Intra-EU Labour Mobility and the Welfare State 67 4.2 Literature and Hypotheses 4.2.1 Embedded Liberalism, immigration, and the welfare state Against a backdrop of increasing immigration and generous social policies, a crucial question in contemporary European countries is: does immigration lead to changes in social welfare provision? A significant body of research indicates that it may be difficult to reconcile generous welfare provision with a more open immigration regime because immigration can lead to pressure for retrenchment from concerns about fiscal viability at the macrolevel, but also from reduced solidarity between citizens at the micro-level (Brady & Finnigan, 2014; van Oorschot, 2008; Schmidt-Catran & Spies, 2016). This challenge is often referred to as the “Progressive’s Dilemma” (Goodhart, 2004), which argues that racial diversity and/or immigration undermines the welfare state through challenging the foundations of solidarity that a risk-pooling system – such as the welfare state – relies on, necessitating that progressives are faced with a trade-off of either supporting greater diversity or providing generous benefits. In their seminal study, Alesina at. al. (2001) show that in the United States (US) a one percentage point increase in the probability of drawing two people who belong to different ethnic groups from a population is associated with a decrease of 7.5 percentage points in social spending as a percentage of GDP. Alesina and Glaeser (2004) expand their earlier study to 54 countries worldwide and reason that the countries with the most generous welfare states are also the most homogeneous, such as those found in Scandinavia. They argue that generous welfare states require a homogeneous society because they depend on solidarity between citizens, which comes from common linkages such as origin, language, and culture. Hence, Alesina and Glaeser state “if Europe becomes more heterogeneous due to immigration, ethnic divisions will be used to challenge the generous welfare state” (2004, p. 11) and that increasing immigration in Europe should be considered problematic for the future of European welfare states. However, while it might be reasoned that ethnic diversity is a contributing factor to the lack of a developed welfare state in the US, these findings cannot necessarily be generalised to assert that increasing ethnic diversity in well-established welfare states will lead to their retrenchment. As Pierson (1996) argued in his discussion on the new politics of the welfare state, expanding and retrenching the welfare state are profoundly different processes and that by developing a welfare state, the politics around social policy is transformed. Evidence in Europe that immigration is detrimental to the sustainability of welfare states mostly relies on individual-level data that examines the attitudinal effects of increasing immigration on support for the welfare state (Burgoon, 2014; Burgoon & Rooduijn, 2021; Cappelen et al., 2025; Cappelen & Peters, 2018; Mau & Burkhardt, 2009) and not on
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