The Nordic Model - Embracing globalization and sharing risks

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CONTENTS PREFACE THE AUTHORS 1 INTRODUCTION AND SUMMARY 11 1.1 A nordic model exists 13 1.2 The nordic model has performed well in the past 15 1.3 The nordic model has been conducive to good economic performance 16 1.4 Major challenges to the nordic model give rise to an urgent need for reform 19 1.5 Many proposed “solutions” are unworkable 21 1.6 An effective wage bargaining process is essential 24 1.7 Privatization and/or outsourcing of public services can contribute to efficient provision 25 1.8 Our guidelines for reform 26 2 THE NORDIC MODEL: MYTH OR REALITY? 31 2.1 Free trade and the market mechanism 32 2.2 Collective mechanisms for risk sharing 37 Endnotes 44 3 THE PERFORMANCE OF THE NORDIC MODEL 45 3.1 Employment and productivity levels 45 3.2 Growth and technology 47 3.3 Social equality 54 Annex: Growth accounting 58 Endnotes 61 4 DEMOGRAPHICS: FROM TAIL-WIND TO HEAD-WIND 63 4.1 The welfare state as a social contract 64 4.2 Ageing – the trend is turning 69 4.3 Ageing puts the public sector under financial pressure 71 4.4 Fighting a trend 73
4.5 Easy fixes? 75 4.6 Save or adjust? 78 Endnotes 81 5 WELFARE SERVICES: RISING COSTS AND INCREASING DEMAND 83 5.1 Services become more costly – the Baumol effect 83 5.2 More is expected – the Wagner effect 84 5.3 Preferences for leisure 87 5.4 An easy fix – bring services back to the family? 88 5.5 Combining the service and demographic challenges 89 5.6 Why not increase taxes? 93 5.7 The difficult road: what are the remedies to the service challenge? 99 Endnotes 101 6 THE LABOUR MARKET: ENOUGH WORKERS WORKING ENOUGH? 103 6.1 Make more people work – the extensive margin counts! 106 6.2 Work more hours, not less! 110 6.3 Unemployment benefits, workfare and activation 113 Endnotes 118 7 WAGE BARGAINING WITH MORE FLEXIBILITY 119 7.1 Uniform pay increases: for and against 120 7.2 Coordination and decentralization of wage formation 122 7.3 Wage formation and productivity 126 7.4 Taking stock – some conclusions 128 Endnotes 131 8 THE PROPER SCOPE OF THE PUBLIC SECTOR 133 8.1 The virtues of competition 136 8.2 External effects and private organization 138 8.3 The case for government provided services – missions versus profit maximization 140 8.4 The costs of bureaucracy 142
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 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 and 24: not contesting economic growth as t
Page 25 and 26: 1.6 AN EFFECTIVE WAGE BARGAINING PR
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
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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
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):
Page 167:
Is there a Nordic model? What are t
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