Abstract: The modern welfare system is essential to economic development and social cohesion of capitalist countries after WW Ⅱ. Since the 1990s, welfare system has involved in crisis, which arises from the infeasibility of full employment. Low-wage strategy can expand employment, but it faces the growing crisis of full protection. From the perspective of dynamics of skill formation, lifelong learning strategy may provide an overall solution to achieve the balance between employment and wages. The determinant of policy effectiveness lies in that capital is invested in the education system which can maximize social return. For liberal countries and corporatism countries, the children from disadvantaged families need more protection; and for social democratic countries, the control of labor market should be relaxed and private return ratio on education be improved.