AbstractResearch thus far has presented inconsistent findings regarding the effect of multiculturalism on the integration of immigrant youth; however, few studies have focused on making sense of these inconsistencies and further developing research in this field. In the current study, we focus on the possibility that policy arrangements for social welfare may condition the effect of multiculturalism in different directions. Specifically, we hypothesize that the policy mix of generous welfare spending and strong multiculturalism may not aid in the acculturation of immigrant youth in the host country. Cross‐national multilevel data from 28,879 immigrant youth in 29 countries were analysed. The results indicate that immigrant youth show higher school engagement in countries with stronger institutionalised multiculturalism. However, this pattern varies depending on the social welfare policies of individual countries. When strong multiculturalism is combined with generous welfarism in a country, it does not positively affect the school engagement of immigrant youth. These findings align with our speculation that multiculturalism is likely to work better in liberal economies than in generous welfare states.