Rediscovering social investment in developmental welfare state ...
Rediscovering social investment in developmental welfare state ...
Rediscovering social investment in developmental welfare state ...
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R E D I S C O V E R I N G S O C I A L I N V E S T M E N T I N D E V E L O P M E N T A L W E L F A R E S T A T E P O L I C I E S :<br />
B A C K T O T H E F U T U R E<br />
agent <strong>in</strong> family decisions. 55 Family members who work <strong>in</strong> the market will compensate those who<br />
specialize <strong>in</strong> household production dur<strong>in</strong>g the childrear<strong>in</strong>g phase and later <strong>in</strong> life, which postulates a<br />
permanent, unanimous family (Lundberg, 2002).<br />
Economists typically approach the labor market from a simplified perspective that assumes perfect<br />
competitiveness, where <strong>in</strong> the absence of laws workers and employers have perfect <strong>in</strong>formation,<br />
transaction costs are absent, and workers—choos<strong>in</strong>g to maximize their utility function (<strong>in</strong>come or<br />
leisure)—earn their marg<strong>in</strong>al product of labor. These assumptions are then relaxed, deviations from<br />
perfectly competitive labor markets are considered, <strong>in</strong>clud<strong>in</strong>g that there are costs associated with<br />
employment and switch<strong>in</strong>g jobs. ALMPs or measures to improve the function<strong>in</strong>g of the labor<br />
market that are directed towards the unemployed (Calmfors, 1994) come from a recognition of<br />
imperfections <strong>in</strong> the labor market. For example, workers have <strong>in</strong>sufficient <strong><strong>in</strong>vestment</strong> <strong>in</strong> skills<br />
because they are severely credit constra<strong>in</strong>ed. Firms are not will<strong>in</strong>g to f<strong>in</strong>ance general qualifications<br />
(Becker, 1962, 1964) and will only <strong>in</strong> part pay the expenditures for develop<strong>in</strong>g firm-specific skills.<br />
Thus, the ma<strong>in</strong>stream approach favors better loan markets over direct subsidies to tra<strong>in</strong><strong>in</strong>g<br />
(Acemoglu & Pischke, 1999) and sees little role for ALMP. Heckman et al. (1999, p. 2080) conclude<br />
that ―when effective, ALMPs make economically disadvantaged persons less poor and modestly<br />
<strong>in</strong>crease employment among the unemployed, however, these ga<strong>in</strong>s (if present) are small and it is<br />
unlikely that a substantial <strong>in</strong>crease <strong>in</strong> government fund<strong>in</strong>g will improve work force skills.‖ Economic<br />
theory provides little clear guidance to the effect of labor <strong>in</strong>stitutions on economic performance<br />
(Freeman, 2008). 56<br />
The neoclassical view on <strong>social</strong> policy suggests that maximum economic efficiency should result<br />
from low overall <strong>social</strong> policy expenditures, as limitations on the budgets would serve to keep taxes<br />
and labor dis<strong>in</strong>centives low. In this view, these policies comb<strong>in</strong>ed with the economic efficiency that<br />
results should lead to low <strong>in</strong>come poverty <strong>in</strong> the long term. Further, ma<strong>in</strong>stream economists tend<br />
not to consider the multidimensionality and potentially complex <strong>in</strong>teractions associated with how<br />
<strong>social</strong> policies are comb<strong>in</strong>ed.<br />
I argued earlier that <strong>developmental</strong>ist <strong>social</strong> policy focused on <strong>in</strong>-k<strong>in</strong>d benefits, nonmeans-tested<br />
benefits, family expenditures and ALMP, and higher levels of expenditures. I briefly discuss these<br />
aspects aga<strong>in</strong>, highlight<strong>in</strong>g the economic logic that leads to these policy directions. Accord<strong>in</strong>g to<br />
<strong>in</strong>clusive <strong>welfare</strong> <strong>developmental</strong>ism, <strong>in</strong>-k<strong>in</strong>d benefits are advantageous because they guarantee<br />
consumption of <strong>developmental</strong>ly-relevant goods and services, facilitate political support by the<br />
nonpoor (so are likely to be more adequate and accessible), are less likely than cash to be wasted by<br />
people, and are less likely to generate moral hazard. Economists see cash as important because<br />
parents prefer cash transfers over <strong>in</strong>-k<strong>in</strong>d <strong>in</strong> that they can spend them as they see fit. In contrast,<br />
55 In the context of a unitary household, gender equality <strong>in</strong> command over resources need not require equality <strong>in</strong> market<br />
wages or earn<strong>in</strong>gs opportunities. In this view, if specialization <strong>in</strong> the household is efficient due to comparative advantage<br />
or sector-specific learn<strong>in</strong>g, it will also be <strong>social</strong>ly desirable. S<strong>in</strong>ce childrear<strong>in</strong>g takes up only a portion of the total lifespan<br />
but tends to co<strong>in</strong>cide with a period when <strong>in</strong>tense <strong><strong>in</strong>vestment</strong>s <strong>in</strong> market skills are optimal for workers, an efficient family<br />
solution will <strong>in</strong>volve some <strong>in</strong>tertemporal redistribution.<br />
56 Perhaps a central reason for this is the possibility that ―<strong>in</strong>stitutions that work <strong>in</strong> one way <strong>in</strong> one country may work<br />
differently <strong>in</strong> another because the rest of the <strong>in</strong>stitutional structure differs‖ (Freeman, 1998, p. 6). Freeman notes that<br />
too little is known about how labor <strong>in</strong>stitutions fit together as systems. A system exists when the contribution of one<br />
<strong>in</strong>stitution to outcomes depends on the configuration of other <strong>in</strong>stitutions. Complementarity among labor and other<br />
practices is where policies may be productive whereas absent the other <strong>in</strong>stitutions, they may be less productive or even<br />
counterproductive.<br />
C E N T E R F O R S O C I A L D E V E L O P M E N T<br />
W A S H I N G T O N U N I V E R S I T Y I N S T . L O U I S<br />
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