Globalization and the Decline of the Welfare State in Less-Developed Countries

Abstract

Why have trends in government welfare spending in developing countries diverged from those in developed countries? I address this question by investigating the effects of capital and trade flows on government welfare spending in fifty-three developing countries. Using an original measure of labor power in developing countries, I test the links between international markets, labor's political strength, and the welfare state. I argue that labor's collective-action problems, caused by large populations of low-skilled and surplus workers, offset labor's potential political gains from globalization. I show that when the proportion of low-skilled workers in a nation is high, globalization will lead to a decline in welfare spending. Most significantly, the results suggest that in nations where labor-market institutions are not yet well developed, government social-welfare spending is constrained by international market, forces.