Industrial Relations, Social Pacts and Welfare Expenditures: A Cross-national Comparison

Industrial relations and welfare state are interrelated. On the basis of time‐series data for 20 OECD countries, this paper discusses and tests the impact of industrial relations on social expenditures, including ‘social pacts’ as a means of combining wage moderation and welfare state reforms. The findings suggest that industrial relations have an impact mainly through the differential effects of distinct bargaining systems: a minor impact results from their externalities. The major impact ensues from their differing degrees of politicization, leading to higher expenditures in the case of peak‐level arrangements, as compared to more decentralized systems. Hence, the widely assumed potential of social pacts for welfare state reforms has been exaggerated.