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This paper points out the importance of party competition as an explanatory factor in comparative welfare state research that is neglected by standard theories. The argument is applied to explaining the differentiation of social rights, and, more specifically, to the case of unemployment compensation in post-war Germany. The party system and the dynamics of competition that it generates determine which voters are most considered in the policy decisions of parties. Together with the structure of the labour market and the existing policies, which condition the interests of voters, this political logic shapes policy changes. Accordingly, the paper shows how centripetal party competition in Germany helps to explain the establishing of a clearly stratified but relatively inclusive system of unemployment benefits in the post-war phase of welfare state expansion. By contrast, during welfare state retrenchment centripetal competition has contributed to an increase in segmentation between benefits. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]