Hannah van Dijk – Lectures: Social Risks in Europe – 201700151
Lecture 1 – Social risks, the welfare state and social investment
For a long time, people saw the welfare state as a broken safety net
It was put into place to protect people from all the different risks you can face in life
Welfare state is also seen as a trampoline: Not to catch people, but to help people bounce back into the
labor market
The welfare state embodies the formulation of a social guarantee: All citizens are guaranteed a
reasonable standard of living (van Doorn, 1978)
Each society has a different idea of “a reasonable standard of living”
The essence of the welfare state is government protected minimum standards of income, nutrition,
health, housing and education. These are political rights (Wilensky, 1975)
The welfare state tries to reduce the insecurities that individuals and families face in relation to
specific problematic events (sickness, old age, unemployment)
The welfare state is the most powerful institution of the 20 th century
The development started in the late 19th century: Long historical development
Welfare state is a broad concept that includes social security, health care, education, social housing
and social welfare
The development of welfare states has some important differences:
1- Historical trajectories: Due to different timing, pace and modes of industrialization; difference
in political and institutional settings; different positions of actors
2- Financing (taxes, contributions), eligibility (contribution record vs. residency or need) and
coverage (employees, general public)
- Differs across policies / welfare states
- Normally: Distinction between employees (working people) and general public
3- Benefit levels: Flat rate (= All the same amount) vs. earnings-related (= A percentage of what
you earned)
Common steps in Europe:
1- Introduction of compulsory social insurance (end 19th century)
- Developed as a workers insurance
2- Consolidation (between WWI and WWII)
3- Expansions (1945-1975: Golden age): The welfare state was expanding up until the 1970s
4- Crisis (from 1970s)
5- Transformation (from 1980s)
- Reform and retrenchment
- Modern transformations
The welfare state was in a Golden Age from 1945-1975: Seen as the first phase of the historical
development of the welfare state
Period was all about expanding the programs
After WWII most programs were centered on male breadwinners. The men had to make enough
money to support the whole family. If this income fell away, the whole family was at risk of living in
poverty
This period was characterized by high employment and low unemployment and high economic growth
Inflation = Rising prices (from 1 eu for milk to 2 eu for milk)
Stagnation = Economic growth stopping or declining
In the 70s: Inflation and stagnation at the same time Crisis
1
, Hannah van Dijk – Lectures: Social Risks in Europe – 201700151
Underlaying were processes of social change, for example, the shift from a industrial to a
post-industrial society + a shift towards the focus on responsibility of individuals instead of
government
The golden age came to an end due to the oil crises, unemployment and stagflation
After 1975: Period of retrenchment: Welfare states had to try and turn back some of the generous
policies into something that cost a lot less, because they did not have the money to keep paying for it
Its height was during the 1980s and 1990s, but unsure if this period of retrenchment has
ever ended
Retrenchment is all about lowering the costs (aka the amount of money spent on welfare state
programs) Required a lot of redistribution of state responsibility and decentralization: Shift of
responsibility from welfare states to employers and other levels of government
- Decentralization = Shifting responsibility from national levels of government to lower levels
of government
Cutting costs can be done by narrowing who is eligible for help
There is a shift from a safety net to a trampoline: Helping people to get back into the labor market
The welfare state we know today started in the 2000s
Characteristic for this: Clash between retrenchment and high welfare state popularity
o We like the welfare state/its popular, but it also needs to cut costs
Also: Continued adjustment of old social risks and pressure of new social risks
During the pandemic there has been a call for a very strong state: In a time of crisis people look for a
strong state
Since the 2000s there has been a shift towards increasingly selective policies: The eligibility is cut
even further + There have been a lot of socio-cultural and economic changes that change the welfare
states
Global recession (2008-2014): Challenged some welfare states more than others
The welfare state should provide collective protection for individual risks: The state provides safety
against risks that all individuals face
- Esping-Andersen (1999): Social policy means public management of social risks
Risk is traced back to Beck (1992) and Luhmann (1993)
Luhmann: Danger is attributable to nature, risk is attributable to social action
Beck: Uncertainty arises when individuals are no longer sure who is responsible for risks,
this can lead to a reflexive risk society
Social risks = Risks that do not result from individual choice but are (also) produced by the social
system of production
- For example: Having a child, being too old to work and needing education through whole life
Why do you need risk management?
