Active or Passive? Reforming Employment Benefits in the OECD

The last three decades witnessed attempts to reduce employment benefits in many OECD countries. This study distinguishes between three types of benefits: employment protection legislation (EPL), active labour market policies (ALMPs), and unemployment compensation. Using structural equation modeling, the study systematically examines the determinants of these benefits in 23 countries (1985 to 2008). The analysis contributes to the welfare state literature in at least three ways. First, it goes beyond studies of individual programs or overall “welfare effort” by examining three programs simultaneously. Second, it uncovers both direct and indirect channels of support for these programs. Finally, the analysis reveals, contrary to previous findings, that strict employment protection is quite compatible with more spending on ALMPs and unemployment compensation in some countries.