Welfare states are often reduced to their role as providers of social protection and redistribution. In 1990, Esping-Andersen argued that they also affect employment creation and the class structure. We analyse the stratification outcomes for three welfare regimes – Britain, Germany and Denmark – over the 1990s and 2000s. Based on individual-level surveys, we observe a disproportionate increase among professionals and managers, and a decline among production workers and clerks. The result is clear-cut occupational upgrading in Denmark and Germany. In Britain, high and low-end service jobs expanded, resulting in a polarized version of upgrading. Growth in low-end service jobs – and thus polarization – is no precondition for full employment. Both Britain and Denmark halved their low-educated unemployment rate between 1995 and 2008. Yet low-end service jobs expanded only in Britain, not in Denmark. The cause is the evolution of labour supply: rising educational attainment means that fewer low-educated workers look for low-skilled jobs.