Rodrik on why deindustrialisation may be a problem…It is fair to say that the implications for the welfare state are not positive either.
Politically, deindustrialisation removes one of the major constituency behind the expansion of the welfare state. It also makes it harder for trade unions to organise labour.
From an economic perspective, earlier literature had pointed out the role of industrialisation in the emergence of the welfare state. Limited unemployment makes it easier to introduce unemployment insurance. Productivity growth formed the basis for wage increases thereby expanding the revenues of governments.