Published in
A chapter for the Dølvik and Martin volume, October 2011
Abstract
The trends in European welfare states are reversed. From rising generosity and declining earnings differentials, the trends have changed to stagnating generosity and increasing inequalities in gross earnings. The shift is visible in most European countries, though to varying degree, and it happened before the financial turmoil in 2008. The turning point seems to have occurred in the late 1980s, mirroring a similar change that occurred ten years earlier in the US.
In this chapter we document the reversal. We are less interested in identifying the specific shocks that actually initiated the change. We offer instead an answer to the more important question why equality in gross earnings and welfare spending move in tandem in an egalitarian direction before the turning point, and in an inegalitarian direction after. When welfare spending and earnings equality tend to move together, any shock that is sufficiently strong can in fact reverse the trends. We claim that the co-movement between earnings equality and welfare spending is caused by institutional reciprocity. (...)