The distributive impact of new welfare policies in the context of old welfare institution: A multilevel analysis of income inequality across OECD countries

This thesis provides a quantitative investigation into the effect of new social policy instruments on income inequality. Income inequality has increased over recent decades in the developed world, and existing studies have shown that a high level of income inequality is related to many social problems such as low levels of social trust or high crime rates. The welfare state, which had played an important role in relieving poverty and income inequality, is now under pressure for reformation due to economic and sociological changes. Many new policy instruments have been introduced in the process of welfare reform, and this thesis focuses particularly on private pensions and an active labour market policy. Existing studies have examined the distributive outcome of these policy instruments but they have shown inconsistent results. In addition, the existing literature suffers from limitations, particularly in the failure to consider the interaction between new policy instruments and the pre-existing institutional design of the welfare state. The contribution of this study is to examine how new policy instruments affect income inequality by considering the interaction between new policy instruments and the institutional design of the traditional welfare state. Data are measured at country-level and consist of nineteen OECD countries between 1980 and 2010 (for the case of private pension), and twenty-one OECD countries between 1985 and 2010 (for the case of active labour market policy). The analysis is conducted mainly by multi-level analysis. Multi-level analysis can estimate the effect of time-invariant variables without unrealistic assumptions. The results suggest that an increase in private pensions (excluding mandatory private pension) is related to a decrease in income inequality among the elderly but that the impact is different according to the institutional design of the public pension system. An increase in private pensions is related to an increase in income inequality when the public pension has a low level of coverage and a high level of earnings-relatedness. In the case of an active labour market policy, the results suggest that an increase in spending on active labour market policy is related to a decrease in income inequality, but this relation goes in the opposite direction when the unemployment benefit is based on a targeted or flat-rate system. This thesis suggests that there is no trade-off between new policy instruments and the traditional welfare state if the traditional welfare state is well-designed.