Reminder: government spending and the welfare state have no effect on the unemployment rate

Image: Unemployment rate by year according to World Bank data.

I previously addressed the common but incorrect assumption that a large welfare state necessarily results in high unemployment. Historically, there is no evidence government spending or the welfare state has any effect on unemployment; if anything, the social democratic countries have historically had lower unemployment rates than countries with neoliberal welfare states. However, the data on that page ended in 2001, so here is an update.

At the top of the page is a graph of unemployment rates of the United States and all of the developed world social democracies from 2005 to 2012 according to World Bank data. For most of this time period, the United States had the highest unemployment rate. Prior to 2008, the majority of the social democracies had a lower unemployment rate than the United States; just two of the social democracies--Sweden and Finland--had higher unemployment. Incredibly, for the duration of the Great Recession, Norway's unemployment rate never exceeded 4% and Austria managed to stay below 5%. Both countries probably remained at or near full employment during this entire time period.

Clearly, the size or structure of the welfare state has no relationship with unemployment. This is even more clear if we compare the social democracies to the neoliberal countries. This next graph compares the neoliberal group with Norway and Sweden (the social democracies with the lowest and highest unemployment rates, respectively):

Image: Unemployment rate by year according to World Bank data.


Clearly, there is no relationship between size and structure of the welfare state and unemployment. Norway again boasts the lowest unemployment rate, and of the neoliberal group, the United States had the highest unemployment rates after 2008.