De nordiske velfærdsstater hvor går de hen?

De nordiske velfærdsstater hvor går de hen? Jørgen Goul Andersen Department of Political Science Aalborg University Nordisk Folkesundhedskonference Aalborg Kongrescenter, 23. aug. 2017

Welfare remains high in Scandinavia objectively and subjectively: (1) Happiness /well-being (2) Social trust (trust in people you do not know) Well-Being/ Happiness: World Happiness Report 2017 (2014-2016) 1. Norway 2. Denmark 3. Iceland 4. Switzerland 5. Finland 6. NL 7. Canada 8. New Zealand 9. Australia 10. Sweden 14. USA 16. Germany 19. UK 31. France 152. Syria 155. Central Afr.Rep. 3,462 Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at 2,693 the top. The top of the ladder represents the best possible life for you and 0 1 2 3 4 the bottom of the ladder represents the worst possible life for you. On which step of the ladder 5 would you 6say you personally 7 feel you stand 8 at this time? 6,442 6,714 6,993 6,953 7,494 7,469 7,377 7,316 7,314 7,284 7,284 7,537 7,522 7,504

But what are the prospects that this will continue in the future?

OECD: New concerns & recommendations 1994 OECD Jobs Study. Lower minimum wages + Make work pay. Employment equality trade off + Increase labour supply 2008 Growing Unequal. Income Distribution and Poverty in OECD Countries 2011 Divided we Stand. Why Inequality Keeps Rising 2015 In it Together. Why Less Inequality Benefits All 30 years of constantly increasing inequality in the rich OECD countries. Unstoppable

The Scandinavian idyll is maintained to quite a large extent... At least by comparative standards (UK was similar to Scandinavia in the 1960s, but has become quite American since then. New Zealand also had many Scandinavian traits until the late 1980s)

Denmark Czech Rep Finland Iceland Netherlands Norway Luxembourg France Slovak Rep Sweden Austria Belgium Ireland Slovenia Germany Switzerland Hungary Poland New Zealand U.K Canada Australia Portugal Italy Korea Greece Spain Estonia Japan Chile Latvia Mexico USA Turkey Israel Russia Lithuania Brazil Costa Rica India South Africa China (PRC) Source: OECD Income Distribution & Poverty database. Aug. 2017 35,0 Poverty Rates. 2014 /2015. Percentages. (less than 50 % of median disposable income) 30,0 25,0 20,0 16,8 15,0 10,0 5,0 5,5 6,3 8,1 9,0 10,9 0,0

Iceland Slovak Rep Slovenia Denmark Norway Czech Rep Finland Belgium Austria Sweden Luxembourg Latvia Hungary Germany Korea France Switzerland Ireland Poland Netherlands Canada Italy Japan Australia Portugal Greece Spain Estonia New Zealand Israel U.K. USA Turkey Chile Mexico 0,500 0,450 0,400 0,350 0,300 0,250 0,200 0,150 0,100 0,246 Gini coefficients 2014/2015 (1.00 = max. inequality. 0.00= max. equality) 0,256 0,260 0,274 0,360 0,394 Danish national figures reveal more inequality and more change, probably due to inclusion of imputed rent of homeowners as income

Denmark Finland Iceland Norway Slovenia Sweden Ireland Germany Switzerland Netherlands Czech Rep Austria Belgium U.K. Luxembourg France Hungary Poland Australia New Zealand Slovak Rep Estonia Canada Latvia Japan Portugal Greece Italy Mexico USA Chile Spain Turkey Israel 30,0 Child poverty rates (0-17 years). OECD. 2014/15. Per cent 25,0 20,0 19,9 15,0 10,0 7,2 9,2 11,2 5,0 2,9 0,0 (Swedish figure does not take account of the extremely low costs of childcare in Sweden).

