The effects of risk, income, and union membership on social insurance preferences
Nadja Mosimann, University of Geneva
Abstract
This article explores how risk and income affect individuals' preferences for generous and earnings-related social insurance. Moreover, it defines four ideal-typical groups of respond-ents that differ in risk exposure and income level. It then investigates how union member-ship and the correlation of income and risk at the country-level affect the formation of "so-cial insurance coalitions" between these groups. Linear and logistic regression models based on European Social Survey data from 2008 for 11 countries support my assumptions that support for generous social insurance increases with risk exposure and support for earnings-related social insurance increases with income. For union membership, I find a solidarity effect with regard to social insurance generosity and an enlightenment effect with regard to social insurance differentiation by income. Empirical analyses based on correlations at the country-level further imply that social insurance generosity becomes less likely as the in-come-risk-correlation intensifies, but that this correlation has no effect on social insurance differentiation. A coalition in support of generous social insurance is thus most likely when the income-risk-correlation is weak and unionization is strong, whereas both factors have no effect on the formation of a coalition in opposition to earnings-related social insurance.
Introduction
Existing research suggests that public opinion matters for social policy outputs (e.g., Brooks and Manza 2007).1 At least in a democratic context, generous and redistributive social insur-ance schemes thus depend on public demand for corresponding social policies and individu-als' willingness to participate in a society wide risk pool. Yet, why individuals support gener-ous and redistributive welfare is a topic widely debated and studied among political econo-mists. Recent literature stipulates the importance of individuals' economic insecurity and shows that public demand for social insurance wavers when insecurity is concentrated among low-income individuals (e.g., Rehm 2016, Rehm, Hacker, and Schlesinger 2012).
Since political participation has been shown to rise with income (e.g., Verba, Schlozman, and Brady 1995, Lijphart 1999), the increasing concentration of economic insecurity among less affluent individuals is thus not only likely to reduce electoral demand for generous and redis-tributive social insurance, but also renders the implementation of corresponding policies ultimately more complicated and unlikely.
In light of a dramatic surge in unemployment and poverty rates, precarious employment, and other forms of economic insecurity over the last decades, it seems important to understand how support for social insurance from politically pivotal groups can come about. In the ab-sence of an electorally relevant coalition in favor of generous and redistributive social insur-ance, public insurance is likely to become increasingly income-differentiated as well as un-generous, and also likely to reinforce rather than mitigate labor market inequalities. In this article, I therefore look at (i) how insurance motives related to risk exposure might explain why demand for generous social insurance is not necessarily restricted to low-income indi-viduals, (ii) how the possibility of earnings-related social insurance might lead to support for generous public insurance from high-risk individuals across income groups, and (ii) how union membership might induce support for generous and redistributive social insurance among high-income and low-risk individuals. By doing so, this article addresses two lacunae
in the existing literature on social insurance preferences: The multidimensionality of social insurance and group membership.
First, although demand for social insurance generosity has been widely studied in recent years, social insurance design encompasses (at least) another dimension that has received much less attention: Benefit differentiation by income.2 While generosity determines the degree to which welfare states provide security to individuals, differentiation defines the degree to which they do so in a redistributive way (see Goodin 1990). Earnings-related social insurance implies that the welfare provisions an individual receives depend on her previous earning, with higher benefits being allocated to higher earners. It thus follows a principle of equity emphasizing congruence between contributions made and benefits received. Con-versely, social insurance based on the principle of need result in welfare primarily provided to those in need such as low-income groups or the long-term unemployed, and social insur-ance based on a principle of equality entail flat-rate benefits for everyone irrespective of need or contribution (see Deutsch 1975, Reeskens and van Oorschot 2013).3 Social insurance design that follows a principle of equity is likely to encourage the formation of coalitions in favor of generous welfare provisions across income groups and increase high-income indi-viduals' willingness to join society wide risk pools since it entails that benefits – and not only contributions – vary across income groups (Korpi 1980, Korpi and Palme 1998).
