Europe's Welfare State: Is Migration Blowing Up the System?

America never had a welfare state — Europe's social systems, by contrast, are considered a global benchmark. So how is migration now putting them to the test?

(Source: own, 2026)

Western Europe is many times more generous toward its poor and needy than the United States. European governments control nearly half of their countries' economic output. In terms of pure social spending, Europe — at over 20 percent — spends almost twice as much as the US and China, each of which allocates around 10 to 11 percent.

At the same time, European tax systems are considerably more progressive, and laws protecting lower-income segments of the population carry more weight. Europeans are, without question, very proud of their generous welfare states — and tend to look down on the US with a certain satisfaction. But is this pride justified?

Did America's Immigration History Prevent the Welfare State?

America's missing welfare state rests no less on a broad social consensus. This consensus draws from the strong protection of private property, federal structures, and the majority voting system — the "winner takes it all" principle — which makes political organization difficult for poorer segments of the population. Add to this the unshakeable belief in being able to work one's way up into the middle class through hard work. All of these developed out of American history.

The strongest explanatory framework, however, is immigration history and its effect on the formation of social contracts. Welfare states function like an intergenerational contract: parents invest in their children while they are helpless. They invest in their education in the hope that their children will care for them when they are old and no longer able to earn an income themselves. In welfare states, this works in an institutionalized way across the entire citizenry.

In an immigration society, this logic breaks down. The first generation of immigrants has no parents who invested in them. They shoulder their own retirement provision — while simultaneously caring for their children. A double burden. In a society that continuously replenishes itself from new immigrant groups, each ethnic group remains structurally the first generation — one that nobody previously invested in. The burden on the welfare state will always remain one-sided.

In the US, the first immigrant generations were the English and the Germans. They cleared the forests, tilled the fields. Why should they agree to finance all social amenities anew for each successive wave of arriving immigrants?

Diversity Doesn't Always Complement Itself

A welfare state lives on reciprocity. The principle is simple: today you are sick and cannot earn an income — I pay for you. Tomorrow I am unemployed — you pay for me. This system requires immense trust. How do I know, when I pay today, that you will pay tomorrow?

Redistribution toward constantly arriving new waves of immigrants feeds the feeling that the welfare state is a very one-sided affair. Yet this is precisely what Europe's welfare states are built on.

In America, this trust functioned for a long time — sometimes across thousands of kilometers. Swedish communities helped newcomers from the old country, as did German ones, and later Mexican, Ethiopian, or Asian communities. But this welfare state played out within communities — between people who knew each other or at least shared a history. Not between a homogeneous citizenry.

The divide is particularly persistent between very dissimilar cultures — and precisely where ethnic fragmentation is greatest.

Lessons from the US

The willingness to redistribute resources follows loyalty to one's own group. The higher the share of "one's own" people in a community, the stronger the will to redistribute — and vice versa. All too often, this boundary runs along ethnic lines.

In the US, this is particularly evident: minorities as net contributors tend to favor redistribution more when their own ethnic group benefits disproportionately — regardless of whether they are Black or white. When the other group is overrepresented, generosity declines on both sides.

Ethnic diversity undermines trust and solidarity — and not only at the national level. At the municipal level too, heavily mixed communities provide fewer public goods — schools, roads, waste and sewage disposal — and when they do, in lower quality. The more homogeneous a community, the better it looks after its citizens.

The experiences of the US are thus a warning for Europe: growing ethnic diversity can severely disrupt social equilibria and established social contracts.

A global comparison reveals a clear pattern: the more homogeneous a country's population, the higher its share of social spending as a proportion of economic output. Western European countries stand out markedly — ethnically relatively homogeneous and simultaneously characterized by high transfer payments. At the opposite end sit many developing countries with highly fragmented populations — societies in which numerous ethnicities with different languages and cultures coexist — and correspondingly low social spending. These data, however, come with a caveat: they date from 2001. Since then, the demographics of Western European countries have changed fundamentally. In Germany, just under 9 percent of the population had a migration background in 2000 — by 2025, that figure had risen to 22 million, roughly one quarter of the total population. In Sweden, one in four people had a foreign-born mother in 2020; in 2000, it was still barely one in five. Where Western Europe would stand on this curve today remains an open question — but the direction is clear. (Data source: [1])

Europe Transforms into a Continent of Immigration

While the United States is a historically evolved immigration society, Western Europeans lived for a long time behind firm, relatively closed borders. Within those borders, the world's most developed welfare states took shape. Those who managed to enter the country despite all barriers were often granted unlimited access to these welfare systems.