Denmark France Czech Rep Netherlands Slovak Rep Luxembourg Norway Finland Spain Iceland Ireland Poland Belgium Greece Hungary Austria Canada Italy Germany Portugal Sweden New Zealand Slovenia U.K. Chile Turkey Japan Switzerland USA Israel Estonia Mexico Australia Latvia 30,0 Old age poverty rates (65 years +). Per cent 25,0 20,0 20,4 15,0 13,8 10,0 10,0 5,0 3,2 4,3 5,4 0,0

Poverty rates 1975-2015. OECD. Per cent. Sudden changes. 1975 1985 1990 1995 2000 2005 2010 2014/15 Sweden 3.8 3.3 3.6 3.7 5.3 5.3 9.1 9.7* Denmark - 6.0 6.2 4.7 5.1 5.3 6.0 5.5 Finland - 5.2 5.6 4.7 5.1 6.6 7.2 6.3 Norway - 6.4-7.1 6.3 6.9 7.5 8.1 Iceland - - - - - 6.3 6.7 6.5 NL 2.7 3.4 5.7 6.9 6.6 7.8 7.2 7.9 Germany - 5.6 5.5 7.2 7.6 9.1 8.8 9.5 France - - - 7.6 7.2 7.2 7.9 8.2 UK 6.2 6.7 13.7 10.5 11.0 12.0** 11.0 10.9 USA - - - 16.7 16.9 17.0 17.4 16.8

Gini coefficients 1975-2015. Also some rather sudden leaps forward here 1975 1985 1990 1995 2000 2005 2010 2015 Sweden 21.2 19.8 20.9 21.1 24.3 23.4 26.9 27.4 Denmark - 22.1 22.6 21.5 22.7 23.2 25.2 25.6 Finland - 20.9 21.5 22.0 25.4 26.5 26.4 26.0 Norway - 22.2-24.3 26.1 28.5 24.9 25.7 Iceland - - - - - 27.3 24.9 24.6 NL 26.3 27.2 29.2 29.7 29.2 28.4 28.3 30.3 Germany - 25.1 25.6 26.6 26.4 29.7 29.1 28.9 France - - - 27.7 28.7 28.8 30.3 29.7 UK 26.9 30.9 35.5 33.7 35.2 35.9 35.1 36.0 USA - - - 36.1 35.7 38.0 38.0 39.0

Are these changes big enough to be important?... to change the Gini coefficient by 2 points is equivalent to each person below the median transferring 7% of their own income to those above the median (OECD, Growing Unequal, 2008, p. 28)

USA. Gini coefficients & poverty rates does not reveal the changes in top incomes (Piketty: Capital in the 21 st Century; Hacker & Pierson: Winner take all-politics) Share of total increase in society s real income appropriated by the upper 10 per cent. 1980-2010 Source: Det Økonomiske Råd. E-2011. Calculations by Emmanuel Saez for Economic Council

What lies behind these trends? Usual suspects among economists: Skill-biased technological change Globalization Ageing populations Or Mainly political explanations changes in welfare and tax policy based on interests (and ideas)?

Skill-biased technological change? Not completely irrelevant for the Nordic Countries Wage dispersion also increasing in the Nordic countries But not very much Classical challenge: Invest in skills and upgrading Nordic countries have an extremely good track record in doing so

Globalization? (only the serious arguments) 1. Equality employment trade off? Unemployment among the lowest skilled normally lower in Scandinavia than in the USA. Skill bias in unemployment is typically smaller than in most other countries Employment rates among the lowest skilled, even among the lowest skilled males, are among the highest anywhere including the USA The losses of unskilled jobs in the Nordic countries is huge. But the decline in the number of unskilled workers has been equally fast due to generational replacement Not a race to the bottom, but a skill race to the top Closures or offshoring of low-skilled jobs is a precondition of switching to jobs of the top of the value chains The skill race challenge will intensify. And large-scale immigration of low-skilled refugees will aggravate the challenge. Sweden seems challenged recently.

