3.4. The Size of the Welfare State, the Demand for Social Insurance, and Parents’ Incentive to
Instill Work Norms in their Children
A longstanding puzzle is the considerable difference between Western Europe and the US in the
size of the welfare state. Several reasons have been put forward as an explanation for this
difference; among them are differences in political institutions, and ethnic heterogeneity (Alesina
and Glaeser 2004) or self-fulfilling beliefs and multiple equilibria (Piketty 1995, Bénabou and
Tirole 2005). However, it may also be the case that the willingness to migrate to the US has
historically been associated with different ideologies and these ideologies may have affected the
population’s preferences. In order words, the US population may have a different demand for
social insurance and this may be another reason for the differences in the welfare state. A recent
paper (Naef et al. 2011) provides evidence for the hypothesis that the US population is less risk
averse than the German population. Whether this preference difference holds more generally
between the US and Europe is, however, not known.
Eugster et al. (2011), in this symposium, study the impact of differences across language
groups in the demand for social insurance across the cultural boundary defined by German and
“Latin” (i.e. French, Italian, and Romansh) language groups in Switzerland. The authors use a
regression discontinuity design to identify cultural differences in the demand for social
insurance. The Swiss case is well-suited for this research design because on both sides of the
language border exactly the same legal system prevails. This means that the supply of social
insurance (e.g. unemployment insurance, the retirement system, maternity leave, etc.) is
identical. In addition, the wealth distribution, the probability of becoming unemployed, and other
risks are similar on both sides of the border. Eugster et al. use data from referenda over the
period 1980-2009 to document a persistent difference in the demand for social insurance - the
German group expresses a much lower demand than the Latin group. These two groups are at
opposite ends of scale defined by average responses in countries to the question whether
government should do more to redistribute income. Eugster et al.’s findings suggest that even
among groups with the same economic fundamentals, there can be large and long-lasting
differences in the demand for social insurance.
A neat example of how the welfare state may shape preferences with regard to labor supply
is Lindbeck and Nyberg (2006). They explicitly examine the influence of the welfare state on
parents’ incentive to instill preferences for hard work (“work norms” for short) in their children.
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