The shift began roughly around the turn of the millennium. After Europe had allowed its emigrants to colonize the entire world for centuries, the tide reversed — toward France, toward Britain, toward Spain. Eastern Europeans were drawn above all to the German-speaking world. Within a single generation, the number of migrants living in Europe doubled: from 30 million in 2000 to 60 million by 2018.

With migration came a rapid surge in the diversity of countries of origin. In Germany, it is primarily immigrants from Poland and Turkey that drive diversity forward; in the Baltic states, it is ethnic Russians. The new plurality and the new reality of immigration have long since exposed fractures in Western European societies. The experiences of the US suggest that this growing diversity can undermine mutual trust and solidarity — and early findings from Europe already point to a similar pattern.

The index of ethnic fractionalization measures the probability that two randomly selected individuals from a country belong to the same ethnic group. As recently as 1949, the inhabitants of the British Isles ranked among the most ethnically mixed peoples in the West. But the US, with its rising gravitational pull, began catching up rapidly and overtook Britain in the 1980s. In the Old World, ethnic diversity remained relatively constant for a long time. Only from the 1990s onward did diversity begin rising across Western Europe, drawing level with American trends. Eastern Europe experienced the opposite trajectory — the breakup of states such as Czechoslovakia and the surge of nationalism in Yugoslavia and the Soviet Union brought a turning point: practically overnight, many people suddenly found themselves living in far more homogeneous states, where the likelihood of encountering someone of a different ethnicity declined. (Data source: [2]; Link, own illustration) 

Are Times Changing?

People's attitudes and perceptions are not always driven by facts. Survey respondents tend to overestimate the number of migrants — and to misjudge their cultural and socioeconomic characteristics. This leads to an exaggerated perception of their economic dependency and, with it, a negative image of the welfare state.

Yet a clear correlation between migration and declining support for redistribution through the welfare state has long been visible in Europe too. The more immigrants arrive, and the more diverse their origins, the more native populations resist further redistribution. A striking parallel emerges: those who view migration critically also tend to be critical of redistribution in general.

In the US, these correlations are comparatively well documented — yet it is precisely in the Western European states that such studies are lacking. Several of these theoretical channels nonetheless apply to Europe as well:

Migrants increase labor supply and thus the risk of falling wages for native workers — especially in manual and physical occupations. These workers respond with a greater desire for redistribution.

Europe's Fear of Competition

For Europe overall, the picture is this: a one-percentage-point increase in the share of migrants correlates with a 0.2-percentage-point decline in support for redistribution. This holds, however, only when migrants' qualifications fall well below those of the native population. Higher-skilled migrants actually increase the desire for redistribution.

This is driven primarily by higher-skilled natives. They feel less threatened — they face little direct competition from migrants, and some even benefit from their lower-cost labor. They tend to be skeptical of redistribution in general, and a large influx of low-skilled immigrants reinforces that resistance further.

But the higher the qualification level of migrants, the stronger their own desire for a well-developed welfare state becomes. The effect is more pronounced in the private sector than in the public sector, where employees are largely shielded from labor market competition.

The primary driver behind Europe's growing demand for an expanded welfare state is thus the heightened competition from migrants in the labor market — because in an emergency, people depend on it more themselves.

Overall, however, the effects in Europe appear less severe than in the US. They are also strongest here among those who view immigration negatively in general — but even those who support migration tend toward lower approval of redistribution once immigration rises.

In Europe too, the scale and nature of immigration generate negative attitudes toward redistribution — and the resistance intensifies when immigration originates from culturally more distant groups.