Second, this article broadens the literature on social insurance preferences by looking at group membership in the form of trade union membership. I am not aware of research that explicitly studies the effects of union membership on social insurance preferences, but exist-ing research that controls for union membership consistently finds that membership increas-es demand for social insurance generosity (e.g., Iversen and Soskice 2001, Gelissen 2000) and decreases demand for social insurance differentiation by income (e.g., Arts and Gelissen
2001, Häusermann, Kurer, and Schwander 2015). Taking group membership into account allows me to explicitly expand existing – and often vague – assumptions about the im-portance of one's networks in the formation of social insurance preferences and risk percep-tions (e.g., Rehm 2016). On the one hand, it seems plausible that union members are better informed about their self-interest with regard to social policies than comparable non-union members. On the other hand, union members might be more supportive of generous and redistributive social insurance because unionization induces solidarity among high-income and low-risk individuals. Research at the country-level shows, at least, that unions champion solidaristic welfare, and that union strength continues to be associated with generous and redistributive public provisions (e.g., Vlandas 2011, Gordon 2015).
The remainder of this article is structured as follows: The next section presents the theoreti-cal argument and how it relates to existing literature. The second section introduces the data, operationalization, and methodological choices. The third section presents empirical findings based on linear and logistic regression analyses of European Social Survey (ESS) data from 2008 for 11 European countries and correlations at the country-level. All these empirical tests focus on unemployment insurance. Unemployment is not only a highly salient risk shaping individuals' perceptions of economic security, but also a serious threat to individuals' economic well-being since employment is the main source of income for most individuals in the labor market (Dominitz and Manski 1997, Rehm, Hacker, and Schlesinger 2012: 392). A concluding section summarizes and discusses the two main findings of this article: First, a politically relevant electoral coalition in support of generous social insurance seems most likely when a negative correlation between income and risk is only weak and unionization is strong. Second, a politically relevant coalition in support of redistributive social insurance seems unlikely irrespective of how income and risk correlate and the level of unionization in place.
Income, risk, and preferences for social insurance
Questions about individual-level determinants of preferences for generous social policy have gained prominence in studies of welfare politics in recent years after a long period in which they have been mainly focused on political institutions and structural factors (for a review, see Alesina and Giuliano 2011). Individual-level determinants widely studied include idea-tional factors (e.g., Shayo 2009, Scheve and Stasavage 2006, van Oorschot 2006, Alesina and Angeletos 2005) or economic self-interest (e.g., Ansell 2014, Alesina and La Ferrara 2005, Bénabou and Ok 2001, Moene and Wallerstein 2001). Among the latter, individuals' expo-sure to risk has become one of the factors receiving the most attention (e.g. Margalit 2013, Emmenegger et al. 2012, Mughan 2007, Rueda 2007, Cusack, Iversen, and Rehm 2006, Iversen and Soskice 2001). In a recent book, Rehm (2016, see also Rehm 2009) shows, for instance, that individuals' prospect of income loss increases support for generous social poli-cy in the area of unemployment insurance even when controlling for income.
Less attention has been paid to individuals' preferences for earnings-related welfare. Existing studies on the individual-level determinants of support for earnings-related social insurance are interested in the effects of demographic and ideological factors (e.g., van Oorschot and Meuleman 2012) or economic self-interest that seems to be the most important factor in explaining preferences for earnings-related social insurance (e.g., Aalberg 2003, Miller 1992, Swift et al. 1995). Reeskens and van Oorschot (2013, see also Arts and Gelissen 2001, d'An-jou, Steijn, and Van Aarsen 1995) find, for instance, that individuals with higher socioeco-nomic status, that is, higher income and level of education, favor social insurance based on an equity principle, whereas individuals with low socio-economic status, that is, lower in-come and level of education, support social insurance based on a need principle.
Following these previous studies, I assume that an individual's exposure to risk explains her support for generous social policy in areas related to that risk based on an insurance
argu-ment (see Baldwin 1990, Iversen and Soskice 2001, Oskarson 2007). Since "individuals are risk-averse and an individual's risk exposure shapes expected net benefits from a social insur-ance program" (Rehm 2016: 21), I expect an individual's risk exposure to positively affect her support for generous social insurance (H1). It seems equally uncontroversial to expect an individual's support for earnings-related social insurance to increase with income (H2) since I suppose attitudes towards welfare equality to equally depend on economic self-interest (see, e.g., Aalberg 2003, Miller 1992, Robinson and Bell 1978). Those with higher income are bet-ter off when welfare provisions are earnings-related, while those with lower income benefit from a more redistributive form of welfare allocation.
