Social investment, social service and the economic performance of welfare states

Abstract

This article begins with an examination of the role of social services as the key instrument of social investment strategy, presenting an empirical analysis of its impact on economic performance. A pooled time series, cross-section analysis was conducted with the data of 15 welfare states from 1990 to 2007 under the 'social investment hypothesis' that more social service orientedness brings about a greater positive effect on the economy. The results show that a larger share of social service spending in the total social expenditure - more social service orientedness - contributes to economic growth and labour market performance, whereas a larger aggregate size of the welfare state may have a negative effect on employment. In conclusion, this study suggests that the relatively ambiguous welfare strategy of social investment could be clarified as a 'transition from income security to livelihood security' in which emphasis is placed on social service. Key Practitioner Message: {filled circle} This study suggests that the key instrument of social investment strategy is social service; {filled circle} The results show that more social service orientedness contributes to economic growth and labour market performance.