Europe and Its Periphery

Significant differences persist within Europe and its periphery. When asked whether governments should take measures to reduce income inequality, 76 percent of Ukrainians, 91 percent of Turks, and 91 percent of Portuguese agreed or strongly agreed. In classic welfare states, the figures are considerably more conservative: France 81 percent, Austria 69 percent, Sweden 67 percent, and Germany 63 percent. The figure drops to just 56 percent in the Netherlands and 41 percent in Denmark. [3]

Denmark has accordingly taken the lead in reforming social benefits. The so-called "Start Aid Reform" requires labor market participation and provides unemployed migrants with benefits 10 to 40 percent lower than standard rates. The UK has similarly restricted access to income support, child benefit, and housing allowances. Migration has thus triggered a race to the bottom in welfare generosity — with the stated aim of deterring low-skilled immigrants.

Europe Socially Seals Itself Off

Yet compared to other shocks, migration unsettles Europeans' willingness to redistribute relatively little. Governments expanded social programs to cushion the effects of economic insecurity generated by immigration and globalization.

After the Global Financial Crisis of 2008, spending by Western welfare states rose considerably. The COVID-19 pandemic drove social expenditure up once again. In France, Belgium, and Denmark, social programs soon accounted for a quarter to a third of government expenditure.

The exploding costs inevitably raised the question: who should have access to all these social programs — particularly given fears that Western European welfare benefits were acting as a magnet for immigrants from the impoverished Global South?

As so often, empirical evidence is concentrated mainly in the US. Researchers used the differently designed social programs of US states as a natural experiment. They were, however, barely able to demonstrate any impact of these programs on migrants' settlement decisions. Far more decisive remains the role of social networks: migrants settle primarily where they already have contacts and where many compatriots already live.

Figure 2 Until around 2010, both the stock of immigrants and the social expenditure of wealthy industrialized nations grew steadily. Only from 2015 onward did this begin to reverse: immigration continued, but social benefits were gradually scaled back. The arrival of asylum seekers peaked around 2000, then persisted until 2015 — when a new wave broke over Europe. In 2015 and 2016 alone, the number of asylum applications in the EU more than doubled compared to previous years, reaching approximately 1.3 million annually. (Data source: [4]; own illustration, 2026)

Europe's Welfare Magnet

A similar picture emerges for Europe: here too, migrants settle primarily where acquaintances have already blazed a trail and where their labor market prospects and incomes are highest — relative to the cost of living. As in the Nordic countries of Sweden, Denmark, and Iceland.

Findings from Switzerland point in the same direction: house prices, population size, and social networks influence settlement decisions across cantons far more strongly than the generosity of their respective welfare systems.

Austria, by contrast, shows that welfare benefit reforms affect different groups of migrants in distinct ways — particularly those most dependent on social safety nets: cuts to welfare benefits do in fact deter refugees and those arriving through family reunification.

For overall migration, other factors carry far greater weight: labor market opportunities, social networks, and a sense of belonging. Europe's social systems do, however, hold a genuine pull for vulnerable groups such as asylum seekers — including in their choice of destination. Given the sheer population size of the Arab world and Africa alone, this effect is sufficient to place considerable strain on Europe's welfare systems.

The quote attributed to German journalist and war correspondent Peter Scholl-Latour captures the sentiment:

„Whoever takes in half of Calcutta does not save Calcutta — but becomes Calcutta itself.“

A Welfare Analysis of Migration

Interestingly, in Europe native workers hold a considerably more favorable view of redistribution than immigrant workers — the opposite of the US, where far less willingness to redistribute is found among the white population than among minorities.

This reluctance among immigrant workers toward redistribution stems from a clear economic rationality: those who have fought their way through without support see little reason to finance a further expansion of the welfare state for new arrivals.

Migrants are thus the great losers of subsequent migration. They rarely compete with native workers, who can secure an advantage through a combination of implicit knowledge, work experience, language skills, and — not least — discrimination.

Instead, they compete with one another. They tend to cluster in occupational fields where knowledge of the host country's social conventions or language plays a subordinate role — logistics, cleaning, manufacturing. Additional immigration drives their wages down further. Competition intensifies. The same applies to the social mobility of their children and access to affordable urban housing. [5] [6]

The greater their political voice grows, the louder their demand for more restrictive immigration policy.

The Winners: Who Succeeds in Migration?

In purely economic terms, migrants themselves rank among the great winners — those who move from a low-wage country to a high-wage country often experience a breathtaking leap in income. Wages reflect a country's productivity — and that productivity appears to make a massive jump simply by boarding a plane. Even when performing the same occupation in the host country. In practice, however, one is usually compelled to accept a job far below one's actual qualification level.

