Globalization and the Welfare State: Testing the Microfoundations of the Compensation Hypothesis

Abstract

The debate on how globalization affects the welfare state has so far largely neglected to examine the micro-level causal mechanism underlying different macro-level claims. Based on survey data from Switzerland, this paper provides an empirical microfoundation for the so-called compensation hypothesis. It finds that globalization losers are more likely to express feelings of economic insecurity. Such feelings, in turn, increase preferences for welfare state expansion, which in turn increase the likelihood of voting for the Social Democratic Party. The analysis also shows that globalization losers and winners significantly differ with regard to their social policy preferences and their propensity to vote for left parties. The paper is innovative on two counts. First, it uses a number of different and more nuanced indicators measuring individuals’ positions as a beneficiaries or losers of increasing global competition. Second, rather than focusing on a particular part of the causal chain, it tests the entire individual-level causal mechanism implied by the compensation hypothesis.