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Welfare entitlements programs and innovation: do more generous states promote more innovation?
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DOI：10.1007/s11187-026-01244-1.png)
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Abstract
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This paper investigates the relationship between welfare entitlement programs and innovation outputs using a novel dataset on comparative welfare generosity across 22 countries from 2013 to 2020. We use measures of welfare generosity for three core entitlement programs—unemployment, sickness, and pension benefits—and examine their effects on innovation outputs, as captured by the Global Innovation Index. Our empirical analysis reveals a significant inverted U-shaped relationship between total welfare generosity and innovation output, suggesting more generous welfare states promote innovation, but only up to a point. Disaggregating by program type, we find this non-linear pattern is driven primarily by pension generosity, while unemployment benefits display a U-shaped relationship, and sickness benefits show no significant association. Furthermore, we explore heterogeneity across different types of innovation and find that the positive effects of welfare generosity are more pronounced for creative outputs than for knowledge-based ones. Our results are robust to alternative model specifications, including random- and fixed-effects models, lagging welfare generosity up to 10 years, as well as to using alternative innovation measures from the Global Entrepreneurship Monitor. Countries with moderate welfare benefits—not too little, not too much—produce the most innovation. In this study, we analyze 22 countries from 2013 to 2020 and find an inverted U-shaped relationship between welfare generosity and innovation output, suggesting that increasing social benefits increases national innovation but only up to a point, beyond which further generosity becomes counterproductive. However, we find that this pattern is primarily driven by pension programs and is stronger for creative outputs than knowledge-based ones. We also find that unemployment benefits show the opposite (U-shaped) pattern, while sickness benefits have no significant effect. Our findings suggest that designing welfare systems to maximize innovation involves trade-offs between various programs and finding the optimal level for each type of benefit.
Keywords:
Welfare generosity
Innovation outputs
Comparative welfare entitlements
Entrepreneurship
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