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

10 0 Childhood Youth Family Empty nest Old age

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

a) Targeted b) Voluntary State Subsidized c) Corporatist d) Basic Security 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 pension 1948

People’s pension + ATP 1960

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 G ENERAL FAMILY SUPPORT

High Low

D UAL EARNER SUPPORT

A General family policy model C Market-oriented family policy model

Low

B D Contradictory family policy model

*

Dual earner family policy model

High

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

Family policy index 45

Dual earner family policy model

40 35 30 25 20 15 10 5 0 SWE FIN DEN NOR

General family policy model

HUN FRA BEL ITA CZE AUT GER POL SPA NET IRE

Market-oriented family policy model

UK USA

Net parental leave benefits first year

100 90 80 70 60

Dual earner model General model

50 40 30

Market-oriented model

20 10 0 NOR DEN F R A AUT GER Maternity ins urance Maternity Grant IR E C AN Dual parental ins urance UK AUS US A Childcare leave P aternity Ins urance

Generosity of paid parental leave and poverty

35

among families with infants

Poverty USA 30 25 UK 20 AUS 15 10 CAN AUT GER BEL NET FRA ITA DEN 5 0 0 20 40 60 80 r= -.826** **significant at the 0.01 level, one-tailed test Sources: LIS, SCIP FIN NOR SWE 100 Total Paid Leave

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 2 8 4 6 14 12 10 0 1993 1994 1995 1996 1997 1998 1999 2000 Public companies 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)

2,1 Source: EB 37.1 (1989) and EB 56.2 (2001) 2,0 2,3 2,2 2,5 2,4 2,7 2,6 1989 2001

Perceived Consequences of Family Formation among Europeans – EU15

Questions in Eurobarometer 1998

Cut short education Limited promotion chances Reduced working time Took a break with working life Took a job below qualifications Stopped working for good

Improved quality of life Improved social networks

Men <44 5 6 6 4 5 2 80 66 Women <44 13 23 37 41 15 25 70 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