2003 (OECD Employment Outlook) Unemployment, by educational attainment 2003. Per cent. (age 25-64) (1) Less than upper secondary (2) Upper secondary (3) Tertiary (1:3) Skill bias in unemployment % employed among lowest educated males USA 9.9 6.1 3.4 2.9 68.9 UK 6.9 3.9 2.4 2.9 61.9 Poland 25.9 17.8 6.6 3.9 45.9 France 12.1 7.5 6.1 2.0 68.3 Belgium 10.7 6.7 3.5 3.1 61.9 Austria 7.9 3.4 2.0 4.0 65.9 Germany 18.0 10.2 5.2 3.5 61.2 Denmark 7.2 4.4 4.7 1.5 71.6 Sweden 6.1 5.2 3.9 1.6 73.3 Norway 3.9 3.6 2.5 1.6 71.7 Classical picture 2000-2010. 2014 slightly modified. Skill bias in NO+SE about average. But in Sweden this reflects enormous labour force participation. Include almost everybody

Work smart and buy cheap: Denmark s terms of trade: Export prices/import prices 1948-2013. Source: Danmarks Statistik. 65 års oversigt. 2013

Globalization.. (2) Race to the bottom of corporate taxes - largely an illusion; financed by less deductions - small revenues anyway (3) Brain drain because of high taxes? Not really observable so far Economic incentives are questionable: Must consider taxes + necessary social expenditures (private or public) For the relevant age groups (less than 35 years) Cheap high quality child care is a strong economic incentive to stay in the Nordic area.

OECD Net Social Expenditures 2011. Welfare also expensive in the US. % GDP Net Net total Rank Private Gross Public Public total Expenditures Public (after tax) +Private 2011 (net) Denmark 30.1 23.4 26.1 4 2.7 Sweden 27.2 22.5 24.6 8 2.1 Norway 21.8 18.1 19.3 9 1.2 Germany 25.5 23.7 25.3 7 1.6 Netherlands 23.5 20.7 25.8 6 5.1 Belgium 29.4 25.7 27.4 3 1.7 France 31.4 27.9 31.3 1 3.4 UK 22.7 21.4 26.1 4 4.7 USA 19.0 20.1 28.8 2 8.7

Ageing 1. Pension reforms: Financing future welfare largely ensured, at least in Denmark, Norway and Sweden. 2. Ageing proceeds quite slowly in the Nordic countries: High fertility, high net migration. 3. Lower old-age dependency ratio by 2050 than in Japan 2015.

China 2015 NOR 2015 DNK 2015 SWE 2015 Italy 2015 Japan 2015 USA* Iceland* Sweden Norway Denmark U.K. Belgium China Netherlands France Austria Finland EU-28 Germany Poland Spain Italy Japan. Forever young? Projected Old age dependency ratios 2050. 65 years+ as per cent of 15-64 years old. (Eurostat, 2017) 80 70 60 50 40 30 20 10 0 13,1 33,7 28,8 31,1 24,5 44,2 50,3 51,2 54,6 36,1 37,5 37,9 39,5 39,8 40,0 41,4 41,7 42,5 45,1 45,3 45,5 62,1 62,5 75,3

Mainly political choices. Sometimes response to problem pressure. Sometimes sheer interest politics, but often guided by economic ideas Make work pay: Lower benefits for the unemployed (especially Sweden until 2015) Tax credits for employed (Denmark and Sweden) Less progressive taxes Tight conditionality for unemployed Increase labour supply: Same measures as above Pension & retirement reforms. Reforms of disability pensions. Reducing sickness leave. Sometimes a help. Sometimes a highly stressful experience. Sometimes road to poverty. Fixed retirement age (Denmark). One size fits all, despite increasing social inequality in health and life expectancy. Problem!

political choices... Welfare Chauvinism: Especially Denmark. Cuts in social assistance de facto targeted at non-western immigrants (But nobody questions access to health care, child care etc.) Improve incentives of immigrants to work (very strong instruments in Denmark 2002-11 and in particular after 2015) Some employment impact observable. But very strong poverty effects. (Enduring poverty > 3 years, excluding students, doubled in Denmark 1995-2015). Undeserving poor? Denmark since 2015 several cuts of support and increasing stigmatization of people receiving social assistance.