The income-risk-correlation and the formation of social insurance coalitions
Combining income and risk, allows me to identify four groups of individuals that differ in their exposure to risk and the level of income they earn as shown in Table 1: Group A with low income and high risk, Group B with low income and low risk, Group C with high income and high risk, and Group D with high income and low risk.4 Variations in income and risk across the four groups are likely to influence the formation of politically relevant social insurance coalitions among them. This idea builds on work by Rehm, Hacker, and Schlesinger (2012) that shows support for generous welfare to vary with the joint distribution of income and risk. They find a negative correlation between income and risk in all the coun-tries they analyze, and they observe that average support for social insurance generosity is higher in countries in which income and risk are only weakly correlated. Rehm, Hacker, and Schlesinger explain this finding by arguing that people are loss averse and high-risk individu-als are likely to endorse social insurance covering the risks that affect them, even when they have higher incomes and will bear the costs to finance such insurance. Since the group of high income-high risk individuals in support of generous social insurance is by definition
Table 1. Four ideal-typical groups differing in their exposure to risk and level of income
Risk
high low
Income low Group A Group B
high Group C Group D
larger when income and risk are only weakly correlated, average support decreases with the income-risk-correlation.
Contrary to Rehm, Hacker, and Schlesinger, I am not interested in analyzing how income and risk jointly affect support for welfare generosity. I rather hypothesize effects of risk on support for welfare generosity and effects of income on support for welfare differentiation, and I suppose that cross-pressure from risk exposure as well as the multidimensionality of social insurance enable the formation of politically relevant social insurance coalitions across income groups. The argument of Rehm, Hacker, and Schlesinger relies heavily on the notion that welfare programs are financed in a progressive way with large financial burdens on high-income groups and small ones on low-high-income groups. It thus ignores that welfare varies across income groups not only by input, that is, contributions made, but also by output, that is, benefits received. One could obviously think about joint effects of income and risk on preferences for welfare generosity and differentiation. To fully account for differences in welfare input and output, one could even include variations in tax progressivity into such an argument (see Beramendi and Rehm 2016). Both endeavors lie, however, beyond the scope of this article.
Since low income-high risk Group A will support generous and earnings-unrelated social insurance, while high income-low risk Group D will support ungenerous and earnings-related insurance, these groups will never form a coalition. The same goes for low income-low risk Group B in support of ungenerous but earnings-unrelated benefits and high
in-come-high risk Group C in support of generous but earnings-related benefits. Any other two groups have some overlapping interests and might form a coalition: Representatives of Group A could form a coalition with representatives of Group B by sacrificing some gener-osity or with representatives of Group C by accepting some benefit differentiation. Members of Group C could also form a coalition with members of Group D by sacrificing some gen-erosity, and Group B could get together with Group D by accepting some differentiation. To the extent that coalitions are strategic (see Korpi and Palme 1998), group size might not only explain which coalition is likely to be formed, but also which is likely to become politically relevant.
If median income and median risk exposure are the boundaries of the four groups and if income and risk exposure are not at all correlated, each of the four groups unites by defini-tion 25 percent of individuals in a society. Since higher earners will exert more political influ-ence in as far as political participation has been shown to increase with income, a coalition formed by the groups with low income, that is, A and B, can never prevail. This leaves the possibility of an AC coalition in favor of generous but earnings-related social insurance, as well as a CD or BD coalition in support of ungenerous and earnings-related social insurance.
It seems plausible that preferences for social insurance generosity dominate preferences for differentiation when it comes to members of high income-high risk Group C. From an in-surance perspective, the average level of security provided should be more important to them than whether they benefit from relatively more security and pay relatively more for this security than low-income individuals – even though earning-differentiation is an overall im-portant feature of social insurance that is arguably boosting high-income individuals' willing-ness to participate in society wide risk pools as already noted by Korpi and Palme (1998) or Goodin (1990). A coalition between representatives of groups C and D is thus rather
unlike-ly, as it would entail that high income-high risk Group C is willing to sacrifice benefit gener-osity for benefit differentiation.