Evidently, these high wages do not reflect the individual capability of the migrant, but the productivity of the country as a whole — which emerges from the interplay of its society: its institutions, its social model, its balancing mechanisms, and the trust between individuals.

Unsurprisingly, migrants seek an environment that matches their needs. Those with lower qualifications expect a smaller wage leap than those with high qualifications. For them, migrating to countries with extensive social systems that compensate for differences through high transfers is most attractive.

The qualification profile thus differs fundamentally between migrants drawn to America and those drawn to Europe with its generous welfare systems.

Fiscal Impacts of Migration

Nevertheless, migration can also have a stabilizing effect on Europe's ageing welfare states. Migrants are, on average, younger and have higher birth rates. They thereby enlarge the working-age population and contribute directly to the system — through taxes and insurance contributions. On the other hand, they also generate costs: in healthcare, education, and indirectly through expenditure on security and policing.

The question of how to frame the cost-benefit calculation alone triggers considerable debate. Who counts as a migrant? How much of a police officer's salary can be attributed to migrants — on the grounds that they cause elevated crime rates?

A further methodological conflict arises: static studies examining a single point in time reach different conclusions than dynamic analyses covering the entire life cycle or even multiple generations. And both approaches become unstable the moment welfare systems themselves change.

A consensus does nonetheless emerge: the net effect of migration on public finances is comparatively modest — ranging from approximately minus 1 to plus 1 percent of GDP.

Where Migrants Come From — and What They Bring?

A breakdown by origin and qualification reveals clear differences. European migrants — particularly from Western Europe — make an above-average contribution to the public finances of their host countries.

Britain provides a particularly clear example: following the EU accession of eight Eastern European countries in 2004, migrants from those countries contributed more net to the British public budget in their first five years — during which they had no access to welfare benefits — than the average British household.

One important dimension is frequently overlooked in the fiscal debate — because it is hard to quantify. Migrants take on poorly paid work in many areas, such as care. Their direct tax contribution is modest — but their social contribution is considerable: affordable care services relieve the native population and enable them to pursue more productive activities. This indirect prosperity effect remains invisible in standard fiscal accounting.

Added to this: Europe's welfare states' growing dependence on migrant labor — in health, care, agriculture, and many other low-wage sectors — rarely receives the attention it deserves in public debate.

Figure 4: Denmark has drawn considerable criticism from its European partner countries for its uncompromising assimilation approach toward migrants — with Muslims in particular at the center of attention. In the relatively homogeneous Danish society, however, this is regarded as the only viable path to sustaining the welfare state over the long term. The Danish Finance Ministry — contentious as the assumptions behind such calculations may be — uses precisely these figures as justification: in 2018, migrants from non-Western countries and their descendants reportedly cost 4.9 billion USD, or 1.4 percent of Danish economic output. Those from Western countries, by contrast, made a net contribution to the public budget. These findings shifted the Danish Social Democrats' perspective on the issue. Many Muslims who arrived as refugees or through family reunification contribute, on average, no positive net contribution to the state budget over their entire life cycle.  (Sourc: [7]; own illustration, 2026)

2015 Changed Europe's Trajectory

The refugee crisis of 2015 had a further disruptive effect on European societies. The arrival of millions of people — primarily from Syria, Iraq, and Afghanistan — accelerated the rise of migration-critical parties opposed to further immigration. Almost three million refugees and migrants arrived in the EU in 2014–2016 alone, immediately overwhelming European institutions. These parties often quietly concealed plans for further cuts to social transfers within their programs.

Since then, support for redistribution has eroded most sharply precisely where the welfare state is already most developed. In Germany, support among the native population declines rapidly as the share of immigrants rises — especially in areas already suffering from high unemployment. In Sweden too, with its traditionally high redistribution, the new ethnic diversity is undermining support for social expenditure.

This welfare chauvinism in continental Europe falls most heavily on African and Muslim immigrants. In the United Kingdom it strikes everyone — Eastern and Western Europeans alike, regardless of qualification level. In-kind benefits generally attract greater public acceptance than straight cash transfers.