Democratic choices in the future... Politics not only a matter of voter preferences, but it is also a matter of voter preferences Nordic populations generally favourable to welfare Most likely scenario: Damage repair, at least for the most deserving groups But poor people are not always deserving. They are different from us the more different, the less deserving. They have not always contributed, failing to meet the deservingness criterion of reciprocity They may be considered responsible of their own situation. Increasing inequality and poverty could be self-reinforcing, generating less solidarity rather than more.

Exit as an option? Crowding in private welfare? If people experience unsatisfying public services, they may react as voters by demanding more expenditures. Or they may react by buying private welfare for themselves. 160,0 150,0 140,0 130,0 120,0 110,0 Denmark: All institutional 100,0 constraints for private welfare provision abandoned 90,0 Denmark. Public Consumption per Capita. Fixed prices. 1990=100 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Conclusion Nordic welfare states remains a role model. Extremely successful until now also economically. Problem pressure is low. Challenge of ageing is largely solved. Cope well with globalization. Swedes and Danes embrace globalization more than anyone else in the EU, according to Eurobarometer. Few exogenous challenges in the visible future. Most crises have been self-inflicted (Iceland 2008 the extreme case). But they have often paved the way for reforms inspired by prevailing neoliberal ideas in the global policy community (with Iceland as a notable exception after the 2008 crisis). Like elsewhere, there is great support for the welfare state. But changes are often irreversible. They also tend to shape people s preferences. People prefer equality, but cuts in welfare and/or higher inequality does not always generate counter-reactions. People may often tend to adapt to the new rules of the game.

Read more: Dølvik, Jon Erik, Tone Fløtten, Jon M. Hippe & Bård Jordfald (2015). The Nordic model towards 2030. A new chapter? NordMod2030. Final report. Fafo-report 2015:07 Dølvik, Jon Erik, Jørgen Goul Andersen, Juhana Vartianen (2017). The Nordic Social Models in Turbulent Times. Consolidation and Flexible Adaptation, pp. 246-286 in Jon Erik Dølvik & Andrew Martin (eds.), European Social Models from Crisis to Crisis. Employment and Inequality in the Era of Monetary Integration. Pb.ed. Oxford: Oxford University Press. Goul Andersen, Jørgen, Mi Ah Schøyen & Bjørn Hvinden (2017). Changing Scandinavian Welfare States. Which Way Forward?, pp. 89-114 in Peter Taylor-Gooby, Benjamin Leruth & Heejung Chung, eds., After Austerity. Welfare State Transformation in Europe after the Great Recession. Oxford: Oxford University Press. Goul Andersen, Jørgen (2017). Opbakningen til velfærdsstaten, Samfundsøkonomen no. 4, April 2017, pp. 25-34.

Supplement concern about equality from unexpected sources America's divisions are huge and worrying, says top hedge fund manager Ray Dalio, Chairman & Chief Investment Officer at Bridgewater Associates, L.P.

2003 (OECD Employment Outlook) Unemployment, by educational attainment 2003. Per cent. (age 25-64) (1) Less than upper secondary (2) Upper secondary (3) Tertiary (1:3) Skill bias in unemployment % employed among lowest educated males USA 9.9 6.1 3.4 2.9 68.9 UK 6.9 3.9 2.4 2.9 61.9 Poland 25.9 17.8 6.6 3.9 45.9 France 12.1 7.5 6.1 2.0 68.3 Belgium 10.7 6.7 3.5 3.1 61.9 Austria 7.9 3.4 2.0 4.0 65.9 Germany 18.0 10.2 5.2 3.5 61.2 Denmark 7.2 4.4 4.7 1.5 71.6 Sweden 6.1 5.2 3.9 1.6 73.3 Norway 3.9 3.6 2.5 1.6 71.7