The weaker the correlation between income and risk, the more likely are thus coalitions across income levels among either low-risk groups, that is, a BD coalition, or high-risk groups, that is, a AC coalition. If the AC coalition prevails, welfare state provisions will be generous but earnings-differentiated; if the BD coalition prevails, welfare state provisions will be ungenerous and earnings-differentiated. Even though I am not assuming that demand for social insurance generosity and equality automatically leads to the supply of such policies, it seems "inconceivable that, in democracies, the single most prominent government activity – social policy – can be performed without wide-spread support by citizens" (Rehm 2016:
12).5 As the correlation between income and risk increases, groups A and D become by defi-nition larger relative to groups B and C. If they are perfectly correlated, 50 percent of indi-viduals will belong to low income-high risk Group A, and 50 percent of indiindi-viduals will be-long to high income-low risk Group D. Due to the income bias in political influence, I ex-pect the interests of Group D to prevail when the income-risk-correlation intensifies, and social insurance to be ungenerous and earnings-differentiated in this context.
Put differently: The social insurance coalition likely to be formed and to prevail in a specific country will depend on the degree to which income and risk are negatively correlated in that specific country since this correlation defines the relative size of high income-low risk Group D. The stronger the correlation between income and risk, the bigger Group D and the more limited the possibilities for low income-high risk Group A to form a coalition in favor of generous social insurance with high income-high risk Group C by accepting some social insurance differentiation. As a consequence, I expect the supply of generous social insurance to be either stable (BC coalition to D) or decrease (AC coalition to D) as the
income-risk-correlation intensifies, whereas the supply of earnings-related social insurance should not be affected by changes in the income-risk-correlation (H3).
Union membership and social insurance preferences across income and risk groups Union density has been consistently shown to be associated with more generous and redis-tributive welfare at the country-level, and unions have been shown to pursue solidaristic social policies (e.g., Edin and Holmlund 1993, Jensen 2012, Gordon 2015). Even though I expect unions to be invested in promoting solidaristic social insurance regimes among their members and to try fostering members' support for generous and redistributive welfare (see Stjernø 2004, Hall 2017), union membership might affect preferences for social insurance in two ways: First, union membership might be a source of enlightened self-interest, that is, the notion that organized individuals have a better understanding of whether or not they stand to gain from specific social insurance designs. Second, union membership might be associat-ed with solidaristic preferences, that is, the notion that unionizassociat-ed individuals not anticipating to benefit from public insurance are willing to join the public risk pool anyway.
Arguments that link individuals' economic self-interest to their social policy preferences rely on strong rationality assumptions. Yet, research shows that individuals often fail to under-stand their objective self-interest with regard to social policy as informed by such factors as income and risk (see Postel-Vinay and Saint-Martin 2004, Sousa-Poza 2004, Cusack, Iversen, and Rehm 2006, Emmenegger 2009). Against this backdrop, a recent contribution by Iversen and Soskice (2015) defines unions as political discussion networks providing relevant infor-mation to their members and prompting them to become politically informed. Unions have been shown to not only disseminate relevant information among their members (see Francia and Bigelow 2010), but to also facilitate political discussions between union members. Both should ultimately result in a better understanding of material self-interest among union
members (see Ahlquist and Levi 2013, Iversen and Soskice 2015). According to such an enlightenment effect of union membership (H4), I expect demand for generous social insurance to be higher among unionized high-risk individuals and lower among unionized low-risk individuals than their non-unionized peers. In a similar vein, I expect union membership to increase support for earnings-related social insurance among high-income individuals and decrease it among low-income individuals. It is unclear how union membership's enlighten-ment effect would affect the formation and prevalence of social insurance coalitions, since it
members (see Ahlquist and Levi 2013, Iversen and Soskice 2015). According to such an enlightenment effect of union membership (H4), I expect demand for generous social insurance to be higher among unionized high-risk individuals and lower among unionized low-risk individuals than their non-unionized peers. In a similar vein, I expect union membership to increase support for earnings-related social insurance among high-income individuals and decrease it among low-income individuals. It is unclear how union membership's enlighten-ment effect would affect the formation and prevalence of social insurance coalitions, since it