Social Protection Strategies in Efficient and Inefficient States

Abstract

It is well known that social and labor market policies vary greatly among the advanced industrialized countries, not just in terms of overall spending but also in terms of the allocation of resources across different programs. Scholars in political science, economics and sociology have successfully explained many of these cross-country differences; yet, we are far from a complete understanding of the social and labor market policy choices of governments in advanced democracies. This paper argues that bureaucratic capacity matters greatly to social and labor market policymaking. Social and labor market programs require a reliable and efficient bureaucracy, yet most explanations of cross-country policy variation ignore the interplay between bureaucrats, elected politicians, and voters. The basic idea of the paper is that some types of social and labor market programs involve more bureaucratic discretion then others, and it is difficult for politicians to justify spending on such programs if the bureaucracy is inefficient, corrupt, or both. We therefore expect the quality of the bureaucracy to influence spending on discretionary prog-rams, but not spending on programs that require less bureaucratic capacity. In order to test these hypotheses, we analyze the allocation of public resources to active labor market policy (which involves very much bureaucratic discretion) and cash benefits to families (which involve much less bureaucratic discretion). We use data from 21 countries from 1983 to 2003. The main result are that bureaucratic capacity indeed influence spending on active labor market policy but not on cash benefits to families, even when controlling for a broad set of alternative explanations.