When the COVID-19 crisis erupted from 2020 onward, and subsequently the war in Ukraine drove living costs sharply higher — with energy prices rising by up to 87 percent for heating oil and 64.8 percent for gas in Germany alone — the trend accelerated. An ever-growing share of the population now holds the view that access to the welfare state should be restricted to members of one's own group — by nationality or ethnicity.

Figure 3: The unrestricted influx of migrants from 2015 onward represented a disruptive experience for many Europeans. Gradually, the perceived loss of control began to translate into electoral outcomes. Migration-critical parties were founded or gained momentum — and with each successive crisis, the fear of losing control deepened further, with lasting effects on attitudes toward redistribution. (Own illustration, 2026)

Europe's Paradox: Generous Within, Closed Without

For a long time, Europeans looked down on Americans for their lack of solidarity — while praising their own effusively. Yet they themselves had long been shielded from the kind of diversity that defines an immigration society, as America has been from the very beginning.

The effects of mass migration from every corner of the world are now forcing Europeans to reconsider. Within a single generation, Western Europe transformed into an immigration society. The long-term consequences remain far from clear — research has so far concentrated primarily on the United States.

Yet the first cracks are already visible in the bedrock of trust within European societies — that trust which forms the foundation of every welfare state. Each new crisis shakes it further. More and more people are questioning the established order.

Economically, migration's contribution presents a nuanced picture depending on origin and qualification level. The overall effect of migration on public budgets likely lies between minus 1 and plus 1 percent of annual economic output. At the same time, migrants' contribution to caring for a rapidly ageing population receives far too little recognition.

Europe at a Crossroads: The Future of the Welfare State

Perceptions do not always align with reality — yet in democracies they frequently shape policy decisively. Workers fear cuts to the welfare state and overburdened public services; the more affluent fear higher taxes. Both groups reject low-skilled immigrants.

Ironically, however, the more migrants compete with them on the labor market, the stronger the demand for redistribution becomes — while those migrants who have succeeded in establishing themselves reject state redistribution toward new arrivals.

European states are currently acting with striking one-sidedness on this question. A highly qualified immigrant carries the full tax burden to finance Europeans' welfare state — yet is expected to share barely in its benefits. After a prolonged illness, deportation can threaten after only a short period. He contributes to financing the ever-growing pension burden of an ageing European population — while his own parents back home remain excluded from its benefits.

Low-skilled migrants, in turn, are expected to take on the unattractive work — along with its associated instability and physical toll — while being kept out of the welfare state and barred from encroaching on the privileges of the native population.

A New European Feudal Society?

This is explosive material. Such a society begins to resemble those aristocratic class structures from which earlier European emigration societies were seeking to escape.

These developments are already reflected in a shifting political landscape. Traditional labor parties are losing ground; new ethnically motivated parties are gaining influence. Their programs, however, simultaneously imply the dismantling of social programs — including for many native citizens.

Earlier migration experiences teach us, however, that in a world of declining population, welfare states must be attractive — they compete for immigrants. Exclusive institutions for migrants alongside inclusive ones for natives are unlikely to prove sustainably viable in such a world.

How this constellation will develop in Europe remains uncertain. A volatile mix is taking shape. Many signs point toward closure — others toward considerable instability. Much will depend on the ability of those in power to mediate between groups.

Further Reading

[1] A. Alesina, E. Glaeser und B. Sacerdote, „Why Doesn't The US Have A European-Style Welfare State?,“ Harvard Institutie of Economic Research, Discussion Paper Number 1933, pp. 1-67, 2001.

[2] L. Drazanova , „Historical Index of Ethnic Fractionalization Dataset (HIEF),“ Harvard Dataverse, 2019.

[3] A. Alesina, J. Harnoss und H. Rapoport, „Immigration and the Future of the Welfare State in Europe,“ Paris School of Economics, Working Paper No. 2018 - 04, pp. 1-39, 2018.

[4] W. Allen, M. Fernandez-Reino und I. Ruiz, „Immigration And The Welfare State,“ Oxford Review of Economic Policy, Vol. 41, pp. 64-86, 2025.

[5] P. Collier und A. Hoeffler, „Migration, Diasporas and Culture: An Empirical Investigation,“ Kyklos, Vol. 71, No. 1, pp. 86-109, 2018.

[6] P. Collier, Exodus. Warum Wir Einwanderung Neu Regeln Müssen, München: Siedler-Verlag, 2016.