Compensation or Social Investment? Revisiting the Link between Globalisation and Popular Demand for the Welfare State

The debate on effects of globalisation on welfare states is extensive. Often couched in terms of a battle between the compensation and the efficiency theses, the scholarly literature has provided contradictory arguments and findings. This article contributes to the scholarly debate by exploring in greater detail the micro-level foundations of compensation theory. More specifically, we distinguish between individual policy preferences for compensatory social policies (unemployment insurance) and human capital-focused social investment policies (education), and expect globalisation to mainly affect demand for educational investment. A multi-level analysis of International Social Survey Programme (ISSP) survey data provides empirical support for this hypothesis. This finding provides an important revision and extension of the classical analytical perspective of compensation theory, because it shows that citizens value the social investment function of the welfare state above and beyond simple compensation via social transfers. This might be particularly relevant in today's skill-centred knowledge economies.