Openness and the welfare state: risk and income effects in protection without protectionism
Peer reviewed, Journal article
Published version
Date
2023Metadata
Show full item recordCollections
- Publikasjoner fra Cristin [4108]
- SAM - Handelshøyskolen [429]
Abstract
Have recent trends in globalization changed the positive link between trade openness and social
insurance? The consensus view – that voters want better social insurance against income loss the
more open the economy – is seemingly contested by the rise of new right-wing parties and the
China shock. We present a theoretical framework of risk and income effects of globalization that
captures the conventional view, but also shows when it will be modified: When the income effect
is negative, the political support for social insurance can decline in spite of the risk effect. We
construct an empirical measure of welfare state support across European regions and leverage
the rapid integration of China into the world economy to show that higher import competition
reduces the support for social insurance. Consistent with our framework, we use variations in
employment losses between regions to decompose the overall effect of the shock into a (weak)
positive risk effect and a (strong) negative income effect.