The Nordic Model - Embracing globalization and sharing risks

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More children may be desirable – but will not solve the problem of public finances More immigration may be helpful – but cannot realistically solve the financing problem Therefore, we do not believe it is advisable in the present Nordic context to attempt to increase tax revenue by raising further the overall tax burden of the economy. This does not exclude, of course, efficiency-enhancing tax reforms where certain taxes may be raised – in particular, perhaps, “Pigouvian” taxes like emission or congestion charges, or taxes on relatively immobile tax bases. Higher fertility – more children. The demographic challenge arises from the trend towards an ageing population with more retirees and fewer workers. Encouraging larger families with more children may sound like a straightforward solution to the demographic challenge, but as a matter of fact it is not. Increasing fertility today would actually lead to an even sharper increase in the dependency ratio over the next two decades. There would be more children to support and educate at the same time that the baby-boomers go into retirement and will become increasingly dependent on care for the elderly. In the longer run, the extra new-borns will experience the same increase in life expectancy and they will therefore not be net contributors to the welfare systems in a lifetime perspective. So, while higher fertility may be desirable for other reasons, it cannot help resolve the fiscal sustainability problem of the welfare state, particularly not over the next couple of decades. Immigration. Migration is a natural part of globalization, and flows of labour can support economic growth by, e.g., alleviating specific skill shortages. Immigration could also bring a temporary relief to the demographic challenge – but only under conditions which we believe to be politically unacceptable or unrealistic for other reasons. First, we must reserve the right to admit only young immigrants who are ready to join the labour force quickly and to accept the jobs offered. That puts high demands on the selection of immigrants with respect to age, education, health and language skills. Second, we must not admit dependents (children, parents, relatives) to come with them unless they also fulfil these criteria. Third, we need to ensure that the immigrants do not rely more on the welfare systems than the resident population, i.e. they must not have higher frequency of, for instance, sick absence, unemployment or early retirement. Even if these politically unrealistic conditions could be met, the positive effects of immigration would peter out as immigrants reach retirement age. Introduction and summary · 23
1.6 AN EFFECTIVE WAGE BARGAINING PROCESS IS ESSENTIAL The parties on the labour market can contribute towards the reforms needed to adapt the Nordic model to its challenges, particularly by introducing a more effective process of wage bargaining. Experiences from Denmark and Sweden demonstrate that a continued role for collective agreements can go hand in hand with quite individualized wage setting. The role of collective agreements could be reduced to the following tasks, which are of great importance: First, they should continue to impose industrial peace, while leaving much of the negotiations over pay to the local level. Second, central organizations need to agree on certain general conditions, notably those concerning overall working times. Third, the organizations may define rules or boundary conditions for local wage setting. We believe that there are strong reasons for individualized wage setting, which would deserve more attention also in the case of Finland: The organization of production has changed in ways which give a premium to incentives and flexibility, differently from the days of Taylorist organization. Economic shocks are increasingly firm-specific rather than general, and they therefore call for adjustment within firms. The need for flexible wage setting is also related to the large possibilities for outsourcing of particular functions and tasks. Experience in Sweden and Denmark suggests that decentralized wage formation increases wage dispersion somewhat, while reducing wage drift. On balance we think that macroeconomic stability and comprehensive social protection have changed the environment of the labour market in ways which both underline the importance of more decentralized wage setting and ensure that its consequences should be less of a concern from the point of view of workers. Collective agreements will remain important, but labour market organizations should reconsider their role The world has changed in ways which require and justify a more decentralized wage setting process – also in Finland 24 · The Nordic Model
Page 1 and 2: The Nordic Model Embracing globaliz
Page 3 and 4: ETLA B232 ISBN 978-951-628-468-5 IS
Page 6 and 7: THE AUTHORS Torben M. Andersen is P
Page 8 and 9: CONTENTS PREFACE THE AUTHORS 1 INTR
Page 10: 8.5 The future of public services -
Page 13 and 14: Globalization is primarily an oppor
Page 15 and 16: ices financed by taxes, which are h
Page 17 and 18: 14, respectively, out of a total of
Page 19 and 20: are the effects of technical change
Page 21 and 22: - and, particularly, their effect o
Page 23: not contesting economic growth as t
Page 27 and 28: etter be tried in individual cases
Page 29 and 30: The scheme of the social contract c
Page 31 and 32: is worthy and realistic. But the de
Page 33 and 34: supportive interaction of openness
Page 35 and 36: The financial deregulations in the
Page 37 and 38: horizontal axis). These indices are
Page 39 and 40: does can nowadays be seen, in a bro
Page 41 and 42: employment increases in the public
Page 43 and 44: are not at the top of the league, t
Page 45 and 46: ENDNOTES 1 Wikipedia refers to popu
Page 47 and 48: consider employment and productivit
Page 49 and 50: from the mid-1980s. Finland has gra
Page 51 and 52: % 7 6 5 4 3 2 1 0 IT expenditure, %
Page 53 and 54: As technological change is to a sig
Page 55 and 56: 3.3 SOCIAL EQUALITY Economic effici
Page 57 and 58: 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
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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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als take part in various unemployme
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Box 6.2 What is the Danish “flexi
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ENDNOTES 1 In his history of the ec
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particularly noteworthy in a euro a
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7.2 COORDINATION AND DECENTRALIZATI
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also depends on the business cycle.
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ut not in any dramatic way (cf. fig
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displays higher nominal rigidity th
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model stem from an age in which the
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mostly in the years 1980-2000. For
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Table 8.1 Government expenditure by
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ure. This selection bias alone will
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that everyone gets their worth as m
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8.3 THE CASE FOR GOVERNMENT PROVIDE
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maximizing firms tend to focus exce
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than zero based budgeting) are impe
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sectors, place at or above the medi
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The demands for objectivity limit w
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assessed case by case. The importan
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c. Vouchers Vouchers are issued by
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mechanically in the political debat
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ENDNOTES 1 The private sector inclu
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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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