risks posed by globalisation, such as the job insecurity brought about by increased labour migration (Walter, 2010). In light of these arguments, this article fits within a larger theoretical debate regarding the influence of globalisation and growing economic openness on national welfare states in Europe, in particular concerning the increasing movement of people. This article extends previous research (Gaston & Rajaguru, 2013; Lipsmeyer & Zhu, 2011; Soroka et al., 2006; Soroka, Johnston, Kevins, Banting, & Kymlicka, 2016) by taking into account arguments from Scruggs and Allan (2006) and Starke (2006) that studies researching welfare policy change should complement expenditure data with additional quantitative measures. Social spending only provides one dimension of welfare state effort, the size of the budget, and so this article augments social spending data with the welfare generosity index developed by Scruggs et al. (2014). Through the use of both indicators, this article contributes to the ongoing dichotomy by illustrating that there is a lack of evidence to support the conclusion that increasing immigration is detrimental to or incompatible with European welfare states. Alternatively, increasing immigration may lead policymakers to actually increase welfare state effort.
The Political Economy of Immigration and Welfare State Effort: Evidence from Europe 13 For the analysis, pooled time-series cross-sectional analysis is used to explore the association between stocks of migrants, the foreign-born population, on the two different indicators for welfare state effort, social welfare spending as a percentage of gross domestic product (GDP) and the total welfare generosity index. The empirical analysis shows that increases in the foreign-born population are positively and statistically significantly associated with social welfare spending, while there is no significant relationship with the generosity index. The results survive a number of robustness checks and provide no evidence for the efficiency hypothesis. Instead, the findings are in line with researchers who argue that the compensation hypothesis is the prevailing mechanism between globalisation and welfare state effort (Brian Burgoon, 2001; Gaston & Rajaguru, 2013; Walter, 2010). In the following section, the political economy literature surrounding immigration and welfare state effort in the context of globalisation is examined. This section includes the formulation of hypotheses on immigration’s role in the retrenchment or expansion of the welfare state. Section 3 focuses on the research design and contains the data and method used to approach the research question. The results and a discussion are presented in section 4, which is followed by a sensitivity analysis. Finally, Section 5 presents the conclusions and suggests areas for future research. 2.2 Literature review and hypotheses 2.2.1 The theoretical relationship between immigration and the welfare state In 1981, Meltzer and Richard developed a political economy model to express how demand for redistribution by voters is dependent on levels of economic inequality. Assuming voters act rationally and with economic self-interest, the model predicts that when mean income rises relative to median income, those with an income lower than the median will choose candidates who favour higher taxes and greater redistribution – thus taxes will rise and redistribution will increase, and vice versa (Meltzer & Richard, 1981). Magni-Berton (2014) builds on this model to illustrate how immigration reduces demand for redistribution through closing the gap between the mean and median income. The model demonstrates that while low-skilled immigrants lower the mean income of the entire population, an absence of voting rights means the income level of the median voter stays the same. This suggests that in light of increasing immigration, in particular lowskilled immigration, voters would prefer lower taxes and less redistribution. In practice, however, voters do not always act rationally and when casting votes individuals must choose between policy bundles and therefore may vote on a preference for reduced immigration rather than a preference for reduced spending.
