Does increased welfare state spending reduce the appeal of populism? Chase Foster and Jeff Frieden present new evidence showing that countries that offer more generous labour market programmes and unemployment insurance exhibit lower levels of populist support.
In the late 1990s, fewer than 10 percent of Europeans voted for populist parties. Today, populist parties hold more than a quarter of national parliamentary seats across the continent and participate in government in multiple countries. While these parties differ ideologically, they share a hostility toward established political elites and, often, toward European integration itself.
Why has populism grown so dramatically? A large body of research points to economic disruption. Trade exposure, automation, deindustrialisation and regional decline have all been shown to fuel anti-establishment voting. But an important question remains: can national social policies shape how citizens respond politically to economic change?
Much of the existing literature has offered a qualified “no”. Some studies find that aggregate social welfare spending has little effect on populist support. Others suggest that welfare policies perceived as benefiting immigrants can sometimes strengthen right-wing populist parties. However, these analyses typically examine social spending as a whole rather than focusing on the specific programmes most directly tied to labour market risk.
In a recent study, we distinguish between different types of social policy and focus on whether certain forms of social insurance can reduce populist support among economically vulnerable groups. Our core finding is straightforward: countries that devote more resources to labour market programmes and provide more generous unemployment insurance replacement rates tend to exhibit lower levels of populist support.
Conversely, cuts to unemployment benefits are associated with increased populist vote shares. These effects are particularly pronounced among individuals who have experienced unemployment and among trade union members, who are especially sensitive to changes in labour market protection.
The compensation hypothesis
Our argument builds on a classic idea in political economy: the “compensation hypothesis”. For decades, scholars have observed that open economies tend to have larger welfare states.
The logic is simple. Economic openness generates aggregate gains but also produces losers. To sustain political support for markets and integration, governments provide social insurance to compensate those exposed to economic risk. If this logic holds, robust income support for displaced workers should mitigate political backlash.
By contrast, welfare state retrenchment may intensify resentment and fuel populist mobilisation. Between the early 1990s and mid-2010s, unemployment-adjusted labour market spending declined significantly in many European countries.
In Northern Europe, this reflected reforms designed to increase labour market flexibility and participation. In Southern Europe, particularly during the eurozone crisis, austerity programmes sharply reduced benefit generosity. We hypothesise that such changes contributed to the rise of populist parties.
Cross-national patterns
To test these claims, we analyse 134 national legislative elections across 16 Western European countries from 1990 to 2021. At the macro level, higher labour market spending as a share of GDP is consistently associated with lower populist vote shares. The same is true for unemployment insurance replacement rates – the share of prior earnings replaced by benefits.
Figure 1 presents scatterplots of labour market compensation and populist vote share across the countries and years in our sample. Populist support is generally higher in contexts with lower labour market spending and less generous unemployment replacement rates.
These patterns reflect both cross-national differences and within-country changes over time. For example, Germany’s labour market spending declined sharply following the Hartz reforms of the early 2000s. In the years that followed, populist parties gained electoral ground and overall populist vote shares increased substantially.
Figure 1: The relationship between labour market compensation and populist vote share
Note: For more information, see the authors’ recent study in European Union Politics.
This broad pattern seen in the scatterplot proves robust when we examine these relationships using multi-level OLS models that include country and year fixed effects. Across multiple model specifications, countries that devote more resources to supporting the unemployed and provide more generous unemployment insurance replacement rates tend to have lower support for populist parties.
Notably, not all welfare spending has the same effect. Broad social expenditures are less consistently related to populist outcomes. What matters most appear to be programmes directly tied to income replacement and labour market adjustment – that is to say, policies that visibly cushion workers facing economic risk.
Individual-level evidence
We complement the cross-national analysis with individual-level data from eleven waves of the European Social Survey. The results reinforce the country panel findings. Individuals are less likely to support populist parties in countries with more generous unemployment insurance systems. And they become more likely to support populist parties when labour market protection decreases.
Economic vulnerability also matters. We find that individuals who have experienced prolonged unemployment are significantly more likely to vote populist. The same is true for current and former trade union members. Yet these effects are attenuated in countries where labour market protections are more generous.
Figure 2 plots the interaction between unemployment insurance generosity and individuals who have experienced unemployment, have been trade union members or express anti-immigration preferences. Our estimates suggest that a five-percentage-point increase in replacement rates reduces the predicted probability of an average individual voting populist from roughly 8 percent to under 6 percent.
The dampening effect is even stronger among those who have experienced unemployment and among current or former trade union members. In short, social insurance appears to mitigate the political consequences of economic insecurity.
Figure 2: Impact of UI changes on populist support
Note: For more information, see the authors’ recent study in European Union Politics.
We also examine a competing argument: that generous welfare states might fuel “welfare chauvinism”, especially in contexts of high levels of immigration. While anti-immigrant attitudes are strongly associated with populist voting, we find no evidence that more generous labour market policies amplify this effect. Even individuals with negative views about immigration are less likely to support populist parties when unemployment protection is stronger.
Policy implications
Our findings do not suggest that welfare states or social policies can eliminate populism. Populist movements have sprung up across nearly all OECD countries due to long-term economic and cultural changes tied to trade integration, technological change and immigration. These forces are unlikely to disappear anytime soon.
However, our findings do suggest that national social policies shape the political consequences of these transformations. Economic insecurity remains a powerful driver of political discontent. The design of social policy therefore matters.
Targeted labour market compensation that focuses on supporting workers and communities that experience disruption appears to partially moderate the appeal of populist parties. Conversely, retrenchment in these areas has clear political costs. Reforms that reduce income protection, even if economically justified on efficiency grounds, may generate backlash if they leave vulnerable constituencies feeling exposed.
The broader lesson is not that governments should pursue redistribution for short-term electoral gain. Rather, it is that durable market integration requires institutions that visibly insure citizens against risk. When economic integration deepens exposure to global competition and technological disruption, sustaining public support depends on credible systems of compensation.
For more information, see the authors’ recent study in European Union Politics.
Note: This article gives the views of the authors, not the position of LSE European Politics or the London School of Economics.
Image credit: blvdone provided by Shutterstock.
