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Chapter Summary

Katz, Michael (2001). The Private Welfare State and the End of Paternalism, Chapter 7 in The Price of Citizenship: Redefining the American Welfare State. New York: Metropolitan Books.

The private welfare state refers to work-related benefits, mainly those offered by employers to their workers. Since it began, private welfare has provided a huge amount of security to American workers and their families, but because it is not universal, it has intensified inequalities. The degree of protection provided by employers is constantly changing, the trend in most recent decades being a general rollback of benefits. This is due to the decline of manufacturing employment, lower benefits, reduced union strength, massive layoffs, and increased part-time jobs. Also, corporations have ended the paternalistic relationship with their employees that existed for most of the 20th century by offering fewer benefits, and shifting the burden of paying for benefits onto the employees themselves.


The private welfare state began in the late 19th century when employers started to offer pensions to their employees, as a means of stabilizing the workforce. The national government also promoted the spread of pensions with tax incentives.

From pensions, private welfare expanded into comprehensive programs. These industrial strategies included improved safety and conditions, plans to help workers buy property, save at high interest rates, earn bonuses and purchase stock. Insurance against accidents, illness, old age, and death was added. These plans transformed the management of labor and created the specialty field of personnel management.

In the 1950s and 60s, the growth of private welfare led to a public-private trade-off. Unionized workers enjoyed protection, and this undermined support for universal public benefits that would go to all.


According to one estimate, pension plans hold about one-quarter of national wealth. They are supported by a web of federal regulations, but are provided voluntarily by firms. The private welfare state is vast, decentralized, complex and chaotic.


The inequalities built into the employer benefit structure are constantly widening. The new global economy has shifted firms focus from the goal of keeping employees long-term, to focus on short-term ventures. Small firms and organizations with network cultures (highly flexible, innovative, and transitory) offer the least benefits, and the number of these firms is increasing. Part-time and low wage workers fare the worst. Employer benefits once helped to close part of the pay gap between workers, but by the 1990s they reinforced growing wage inequality.

The End of Paternalism

Corporate philosophy has changed from paternalism, or the desire of a firm to take care of its workers for the purpose of maintaining them and their productivity, to shifting responsibility for their welfare to the workers themselves. The goal is to end the entitlement mentality. Increasingly, benefit programs are changing from defined benefit to defined contribution, in which employees contribute to their own pensions and insurance. One example is a 401(k) plan, in which employees can deposit some of their earnings for investment. Katz emphasizes that using such a market model introduces the element of risk, which is contrary to the very idea of security in pensions.

This shift is often referred to by corporations as fostering a more adult relationship with their employees. Concludes Katz, the end of paternalism helped employers design flexible new strategies for competition in the global market-place; it also left employees increasingly vulnerable to the insecurities of unemployment, sickness, and old age.