Trade unions in the Organization for Economic Co-operation and Development (OECD) countries have traditionally supported the expansion of social policies to protect wage-earners against various risks associated with the labor market, such as illness, unemployment, and work incapacity. Comprehensive social policy arrangements also promote employees’ bargaining power across sectors and work in the public sector specifically. However, the proportion of unionized members among employees and the coverage of collective bargaining have been dwindling in most OECD countries for at least three decades. Arguably, the decline of trade unions (deunionization) has fundamentally changed their political aims. In the 21st century, the argument that modern trade unions focus primarily on advancing the interests of their existing members at the expense of employees in a more vulnerable labor market position is widely known among policy experts. For welfare states, this change in the social politics of trade unions would denote, for example, declining social and employment policy expenditure and growing income disparities.

Added to the de-unionization, the politics of welfare states has also been influenced by accelerating economic globalization. Mainly since the mid-1980s, economic globalization accelerated, whereby people, goods, capital, and services began to move more freely internationally. Initially, economic globalization was forcing welfare states to compete against each other through taxation in the open world economy. For welfare states, the internationally increasing competition over jobs and investments was seen to entail lower tax income, which can endanger publicly funded social services and transfers. At the turn of the 2000s, this race to the bottom argument was found empirically dubious. First, the small and open economies, such as the Nordic countries, had and still have tax-funded and comprehensive social policy systems. Second, there was a lack of any clear evidence of the unilateral race to the bottom among OECD countries; in the European countries, the retrenchment of social expenditure and increase of income disparities mainly concerned Great Britain in the 1980s. It became increasingly clear that, while economic globalization exacerbates the predicaments that citizens face in the labor markets, it also creates demand for social policies that aim to mitigate these increased uncertainties of human life.

Therefore, both trade unions and economic globalization have been pivotal in the analysis of social policy change in the recent decades. This dissertation contributes to the literature of contemporary social policy by bringing the empirical linkages of de-unionization and economic globalization together for comparison and evaluation for the first time.

In this dissertation, I examine the relationship of trade unions and economic globalization with social policies in the OECD countries from four perspectives: government expenditure (including all government functions ranging from defence to social services), social policy expenditure, employment policy expenditure, and income disparities. I also analyze the role of trade unionism in national economic competitiveness because of its critical importance for the finances of welfare goods and services. The research period starts in the 1980s and ends, on average, in 2013. The data cover an average of 20 OECD countries, and the research design is internationally comparative. As trade unions and economic globalization change over time, all five peer-reviewed articles in this dissertation focus on explaining the development of social policy over time in the OECD countries.

My main finding determines that, while economic globalization most likely reduces central government and employment policy spending, it increases spending on social policy. This analysis indicates that the effects of economic globalization differ substantially between types of public policy. Since social policy expenditure is more likely to expand when economic globalization intensifies, the labor market risks raised by economic globalization may increase voters' demands to compensate for the risks through social policy. Additionally, national competitiveness in the global economy fosters public finances via increased tax income, which allows more financial room to maneuvre for social policy expansion. It is likely that welfare provisions and services increase worker well-being such that spending on social policies is more often an advantage than a disadvantage in the global economy.

I further ascertain that the shrinking effect of economic globalization on employment policy expenditure is not unilateral across all OECD countries. In a sample of 19 OECD countries, the race to the bottom hypothesis most clearly relates to Sweden, Denmark, Germany, and the Netherlands. Thus, from the perspective of economic globalization, the decreasing effect on employment policy spending mainly involves the forerunners of employment policy—meaning the countries that allocated significantly more resources to employment policy in the 1980s and 1990s.

My results show no significant effects of economic globalization on income disparities. However, this does not mean that economic globalization is disconnected from income disparity development the real-world contexts. Inversely, the aspects of economic globalization that increase income disparity, such as labor market polarization, and mechanisms that reduce it, such as rising demand for social spending, act simultaneously in the analysis. In this case, the net result on the link between economic globalization and income disparities appears non-significant, although the phenomenon is explained by a much more dynamic process. Instead of economic globalization, high unemployment and labor market polarization will increase income disparities among welfare states. My analysis reveals that income disparities are most clearly reduced by comprehensive welfare state actions (e.g., high spending on social policy), strong trade unions, and stark progressive taxation.

The take-home message of my thesis is that instead of economic globalization, the weakening of the trade unions in terms of membership base and coverage of collective agreements appears to reduce social and employment policy spending and increase income disparities. Possibly, the weakening of the trade unions has affected their ability to pursue expansive social policy; perhaps trade unions’ decline in national political importance and loss of bargaining power over states and employees can explain these results. The decline in membership base and collective bargaining power may also have altered the political goals of trade unions. They may have increasingly turned their focus to the interests of a narrower group of workers, reducing the importance of comprehensive social policy to their political agenda. The current research does not distinguish between the two explanatory theories. Thus, the debate regarding the impact of the trade unions on the retrenchment of social policy and increasing income disparity is likely to continue.

Finally, my results suggest that the decline of unions may be harmful to the economic growth especially in the Continental and in the Nordic countries. Specifically, my findings imply that deunionisation may affect negatively to the functioning of the Continental and the Nordic type of capitalism, which is associated with more rapid GPD growth and a higher probability of firms moving back to their country of origin.