The Nordic Welfare States: Characteristics and Challenges

Joakim Palme Institute for Futures Studies

www.framtidsstudier.se

The Characteristics of the Nordic Welfare States

Nordic model of social protection

• Universal benefits• Earnings-related social

insurance• Targeted benefits to poor• Social services

-universal-decentralized-separated from cash benefits

• Individual social rights

• Taxation• Employer contributions• Central/local taxes• Local taxes with state

subsidies• Dual-earner model

Full employment and active

labor market policies

The merits of the model

• Low life-cycle poverty

• Reduced inequalities

• High employment

• High female participation

• Strong support for social security

• Incentives and cost control?!

Equality and efficiency

• Universal coverage – combating poverty and exclusion

• Transaction costs - low with nationwide systems• Portability – good for labour mobility• Incentive structure – poverty traps avoided• Investments in health and education – productive

labour force• Stable institutions positive for growth: social rights

as property rights• Expenditure levels not the critical factor but

program design

Rowntree’s Poverty Cycle

0

10

Childhood Youth Family Empty nest Old age

Po

vert

y lo

w

-

h

igh

Strategies of Redistribution

• Tawney - Welfare State as a Strategy of Equality

• Tullock and Le Grand- middle class inclusion damages the poor

The Paradox of Redistribution

• Robin Hood• Simple Egalitarianism• Within Group

Redistribution• Mattew’s principle:

Give to those who have

d) Basic Securityc) Corporatist

b) Voluntary State Subsidized a) Targeted

e) Encompassing

Shaping the Nordic Model

• Lenski’s perspective on inequality:

- inequalities in human societies are shaped by political conflicts as well as economic structures

• The emergence of universalism

• 1930s Population crisis and Depression

• Social citizenship • Earning related social

insurance• Modern family policy

- dual earner model What about ageing

societies?

People’s pension1948

People’s pension + ATP1960

People’s pension+ ATP +Supplement 1969-

The ‘Great’ Pension Reform 1994/98

• Ageing society• Problems of cost

control• Incentive problems• Individual choice in a

compulsory system• Political compromise

in the most controversial policy field

• Defined contribution formula 18,5 % of income

• 16 % Notional Defined Contribution Accounts

• 2,5 % Fully Funded Accounts

• Pension Credits: child-rearing etc.

• Guarantee pension, no means-testing!

• Buffer funds and automatic balancing

People’s pension+ ATP +Supplement 1969-

Reformed system:Income pension and universal guarantee (+supplement)

Dimensions and Models of Family Policy

DUAL EARNER SUPPORT

A

General family policy

model

B

Contradictory family policy

model*

High GENERAL FAMILY SUPPORT

Low

C

Market-oriented family policy

model

D

Dual earner family policy

model

Low High

Family policy generosity in different models of family policy in the mid- 1990s

0

5

10

15

20

25

30

35

40

45

SWE FIN DEN NOR HUN FRA BEL ITA CZE AUT GER POL SPA NET IRE UK USA

Dual earner family policy model

General family policy model

Market-oriented family policy model

Family policy index

Net parental leave benefits first year after confinement in 2000

0

10

20

30

40

50

60

70

80

90

100

NOR DEN FRA AUT GER IRE CAN UK AUS USA

Maternity insurance Maternity Grant Dual parental insurance Childcare leave Paternity Insurance

Dual earner model

General model

Market-oriented model

2000

Generosity of paid parental leave and poverty among families with infants

AUS

NOR

USA

UK

NET

SWE

BELSWI

ITA

FRA

GER

CAN

FINDEN

AUT

0

5

10

15

20

25

30

35

0 20 40 60 80 100

Poverty

Total Paid Leave

r= -.826** **significant at the 0.01 level, one-tailed test

Sources: LIS, SCIP

Erosion of the Nordic Model

• Nominal cost limits and insurance

• Choice, segregation and no voice

• Legitimacy and support

• Reforms and trust

• Social, occupational or fiscal welfare policy

• Grand coalition?

Organisation of social services

Common trends:

Decentralization

• Consumer-financing

• Privatization – see graph right:

Employment in private provision of publicly financed social services

0

2

4

6

8

10

12

14

1993 1994 1995 1996 1997 1998 1999 2000Pro

cent

Publiccompanies

Profit

Non-profit

Welfare and welfare institutions

• Welfare:• Individual resources

making it possible to control living conditions

• Several dimensions: health, work, income, education etc

• Institutions as individual resources: state, family , market

• Misfortune: social policy challenge

Welfare institutions:

• Resoures for the individual as user

• Insurance for future needs

• Investment in the future

• Access and quality

• State, municipalities, market, voluntary sector, family

Common European Challenges

Common EU Trends in Family Formation

• Marriage Rate down• Age at First Marriage up• Age at First Birth up• Extramarital Births up• Divorce Rate up• Female Labour Force Participation up• Inequalities up• Total Fertility Rate down

Rethinking social policy in ageing societies

• Social security is strongly redistributive over the life cycle: the ageing of societies puts tough fiscal pressures on public spending

• The debate on ageing issues has been overly focussed on pension reforms and savings

• How social policy interact with fertility, education and labour supply (the future tax base) is of vital concern

• We need to reform the system of social protection in order to make it sustainable for the future

Framework for reform: increase the number of taxpayers

• Incentives; individual taxation and rights, universal benefits and earnings-related social insurance vs. means-testing,

• Human resources; lifelong learning starts at age 1

• Social services; child care, elderly care• Employment opportunities; goals and

priorities of macro-economic policy, rehabilitation in social security

Personal desired fertility, 1989 and 2001, EU 15 (except Luxembourg)

2,0

2,1

2,2

2,3

2,4

2,5

2,6

2,7

Tot

al

Men

Wom

en

Age

16-

24

Age

25-

39

Age

40-

55

Age

55+

Tot

al

Men

Wom

en

Age

16-

24

Age

25-

39

Age

40-

55

Age

55+

1989 2001

Source: EB 37.1 (1989) and EB 56.2 (2001)

Perceived Consequences of Family Formation among Europeans – EU15

Questions in Eurobarometer 1998

Men <44

Women <44

Cut short education 5 13

Limited promotion chances 6 23

Reduced working time 6 37

Took a break with working life 4 41

Took a job below qualifications 5 15

Stopped working for good 2 25

Improved quality of life 80 70

Improved social networks 66 61

What Europeans think Governments should

prioritise - to influence the number of children 1. Reducing unemployment, Flexible

working hours, Childcare

2. Family allowances, Tax advantages

3. Cost of children’s education, Housing

4. Parental leave, Maternity benefits

Source: Eurobarometer

Modernisation of European social policy should be about

recasting:

Gender and work in ageing societies

Open Method of Coordination

• Lisbon Strategy on Employment

• Sustainable pension systems

• Health insurance

• Social inclusion indicators

Why not?

• Family policy and the rights of children

Why the founding principles of social security rights are important

• How benefits are distributed: coverage and adequcay

• How social security create interest coalitions and political support

• How social security programs may contribute to increase the number of taxpayers

The European Social Model

Goals• ”The European social

model is about social inclusion and equality of opportunity.” Barrosso July 12, 2005

The European Social Model

Goal

”The European social model is about social inclusion and equality of opportunity.”

Barrosso July 12, 2005

Strategy• Middle class inclusion• Universalism• Human capital

response to ageing societies

• Employment• Equality of conditions