Market failures: Risks are not evenly distributed throughout society (adverse selection)
o Adverse selection = People who think they are most likely to be affected by a certain
risk, are most likely to buy insurance and people who think they will not be affected
won’t. People with a chronic illness will buy the best insurance which will be very
expensive because people without illness will not (higher cost for those who need it
the most)
o Also: Women are able to have baby’s; thus, they will need maternal care, thus their
insurance may be higher
2
, Hannah van Dijk – Lectures: Social Risks in Europe – 201700151
Informational failures: Information asymmetry: We don’t always know who needs insurance
and when, to cover the costs of a social risk. By providing a collective protection of a social
risk, you can prevent informational failure
o Informational asymmetry = The person selling a product knows more about the
product than the buyer
o To overcome informational failure, you need collective protection for social risks:
You as the individual always know more about the situation than the insurance
company
Imperfect competition
Social risks can have collective consequences: They don’t just impact individuals
Social risks also produce social and economic inequalities
Traditional risk protection (old social risks) = Protecting against interruption of the family wage
- Breadwinner model
- External risks (unemployment, sickness, disability, old age)
Risks that are outside of the individual
Contributory schemes: Social insurance contributions dependent upon actively employed
The solidarity of this risk protection is based on self-interest: Most citizens expected they might one
day need help from the welfare state
Social solidarity strengthened by mutually supportive institutions:
- The welfare states
- Fordist employment structures: Same job for life
- Stable, nuclear families
Old social risks: Traditional welfare state/male breadwinner:
1- Unemployment
2- Occupational disability
3- Old age
4- Sickness
Shift to new social risks due to economic and social changes associated with a transition to a post-
industrial society
New social risks: Knowledge/service economy:
1- Reconciling work and family life
2- Single parenthood
3- Having a frail relative
4- Possessing low or obsolete skills
5- Insufficient social security coverage
New social risks affect more people and at a younger age than old social risks: Problematic for people
who do not have access to good education
Shift from industrial to post-industrial society caused many changes in employment: Decline in
industrial and manufacturing jobs Availability of jobs for people with lower education declines
- Also: Increase in service sector employment: As women joined the labor market they often
took jobs in service sectors (banking, household services, etc.)
- Also: Rise in part-time and temporary work
- Increase in structural unemployment = People become unemployed for 12 months or longer
and do not join the labor market again
- Shifts in solidarity: People’s willingness to pay for social risks is changing
- Demographic changes: Population ageing: More old people > working people (inverted
pyramid)
- Family changes: More diversity in family structure
3
Lecture 1 – Social risks, the welfare state and social investment
For a long time, people saw the welfare state as a broken safety net
It was put into place to protect people from all the different risks you can face in life
Welfare state is also seen as a trampoline: Not to catch people, but to help people bounce back into the
labor market
The welfare state embodies the formulation of a social guarantee: All citizens are guaranteed a
reasonable standard of living (van Doorn, 1978)
Each society has a different idea of “a reasonable standard of living”
The essence of the welfare state is government protected minimum standards of income, nutrition,
health, housing and education. These are political rights (Wilensky, 1975)
The welfare state tries to reduce the insecurities that individuals and families face in relation to
specific problematic events (sickness, old age, unemployment)
The welfare state is the most powerful institution of the 20 th century
The development started in the late 19th century: Long historical development
Welfare state is a broad concept that includes social security, health care, education, social housing
and social welfare
The development of welfare states has some important differences:
1- Historical trajectories: Due to different timing, pace and modes of industrialization; difference
in political and institutional settings; different positions of actors
2- Financing (taxes, contributions), eligibility (contribution record vs. residency or need) and
coverage (employees, general public)
- Differs across policies / welfare states
- Normally: Distinction between employees (working people) and general public
3- Benefit levels: Flat rate (= All the same amount) vs. earnings-related (= A percentage of what
you earned)
Common steps in Europe:
1- Introduction of compulsory social insurance (end 19th century)
- Developed as a workers insurance
2- Consolidation (between WWI and WWII)
3- Expansions (1945-1975: Golden age): The welfare state was expanding up until the 1970s
4- Crisis (from 1970s)
5- Transformation (from 1980s)
- Reform and retrenchment
- Modern transformations
The welfare state was in a Golden Age from 1945-1975: Seen as the first phase of the historical
development of the welfare state
Period was all about expanding the programs
After WWII most programs were centered on male breadwinners. The men had to make enough
money to support the whole family. If this income fell away, the whole family was at risk of living in
poverty
This period was characterized by high employment and low unemployment and high economic growth
Inflation = Rising prices (from 1 eu for milk to 2 eu for milk)
Stagnation = Economic growth stopping or declining