Compressed wage structures and unemployment among less educated (OECD) Unemployment, by educational attainment 2010. Per cent. (OECD Employment Outlook) (1) Less than upper secondary Unemployment (age: 25-64) (2) Upper secondary (3) Tertiary (1:3) Skill bias in unemployment % employed among lowest educated men USA 16.8 11.2 5.3 3.2 61.2 UK 10.3 6.2 3.4 3.0 66.3 France 12.9 7.2 4.9 2.6 62.4 Belgium 13.2 6.6 4.0 3.3 59.2 Germany 15.9 6.9 3.1 5.1 65.5 Denmark 9.0 6.1 4.6 2.0 69.7 Sweden 11.1 6.1 4.3 2.6 73.7 Norway 5.5 2.2 1.6 3.4 68.1 (Same findings in 2003 and any year)(+harz-reforms did not help Germans much )

Compressed wage structures and unemployment among less educated (OECD) Unemployment, by educational attainment 2014. Per cent. (OECD Employment Outlook) Unemployment (age: 25-64) % employed among (1) Less than (2) Upper (3) (1:3) Skill bias lowest educated men upper sec. secondary Tertiary in Unempl. USA 10.6 7.2 3.7 2.9 66.2 UK 7.7 3.9 2.5 3.1 70.4 Poland 17.5 8.6 4.1 4.3 49.5 France 13.9 8.5 5.3 2.6 61.8 Belgium 14.3 7.3 4.2 3.4 56.1 Austria 10.8 4.5 3.7 2.9 59.1 Netherlands 10.1 7.1 3.9 2.6 70.9 Germany 12.0 4.6 2.5 4.8 67.4 Denmark 8.2 5.1 4.4 1.9 69.4 Sweden 13.2 4.9 4.0 3.3 72.7 Norway 6.7 2.4 1.9 3.5 66.5

Compressed wage structures and unemployment among less educated (OECD) change from 2003 in parantheses Labour force participation rates by educational attainments. 2014. Per cent. (OECD Employment Outlook) Labour Force particip. Rate among lowest educated (25-64 years old) Men Women USA 73.1 (-3) 47.6 ( -3) UK 76.6 (+9) 55.0 (+5) Poland 60.0 (+14) 35.6 (+4) France 71.9 (-5) 55.3 ( -4) Belgium 65.6 ( -3) 44.2 (+3) Austria 74.8 (+2) 56.1 (+4) Netherlands 78.7 ( ) 53.3 ( ) Germany 78.4 (+1) 56.5 (+6) Denmark 75.6 ( -1) 57.6 (+2) Sweden 82.8 (+5) 68.1 (+4) Norway 71.7 (-3) 60.4 (+2) Sweden: Radical approach to bring everybody into the labour market

Nearly everywhere 2012 > 1990, even as % of GDP Lower corporate taxes? (Oecd revenue statistics 2015) 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 Corporate tax as % of GDP, 1980-2012 1980 1990 2000 2012

Belgium Austria Germany France Ireland Luxemb. Finland Italy Portugal Slovenia Norway OECD-EU 22 Spain Hungary Czech Rep Sweden Greece Netherlands Slovak Rep OECD-Average Latvia USA Turkey Iceland Australia Denmark Estonia Canada U.K. Israel (1) Poland Japan New Zealand Korea Switzerland Mexico Chile Danish Income taxes are not very high 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 66,3 Marginal tax rate for average worker (single, no children). 2015. % Only three EU-22 countries below DK 55,2 50,6 48,2 43,6 42,0 Kilde: OECD (2017). Taxing Wages 2015-2016.

Overview (OECD 2017) 2015 Average tax Marginal tax Single, no children (income as per cent of average worker - AW) Low wage 67 % AW. Average 100 % AW High wage 167 % AW Family with two children 100+67 % AW. Top (Belgium) 49.4 55.3 60.7 48.1 EU 22 38.0 41.8 46.3 35.8 Denmark 34.3 36.4 42.4 31.8 Diff. Denmark EU 21-3.7-5.4-3.9-4.0 Top (Belgium) 66.3 66.3 68.5 66.3 EU 22 48.6 50.6 52.7 49.0 Denmark 39.7 42.0 55.8 42.0 Diff. Denmark EU 21-8.9-8.6 +3.1-7.0