During recent decades, welfare states in advanced industrialized societies have experienced a bifurcated trajectory of reform (Kitschelt et al. 1999, Huber and Stephens 2001, Pierson 2000b). A number of countries have enacted radical measures of social policy retrenchment that have restricted the generosity and tightened the eligibility criteria for social policy benefits. In other countries, welfare state and labor market reforms have been more limited in scope. Social policy reforms have only attempted to strengthen the actuarial soundness of social insurance and to put existing social insurance programs on a firmer financial basis.

The bifurcation of these reforms is intriguing for a number of reasons. The first is that the magnitude of social policy retrenchment was much larger in the less generous and more market-conforming welfare states, such as the United Kingdom or New Zealand (Huber and Stephens 2001: 6). In contrast, the depth of retrenchment experienced by the generous welfare states of continental Europe has been more modest. The evolution of wage-bargaining arrangements and other institutions protecting labor, such as employment security regulations, reveals a similar pattern. Liberal market economies - such as the United Kingdom or the United States - have introduced the most dramatic measures deregulating labor markets and weakening the rights of organized labor (King and Wood 1999: 371). In contrast, reforms have been more modest in continental welfare states and a number of countries (such as Norway or Italy) have experienced a recentralization of the institutions of wage bargaining. The trajectory of these reforms has strengthened rather than undermined existing cross-national variation among welfare states.

A second surprising finding of these recent political developments is the broad cross-national variation in the political coalitions forged in support of or opposition to these reforms. The response of employers to these reforms has varied widely across countries. In the United Kingdom, for example, employers have strongly embraced proposals for labor market deregulation and social policy retrenchment (King and Wood 1999, Thelen 2001: 72).