Economic Insecurity and Social Policy Expansion: Evidence from Interwar Europe

Abstract

What is the impact of economic insecurity on the development of institutions of social insurance? Existing studies have examined this question by exploring the impact of various measures of economic volatility on aggregate government expenditures or revenues. These aggregate data are, however, an imperfect proxy of the character of institutions of social protection. To overcome the limitations of earlier studies, this article explores the conditions under which economic insecurity leads to the extension of the level of social insurance coverage. I argue that economic insecurity sharpens a sectoral cleavage between coalitions in “high-risk” and “low-risk” sectors. Workers (and some employers) in high-risk sectors will favor the introduction of social insurance institutions characterized by broad levels of coverage and a high redistribution of costs across occupations. In contrast, a cross-class alliance in low-risk sectors will oppose proposals aiming at the introduction of redistributive social policies, fearing that these policies will turn them into subsidizers of high-risk industries. A redistributive social insurance policy will be introduced only if the “high-risk” coalition is larger. The article tests both the micro- and macro-level implications of this theory, by examining the development of unemployment insurance policies in interwar Europe.I gratefully acknowledge comments from Carles Boix, Peter Gourevitch, and two anonymous referees. Many thanks to Stefano Bartolini, John Fitzgerald, and Michael Tomz for sharing data with me.