Macroeconomic Outcomes

Abstract

This chapter examines the consequence of larger welfare states on two macroeconomic outcomes: growth and employment. Much of the standard neoclassical literature predicts that large welfare states will necessarily have negative consequences for both growth and employment. This is not borne out by the empirical evidence. In part, this is because some welfare state measures, on education and health care, for example, have positive externalities in the wider economy. It also seems that national experience varies with differing institutional contexts, especially in relation to wage-bargaining institutions. After 2008, this argument played out in differing views about ‘austerity’, some suggesting that it was necessary to re-establish growth, with others dismissing it as a sort of economic primitivism.