As a consequence of new technology, labour markets are changing. This article’s central aim is to discuss variations among welfare states in Europe to adjust to changing labour markets. These variations in adjustment suggest that some welfare states are more prepared than others, including their capacity to ensure their sustainable financing. In the years to come, the predicted impact of technological development on labour markets will be huge. Impacts will include stronger “dualization” and new cleavages between “insiders” and “outsiders”. Fewer industrial jobs are to be expected, and service‐sector employment faces a risk of decline due to automation. While the creation of new jobs is likely, it remains to be seen whether these will replace the number of jobs destroyed, leaving the risk that many people whose skills become obsolete will become unemployed in the short as well as the longer term. Furthermore, even if the same number of jobs are eventually created, there will be a period of transition. In the light of this, welfare states will be challenged, not only in how they can finance their activities but also in terms of the threat posed to social cohesion by emerging labour market “winners” and “losers”, with an accompanying higher risk of increasing inequality. The article offers suggestions as to how welfare states may cope with the changes related to the financing of welfare states, and how active labour market policy can be part of the response to help alleviate the expected dramatic changes. Also required is a discussion on the annual average number of hours people will work and how this might be a factor in lower future levels of unemployment.