The European welfare state is a boogeyman for conservatives and a panacea for the left. It is defined differently by different people, but it has distinctive features on which most agree:
- The state’s share of the economy (as captured by spending) is fifty percent or above,
- The major portion of this spending is for welfare programs,
- Regulation of the labor market is pervasive, and
- The welfare state is largely paid for by taxes on labor.
Public spending in France, Italy and Sweden is in the mid fifties and half or more of that spending is for social welfare. The traditionally frugal Germany is currently at a “modest” 48 percent of GDP. Payroll taxes as a percent of labor costs are 39 percent in France, 33 percent in Germany and 31 percent in Italy. In these countries, unemployment benefits are an entitlement for the long-term unemployed, health care is paid for out of payroll taxes but is an entitlement for those not working, and there are extensive protections against firings and layoffs.
