The Material Consequences of Welfare States: Benefit Generosity and Absolute Poverty in 16 OECD Countries

Abstract

Several recent studies have focused attention on the relationship between welfare states and poverty, looking primarily at relative poverty and employing concepts of welfare state generosity that are problematic. This has made it difficult to evaluate claims that equality has come at the expense of economic growth. In this article, the authors examine more directly the relationship between welfare state generosity in three social insurance programs— unemployment, sickness, and pensions—and poverty levels in advanced industrial democracies in the past quarter of the 20th century. The results strongly suggest that more generous entitlements to key social insurance programs are associated not only with lower relative poverty but also with lower absolute poverty. This supports the contention that promoting relative economic equality can improve the absolute material well-being of the poor. However, no evidence suggests that relatively more generous unemployment benefits systematically reduce poverty.