Class Struggle or Capitalist interests? : The Driving Forces of Active Labor Market Policy and the Expansion of the Welfare State

Abstract: The purpose of this paper is to examine the causes of welfare state expansion, specifically the causes of welfare state expenditure of active labor market policy (ALMP). ALMP aims at reducing unemployment and increasing participation in the labor market. The field of political economy has long asked the question of why certain welfare states are characterized by generous social policy, while others are not. Several theories have been presented over the years, each providing new perspectives. The two theories that could be considered to be the most prominent are the Power Resource Theory, which centers on the importance of power resources of major classes, and the Varieties of Capitalism, which is more focused on the different needs of capitalists.The specific interest of this paper is the varying orientations of ALMP. It is argued that ALMP should not be understood as a homogenous concept, but instead as a category of policy which consists of a range of tools from which a government can choose. Analyzing the expenditure of these tools separately is thus of great importance for the development of a deeper understanding of the welfare state.Using regression analysis, I analyze which of the theories mentioned above is most strongly correlated to increased expenditure of ALMP. I use a total expenditure of ALMP, as is customary within the field, but I also include two other measures for specific tools of ALMP; incentive reinforcement programs and training programs.The results indicate that when looking at the total expenditure of ALMP the VoC approach appears to better explain the cause of welfare state expenditure. However, when including the measures for the specific tools of ALMP, the classic notion of VoC is confirmed only regarding incentive reinforcement programs, and contradicted regarding training programs. Moreover, the classic notion of PRT is confirmed regarding the expenditure of training programs, albeit with quite limited evidence. Also, the classic notion within PRT finds little support in the analysis of total expenditure of ALMP and the expenditure of incentive reinforcement programs. Only making a distinction between large and small welfare states is thus argued to be a simplification. Welfare states with similar levels of social expenditure might in fact differ significantly regarding actual policy preference.It is concluded that the continued disaggregation of ALMP is necessary in order to further the research field. Acknowledging the highly heterogeneous nature of ALMP is essential when understanding its expenditure.