14 Chapter 2 Razin et al. (2002) also use political economy theory to show how immigration can lead to preferences for lower taxes and less redistribution. They argue that as the foreign-born population increases, a larger proportion of tax revenues go to low-skilled migrants, thus redistribution becomes costlier for the native-born population. As a result, this ‘fiscal leakage’ from native to immigrant population leads to a shift in attitudes where the median voter will now support lower taxes. However, this relies on the assumption that immigrants are a net drain on public expenditures, of which the evidence is mixed (Boeri, 2010). Following the same logic means that if immigrants are net contributors, then the median voter would shift in favour of increasing welfare state effort (Gaston & Rajaguru, 2013). In 1982, Ruggie presented an alternative explanation regarding increasing openness and welfare state effort. He proposed that in order to maintain an open international economic order, then governments would have to deliver a level of social protection that safeguards citizens from the risks brought by internationalisation (Ruggie, 1982). While Ruggie’s theory of ‘Embedded Liberalism’ was intended for the globalisation of trade and capital, it is generalisable to the globalisation of labour. If immigration is perceived as an economic risk by natives and those who benefit from open borders wish to maintain support for immigration, then the same deal meant for trade and capital could be struck for immigration. Similarly, the compensation hypothesis argues that in light of increasing economic insecurity, natives will demand greater compensation and these policy preferences will shape the response from political elites (Walter, 2010, 2017). There is considerable research supporting the idea that an individual’s economic situation strongly affects their policy preferences (Hays, Ehrlich, & Peinhardt, 2005), providing the theoretical micro-foundations for the expansion of the welfare state in light of increasing immigration. 2.2.2 The empirical relationship between immigration and the welfare state Despite the importance of the subject, remarkably few studies have empirically examined immigration and its role in shaping contemporary welfare state effort. There is, however, significant research on immigration and welfare preferences1 that may provide an indication regarding what to expect for welfare effort in Europe. In a study comparing 21 European countries, Finseraas (2008) finds evidence to support opposing effects of immigration on welfare attitudes depending on the risk perceived from immigration. The results presented show that those who are opposed to equal rights for immigrants are less likely to support redistribution, whereas those who believe that immigration reduces average wages or immigrants take jobs away are more likely to support redistribution. Moreover, through analys1 See Stichnoth and Van der Straeten (2013) for a review of the empirical literature
The Political Economy of Immigration and Welfare State Effort: Evidence from Europe 15 ing survey data from 17 European countries, Burgoon et al. (2012) report that exposure to increasing immigration at the occupational-level raises individual economic uncertainties and leads to greater support for government redistribution. In contrast, Alesina et al. (2001) argue that ethnic diversity is a crucial factor for explaining why the US does not have a welfare state similar to those 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. Consequently, they reason that as Europe’s heterogeneity increases, rising ethnic divisions will be used to challenge generous welfare states. Alesina and Glaeser (2004) extend their previous research through expanding their analysis to 54 countries worldwide. They find a negative correlation between ethnic fractionalisation and social spending. They propose that generous welfare states are contingent on a homogeneous society because support for the welfare state depends on solidarity between citizens which is fostered through common linkages such as culture and language. Alesina and Glaeser (2004) state that increasing immigration in Europe will challenge Europe’s comparatively generous welfare states. Soroka et al. (2006) combine two Organisation for Economic Co-operation and Development (OECD) social spending databases covering 18 OECD countries over the period 1960-2000. They investigate changes in stocks of foreign-born on changes in social welfare spending and show that in countries with higher rates of immigration, welfare spending grows less than in countries with limited migration. Soroka et al. (2016) build on this previous research through separating social spending into nine different sub-categories and find that there are different effects in different spending programmes and provide further evidence for their assertion that increases in immigration lead to smaller increases in social welfare spending. In a qualitative study looking specifically at the EU, Kvist (2004) examines whether EU enlargement leads to member states adjusting their social policy benefits. He argues that EU-15 member states do engage in strategic interactions and that the member states most actively adjusting their social policies are the ones that put in place fewer restrictions on the labour market access of citizens from new member states. In light of recent EU enlargements, it is possible that these interactions may have continued. However, using a sample of European OECD Countries in a quantitative study, Mau and Burkhardt (2009) contend the conclusion that migration poses a threat to European welfare states. They reason that the claim is overexaggerated and show only a weak, negative influence of ethnic diversity on support for the welfare state, which is mediated when controlling for certain factors such as GDP and unemployment. Moreover, in a compara-
