The Welfare State and Disaggregated Immigration: Revealing Hidden Trends

Milton Friedman famously once said “You cannot simultaneously have free immigration and a welfare state” (1999). Unsurprisingly, increasing immigration can present new difficulties and challenges for welfare states. Some researchers even argue that increasing immigration in Europe will eventually lead to the Americanisation of European welfare states and politics. Western European countries in particular have well established welfare states and while also dealing with large-scale migration. Authors tend to predict that weakening solidarity due to increasing ethnic diversity will undermine the welfare state. The main aim of this paper is to explore the extent to which EU labour migration is compatible with the generosity of EU welfare states. In particular, do labour migrants from Central and Eastern Europe have different effects on welfare state effort in comparison to EU15 labour migration and asylum seekers? A key reason why this question remains unanswered is because the lack of readily available data on EU labour migration makes the relationship difficult to study. This paper utilises data from the EU-LFS on labour status and country of origin in order to create macro-level indicators for labour migration from EU-15 and EU-13 countries and thus fill the research gap. In addition, we disaggregate social welfare spending into separate subdomains allowing us to capture specific programme-related changes across countries. Moreover, we expand upon previous literature by complementing spending data with two replacement rates. The first is original data on social assistance and the second is on unemployment. Our results show that EU labour migration is associated with positive and statistically significant results in various subdomains of social spending, as well as for the unemployment and social assistance replacement rates. Thus, we find evidence to support the compensation hypothesis and conclude that European welfare states are surprisingly resilient in the face of increasing immigration.