In the 70s: Inflation and stagnation at the same time Crisis
1
, Hannah van Dijk – Lectures: Social Risks in Europe – 201700151
Underlaying were processes of social change, for example, the shift from a industrial to a
post-industrial society + a shift towards the focus on responsibility of individuals instead of
government
The golden age came to an end due to the oil crises, unemployment and stagflation
After 1975: Period of retrenchment: Welfare states had to try and turn back some of the generous
policies into something that cost a lot less, because they did not have the money to keep paying for it
Its height was during the 1980s and 1990s, but unsure if this period of retrenchment has
ever ended
Retrenchment is all about lowering the costs (aka the amount of money spent on welfare state
programs) Required a lot of redistribution of state responsibility and decentralization: Shift of
responsibility from welfare states to employers and other levels of government
- Decentralization = Shifting responsibility from national levels of government to lower levels
of government
Cutting costs can be done by narrowing who is eligible for help
There is a shift from a safety net to a trampoline: Helping people to get back into the labor market
The welfare state we know today started in the 2000s
Characteristic for this: Clash between retrenchment and high welfare state popularity
o We like the welfare state/its popular, but it also needs to cut costs
Also: Continued adjustment of old social risks and pressure of new social risks
During the pandemic there has been a call for a very strong state: In a time of crisis people look for a
strong state
Since the 2000s there has been a shift towards increasingly selective policies: The eligibility is cut
even further + There have been a lot of socio-cultural and economic changes that change the welfare
states
Global recession (2008-2014): Challenged some welfare states more than others
The welfare state should provide collective protection for individual risks: The state provides safety
against risks that all individuals face
- Esping-Andersen (1999): Social policy means public management of social risks
Risk is traced back to Beck (1992) and Luhmann (1993)
Luhmann: Danger is attributable to nature, risk is attributable to social action
Beck: Uncertainty arises when individuals are no longer sure who is responsible for risks,
this can lead to a reflexive risk society
Social risks = Risks that do not result from individual choice but are (also) produced by the social
system of production
- For example: Having a child, being too old to work and needing education through whole life
Why do you need risk management?
Market failures: Risks are not evenly distributed throughout society (adverse selection)
o Adverse selection = People who think they are most likely to be affected by a certain
risk, are most likely to buy insurance and people who think they will not be affected
won’t. People with a chronic illness will buy the best insurance which will be very
expensive because people without illness will not (higher cost for those who need it
the most)
o Also: Women are able to have baby’s; thus, they will need maternal care, thus their
insurance may be higher
2
, Hannah van Dijk – Lectures: Social Risks in Europe – 201700151
Informational failures: Information asymmetry: We don’t always know who needs insurance
and when, to cover the costs of a social risk. By providing a collective protection of a social
risk, you can prevent informational failure
o Informational asymmetry = The person selling a product knows more about the
product than the buyer
o To overcome informational failure, you need collective protection for social risks:
You as the individual always know more about the situation than the insurance
company
Imperfect competition
Social risks can have collective consequences: They don’t just impact individuals
Social risks also produce social and economic inequalities
Traditional risk protection (old social risks) = Protecting against interruption of the family wage
- Breadwinner model
- External risks (unemployment, sickness, disability, old age)
Risks that are outside of the individual
Contributory schemes: Social insurance contributions dependent upon actively employed
The solidarity of this risk protection is based on self-interest: Most citizens expected they might one
day need help from the welfare state
Social solidarity strengthened by mutually supportive institutions:
- The welfare states
- Fordist employment structures: Same job for life
- Stable, nuclear families
Old social risks: Traditional welfare state/male breadwinner:
1- Unemployment
2- Occupational disability
3- Old age
4- Sickness
Shift to new social risks due to economic and social changes associated with a transition to a post-
industrial society
New social risks: Knowledge/service economy:
1- Reconciling work and family life
2- Single parenthood
3- Having a frail relative
4- Possessing low or obsolete skills
5- Insufficient social security coverage
New social risks affect more people and at a younger age than old social risks: Problematic for people
who do not have access to good education
Shift from industrial to post-industrial society caused many changes in employment: Decline in
industrial and manufacturing jobs Availability of jobs for people with lower education declines
- Also: Increase in service sector employment: As women joined the labor market they often
took jobs in service sectors (banking, household services, etc.)
- Also: Rise in part-time and temporary work
- Increase in structural unemployment = People become unemployed for 12 months or longer
and do not join the labor market again
- Shifts in solidarity: People’s willingness to pay for social risks is changing
- Demographic changes: Population ageing: More old people > working people (inverted
pyramid)
- Family changes: More diversity in family structure
3
