Globalisation, Labour Market, and the Welfare State

Start of Project 01/2015
End of Project 10/2018


In an age of high public debts and ever-growing international competition, the welfare state (WS) is often portrayed as generating a culture of welfare dependency and is ultimately seen as unsustainable.  Against this background, GlobLabWS aimed to explore the role of the welfare state in shaping the relationship between globalisation and labour markets and in affecting a country’s economic performance and ability to respond to exogenous shocks.

Results from our research show that many conventional views arise from narrow theoretical premises that fail to capture the complexity of the processes at work

  • Globalisation and participation in the global production chain affect workforce structure, with increased importance of more skilled occupations and degree of mismatch between workers’ skills and those demanded by firms, e.g. over-education.
  • The WS plays an important role in mediating these effects.  Comparison among WS systems suggests that Nordic countries perform better in terms of aggregate labour market outcomes than countries with less generous WS and more flexible labour markets.
  • A well-functioning labour market does not need to be thin on security.  Crucial is not ‘labour market flexibility’, but the ‘social investment’ dimension of the WS: support for the unemployed, social investment and activation policies - important pillars of flexicurity.  
  • Complementarities between Active and Passive Labour Market Policies (ALMPs and PLMPs) can trigger a virtuous interaction between labour market participation and productivity growth. Flexicurity reforms of a ‘liberal’ WS, such as the UK’s, can improve employment, productivity and mitigate the effects of negative shocks even though it would require lowering flexibility and raising PLMPs and ALMPs expenditure.
  • An important implication is the need to recognise and exploit policy interactions not only among WS policies but also among different policy areas: e.g., education and industrial policies can strengthen the effectiveness of WS policies.
  • A country’s ability to compete internationally does not necessarily require WS retrenchments: e.g. higher welfare spending can increase a country’s ability to attract and retain internationally mobile firms.

The results of GlobLabWS are central to current socio-economic debates on the effectiveness and sustainability of WS institutions and provide policy makers with deeper understanding of the key trade-offs entailed by different policy scenarios. We show that globalization has relatively large distributional consequences. Benefits tend to be skewed towards high skilled workers at the expense of low/middle skilled groups. This warrants the need for ‘enabling WS’ systems that support workers’ movements between occupations, a prerequisite also to secure an acceptance for the economic benefits globalisation can bring at an aggregate level.

GlobLabWS provides useful suggestions as to the key features of an enabling WS. We show that much is to be gained from the experiences of countries, such as Denmark, that combine good productivity and export performance with generous active and passive labour market policies.