16 Chapter 2 tive study across 15 European countries from 1971-2007, Lipsmeyer and Zhu (2011) find that domestic political pressures, such as the strength of left parties and trade unions, can mediate the relationship between unemployment compensation and migration. Using changes in net migration and levels of unemployment replacement rates, they show that when labour unions are strong and left parties hold more parliamentary seats, then higher net migration rates are associated with higher levels of benefits. Finally, using data on levels of social expenditures and the foreign-born population for 25 OECD countries for the years 1980-2008, Gaston and Rajaguru (2013) find no negative relationship between migration and social spending in a sample. Instead, they determine that depending on the countries included in the sample, immigration can have a positive effect on social welfare spending. As evidenced by the mixed results and conclusions in the literature, the association between immigration and welfare state effort is complex and likely to be influenced and mediated by a number of factors. It is entirely possible that immigration creates opposing pressures on the welfare state and that one effect may simply dominate over another. As the analysis takes into account two dependent variables, which represent two different operationalisations of welfare state effort, then different effects may materialise. This could be a result of substantive reasons such as the inclusion of different programmes in each aggregate indictor. Nonetheless, it would be surprising to find completely opposing effects in the two indicators. 2.2.3 Hypotheses This analysis is based on a European sample, subsequently it is possible that a higher proportion of immigrants are low-skilled and work in lowerpaid jobs2 (UN-DESA & OECD, 2013), in which case the theoretical models would predict that increasing immigration leads to reductions in welfare state effort. The empirical work of Alesina et al. (2001); Alesina and Glaeser (2004); and Soroka et al. (2006; 2016) would generally support this. On the other hand, should those immigrants increase perceptions of economic risk for the native labour force through increasing the competitiveness of the labour market, then increasing immigration could alternatively lead to increases in welfare state effort. The recent empirical results from Gaston and Rajaguru (2013) and Lipsmeyer and Zhu (2011) lean towards this expectation. Considering the literature and the competing mechanisms, two hypotheses are proposed: H1: Retrenchment: increasing immigration is associated with reductions in welfare state effort – reflected in decreases in spending and/or generosity. 2 In 2015, 23.8% of working age (15-64) foreign-born labour in the EU was tertiary educated (Eurostat 2025) and immigrants earn on average about 30% lower wages than natives (Dossche et. al., 2022)
The Political Economy of Immigration and Welfare State Effort: Evidence from Europe 17 H2: Expansion: increasing immigration is associated with increases in welfare state effort – reflected in increases in spending and/or generosity. 2.3 Research Design: Data and Methods To test the hypotheses, data spanning 16 European countries3 for the years 1990-2010 has been collected. The countries in the sample chosen are European countries in the OECD because the more economically developed European countries simultaneously tend to be typical migrant destinations and the ones with traditional, advanced welfare states. However, some European OECD countries are excluded4 despite accessible spending data as no ‘total generosity’ measure is available for these countries in the Comparative Welfare Entitlements Dataset (CWED). For our two dependent variables – social spending and the generosity index – the aggregate measures are used. While this can mask programme specific changes, it provides a useful overview of general associations which has yet to be done in this specific context for the generosity index. 2.3.1 Dependent Variable: operationalising welfare state effort The commonly used indicator to depict welfare state effort is social spending as a percentage of GDP (Allan & Scruggs, 2004). There are clear advantages to this measure – it provides a good indication of the overall generosity of a welfare state as it captures the size of the budget, there is no need to correct for inflation and exchanges rates, and it is well recorded so data is readily available for most European countries over an extended period of time. However, this measure has been criticised for a number of reasons, such as not adequately capturing changes in legislation regarding entitlement criteria, coverage, and duration (Scruggs, 2007). Subsequently, there has been extensive debate over spending’s suitability as an indicator of welfare state effort because it may not adequately reflect policy change (Allan & Scruggs, 2004; Caminada, Goudswaard, & Van Vliet, 2010; Clasen & Siegel, 2007; Green-Pedersen, 2004; Jensen, 2011; Starke, 2006; van Oorschot, 2013; Wang & van Vliet, 2016). To account for the ‘dependent variable problem’, this article uses two different indicators to explore how immigration influences welfare state effort. As is common convention, social welfare spending as a percentage of GDP from the OECD’s Social Expenditure (SOCX) Database (2017d) is used, which is then compared with the welfare generosity index from the 3 Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and United Kingdom. 4 Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia.
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