The Nordic Model - Embracing globalization and sharing risks

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eplacement rates of unemployment benefits were cut at the same time. Together, those reforms are expected to increase potential employment by about 1–1.5 percentage points 8 . The effects of public policies – such as the tax and transfer system, the education system and the pension system – on the labour force participation decision of individuals is necessarily very complex. For example, the retirement policies of firms adjust in the course of time to the pension system. The important point, though, is that economic actors respond to incentives and labour market participation rates are influenced by tax and transfer schemes. Needless to say, incentives affect both employers and employees. 9 In all, we believe that increasing the labour market participation rates, in particular for the young and the elderly, is of primordial importance. The achievements in Finland leave much to be desired in this respect. In particular, the activity rates and employment rates of older individuals (in age brackets 55 to 64 years) are lower than those of Sweden and Denmark (see tables 6.1 and 6.2 and also figure 4.3 in chapter 4). For the young (15 to 24 years), both Sweden and Finland perform poorly in comparison with Denmark. This poor record of activating and employing the young and the old is clearly one main reason for Finland’s relatively lacklustre (by Nordic standards) aggregate employment rate. Table 6.1 The employment rate, aggregate and by age groups, 2006 Denmark Finland Sweden Employment rate (15 to 64 years) 77.4 69.3 73.1 Employment rate (15 to 24 years) 64.6 42.1 40.3 Employment rate (25 to 54 years) 86.1 82.4 84.7 Employment rate (55 to 64 years) 60.7 54.5 69.6 Employment rate = employed persons as a percentage of same age total population. Source: Eurostat. The labour market: enough workers working enough? · 109
Table 6.2 The activity rate, aggregate and by age groups, 2006 Denmark Finland Sweden Activity rate (15 to 64 years) 80.6 75.2 78.8 Activity rate (15 to 24 years) 69.9 51.8 51.3 Activity rate (25 to 54 years) 88.9 87.8 89.4 Activity rate (55 to 64 years) 63.2 58.5 72.8 The activity rate = persons in the labour force as a percentage of same age total population. Source: Eurostat. 6.2 WORK MORE HOURS, NOT LESS! We have emphasized the key role of the “extensive margin”, i.e. of the decision of the individual to participate or not in the labour market. Needless to say, this does not mean that the intensive margin is irrelevant; it is also important that proper incentives be in place for people to work many hours. Policy makers are in this respect confronted with a challenge, since the historical evolution of working hours has displayed (until very recently) a clear downward trend. 10 Conventional economics suggests that this is not surprising, since it is only to be expected that the demand for leisure increases along with rising income levels. After all, many consumer goods deliver their utility only if the consumer has at his/her disposal a sufficient amount of leisure. It is not our purpose to preach some stringent moral responsibility of every individual to work hard. However, we believe that the basic challenge of sustaining work incentives has not really been understood by the Nordic electorates (or politicians). There is no problem with individuals deciding freely on how much to work and how many hours of leisure to enjoy – if the price of leisure for the individual, in the form of foregone earnings, reflects the “full” cost of leisure. Yet, as we have argued, the very fabric of Nordic welfare societies is likely to distort this choice in favour of leisure. It thereby creates a potential inconsistency and a problem of (lack The preference for leisure increases along with rising income levels – which tends to reduce hours worked 110 · The Nordic Model
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The Nordic Model Embracing globaliz
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ETLA B232 ISBN 978-951-628-468-5 IS
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THE AUTHORS Torben M. Andersen is P
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CONTENTS PREFACE THE AUTHORS 1 INTR
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8.5 The future of public services -
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Globalization is primarily an oppor
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ices financed by taxes, which are h
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14, respectively, out of a total of
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are the effects of technical change
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- and, particularly, their effect o
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not contesting economic growth as t
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1.6 AN EFFECTIVE WAGE BARGAINING PR
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etter be tried in individual cases
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The scheme of the social contract c
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is worthy and realistic. But the de
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supportive interaction of openness
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The financial deregulations in the
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horizontal axis). These indices are
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does can nowadays be seen, in a bro
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employment increases in the public
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are not at the top of the league, t
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ENDNOTES 1 Wikipedia refers to popu
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consider employment and productivit
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from the mid-1980s. Finland has gra
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% 7 6 5 4 3 2 1 0 IT expenditure, %
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As technological change is to a sig
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3.3 SOCIAL EQUALITY Economic effici
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0.9 0.8 0.7 Net Fin Den 0.9 Composi
Page 59 and 60: ANNEX: GROWTH ACCOUNTING The Nordic
Page 61 and 62: sources of GDP growth in the EU15,
Page 63 and 64: 11 These decompositions have been c
Page 65 and 66: 4.1 THE WELFARE STATE AS A SOCIAL C
Page 67 and 68: The extent, coverage and quality of
Page 69 and 70: % % 80 80 60 60 40 20 0 OECD max Fi
Page 71 and 72: % 80 Total Old age % 80 60 60 40 40
Page 73 and 74: tem is seriously affected. Today, t
Page 75 and 76: Historically, however, the share of
Page 77 and 78: More children. Since the problem is
Page 79 and 80: Actually higher growth may make the
Page 81 and 82: dependency ratio driven by the baby
Page 83 and 84: 82 · The Nordic Model
Page 85 and 86: to handle much bigger fields today,
Page 87 and 88: Table 5.1 Projections of public hea
Page 89 and 90: 5.4 AN EASY FIX - BRING SERVICES BA
Page 91 and 92: Box 5.1 Growth and the welfare stat
Page 93 and 94: it implies that the long-run defici
Page 95 and 96: The level of taxation is already hi
Page 97 and 98: One may ask why this problem arises
Page 99 and 100: globalization may contribute to bot
Page 101 and 102: able to pay to seek private solutio
Page 103 and 104: 102 · The Nordic Model
Page 105 and 106: ily policies that Nordic demographi
Page 107 and 108: absolute and relative terms than hi
Page 109: in the participation decision of th
Page 113 and 114: Thus, responsible unions should res
Page 115 and 116: als take part in various unemployme
Page 117 and 118: Box 6.2 What is the Danish “flexi
Page 119 and 120: ENDNOTES 1 In his history of the ec
Page 121 and 122: particularly noteworthy in a euro a
Page 123 and 124: 7.2 COORDINATION AND DECENTRALIZATI
Page 125 and 126: also depends on the business cycle.
Page 127 and 128: ut not in any dramatic way (cf. fig
Page 129 and 130: displays higher nominal rigidity th
Page 131 and 132: model stem from an age in which the
Page 133 and 134: mostly in the years 1980-2000. For
Page 135 and 136: Table 8.1 Government expenditure by
Page 137 and 138: ure. This selection bias alone will
Page 139 and 140: that everyone gets their worth as m
Page 141 and 142: 8.3 THE CASE FOR GOVERNMENT PROVIDE
Page 143 and 144: maximizing firms tend to focus exce
Page 145 and 146: than zero based budgeting) are impe
Page 147 and 148: sectors, place at or above the medi
Page 149 and 150: The demands for objectivity limit w
Page 151 and 152: assessed case by case. The importan
Page 153 and 154: c. Vouchers Vouchers are issued by
Page 155 and 156: mechanically in the political debat
Page 157 and 158: ENDNOTES 1 The private sector inclu
Page 159 and 160: The biggest hurdle to overcome for
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ment has a higher return when spent
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REFERENCES Adema, W. and Ladaique,
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Jonung, L. and Hagberg, T. (2005):
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Is there a Nordic model? What are t
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