The Nordic Model - Embracing globalization and sharing risks

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Rothschild, M. and Stiglitz, J. (1976): Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information, Quarterly Journal of Economics. Sandmo, A. (1998): The Welfare State: a theoretical framework for justification and criticism, Swedish Economic Policy Review, Vol. 5 Nr 1, spring 1998, pp. 11–33. Sanz, I. and Coma, F. (2007): Support for Globalisation and the Welfare State, translated from Spanish, http://www.realinstitutoelcano.org/analisis/1103.asp. Sattinger, M. (1993): Assignment models of the distribution of earnings. Journal of Economic Literature 31:2, pp. 831–880. Sjöström, A.-K., Eriksson, I., Eklund, N. and Selin, J. (2006): Effektivare statlig verksamhet med private medverkan, ESV:15, Ekonomistyrningsverket, Stockholm. Thakur, S., Keen, M., Horvath, B. and Cerra, V. (2003): Sweden’s Welfare State. Can the Bumblebee Keep Flying?, IMF. Timmer, M.P., O’Mahony, M. and van Ark, B. (2007): EU KLEMS Growth and Productivity Accounts: An Overview, mimeo, available at www.euklems.net. Timmer, M.P., Ypma, G., and van Ark, B. (2003): IT in the European Union: Driving Productivity Divergence?, GGDC Research Memorandum GD-67, October. Tirole, J. (1994): The Internal Organization of Government, Oxford Economic Papers, 46: pp. 1–29. Uusitalo, R. and Hakola, T. (2001): Let’s Make a Deal – the Impact of Social Security Provisions and Firm Liabilities on Early Retirement. VATT Discussion Papers 260. Uusitalo, R. and Vartiainen, J. (2007): Firm factors in wages and wage changes. In Lazear, E. and Shaw, K. (eds.): Wage Structure, Raises and Mobility: International Comparisons of the Structure of Wages Within and Across Firms, University of Chicago Press, forthcoming. Vaittinen, R. and Vanne, R. (2006): Government Finances by Age in Finland, Finnish Centre for Pensions, Working Paper 3/2006. Westergaard-Nielsen, N. and Eriksson, T. (2007): Wage and Labor Mobility in Denmark, 1980–2000, NBER Working Paper 13064, National Bureau of Economic Research, Cambridge, MA. Guidelines for reform · 165
Is there a Nordic model? What are the main characteristics of the Nordics? What challenges are they facing? Is the Nordic welfare state viable in conditions of globalization and ageing populations? What reforms are needed? The Nordic countries have attracted much international attention in recent years. The school system in Finland has repeatedly been ranked the best in the world. The Swedish pension reform is a benchmark in the international debate. Danish “flexicurity” figures prominently on the policy agenda in the EU and the OECD. The economic performance of the Nordic countries has been impressive in comparative terms: rapid growth, high employment, price stability, healthy surpluses in government finances. The Nordics have embraced globalization and new technologies. Cross-country comparisons support the view that the Nordics have been successful in reconciling economic efficiency with social equality. While successful in the past, the Nordic model is facing increasingly serious challenges in the future. Globalization and the demographic transformation have major consequences for labour markets and the public sector. The viability of the Nordic welfare state as it exists today is put into question. This report offers an in-depth analysis of the Nordic model, explaining its key features and evaluating its performance as well as setting out its challenges. It examines many of the “quick fixes” put forward in public debate and explains why they are unrealistic or based on erroneous reasoning. The report also outlines the main elements of policy that reform of the Nordic model should focus on. ISBN 978-951-628-468-5
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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
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ANNEX: GROWTH ACCOUNTING The Nordic
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sources of GDP growth in the EU15,
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11 These decompositions have been c
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4.1 THE WELFARE STATE AS A SOCIAL C
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The extent, coverage and quality of
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% % 80 80 60 60 40 20 0 OECD max Fi
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% 80 Total Old age % 80 60 60 40 40
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tem is seriously affected. Today, t
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Historically, however, the share of
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More children. Since the problem is
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Actually higher growth may make the
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dependency ratio driven by the baby
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82 · The Nordic Model
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to handle much bigger fields today,
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Table 5.1 Projections of public hea
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5.4 AN EASY FIX - BRING SERVICES BA
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Box 5.1 Growth and the welfare stat
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it implies that the long-run defici
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The level of taxation is already hi
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One may ask why this problem arises
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globalization may contribute to bot
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able to pay to seek private solutio
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102 · The Nordic Model
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ily policies that Nordic demographi
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absolute and relative terms than hi
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in the participation decision of th
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Table 6.2 The activity rate, aggreg
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Thus, responsible unions should res
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Page 119 and 120: ENDNOTES 1 In his history of the ec
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Page 123 and 124: 7.2 COORDINATION AND DECENTRALIZATI
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Page 127 and 128: ut not in any dramatic way (cf. fig
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Page 135 and 136: Table 8.1 Government expenditure by
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Page 141 and 142: 8.3 THE CASE FOR GOVERNMENT PROVIDE
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Page 157 and 158: ENDNOTES 1 The private sector inclu
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Page 161 and 162: ment has a higher return when spent
Page 163 and 164: REFERENCES Adema, W. and Ladaique,
Page 165: Jonung, L. and Hagberg, T. (2005):
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