Dynamic services, district magnitude, and the trilemma of the service economy

Abstract

Advanced welfare countries have faced a mix of policy constraints regarding employment growth, income equality, and budget discipline in managing the challenges of deindustrialization, often dubbed as the trilemma of the service economy. Yet, puzzlingly enough, there are some welfare countries that could choose policy options outside of these policy constraints in their responses to deindustrialization. This article argues that the source of this derestricting capacity can be found in the size of electoral district and the level of development in dynamic service sectors. Using the Service Economy Trilemma Index (STI), the author propounds that the expansion of dynamic services in the economy has differential effects on the combined performance in employment, income equality, and budget discipline conditional on the district magnitude. The findings of this article show that countries with large electoral districts and well-developed dynamic service sectors are better able to derestrict policy constraints in the age of deindustrialization.