The Korean Journal of Economic Studies
An Empirical Study on the Effect of Composition of Social Expenditure on Employment and
Byung-Sub Cha (Korea Development Institute), Young Lee (Hanyang University)Year 2015Vol. 63No. 4
This paper empirically investigates the effects of pensions and social serviceson employment and economic growth. Social expenditure consists of variouscomponents, including pensions, public assistances, health insurances, socialservices, and active labor market polices, each of which can have differenteffects on employment and economic growth. Furthermore countries differ inthe level and composition of social expenditure due to different needs andhistory. Our empirical analysis shows that pensions have a negative effect onemployment while social services a positive effect. A one standard deviationincrease in pensions decreases employment by 1.86%p~2.97%p, and a onestandard deviation increase in social services increases employment by1.65%p~2.97%p. We also find that the effects of pensions and social serviceson economic growth are not significant. From the results of our estimations,we conjecture that the high employment in Northern European Countries isassociated with their welfare policy focused on social services. A natural policyimplication of our findings is that social services should be the key componentof social expenditure to expand employment opportunities in the process ofde-industrialization.