| |
Ethos Issue 3, Oct 2007
The Nordic Social Security Model:
Squaring the Circle?
Koh Tsin Yen
The Nordic states appear to have achieved
an enviable balance between strong economic growth and generous
welfare provisions, but they too face new pressures from globalisation.
The challenge facing many developed countries
today is how to strike a balance between preserving economic
growth, and enhancing social welfare to mitigate the ills
of economic growth. Countries face pressure on the one hand
to keep tax rates low and regulation light to stay competitive;
on the other, to raise taxes in order to fund redistributive
policies that reduce income inequality and strengthen social
security.
There has been some attention of late on
the Nordic states (Sweden, Denmark, Finland and Norway), who
appear to have found a virtuous compromise between staying
competitive and ensuring social security for their citizens.
In December 2006, an inter-ministry team from Singapore made
a study trip to Denmark and Sweden to study their social security
system. This article highlights some of our findings.
MAKING IT WORK
The Nordic social security system is based on the belief that
the state should strive to ensure equality of outcomes and
social security. Redistribution, through taxes and transfers,
is an explicit goal of Nordic social policy. Benefits are
universal, and means-testing, to the extent that it is applied,
determines only the amount of benefit a person shall receive,
not whether he should receive any benefit at all. There are
clear, publicly known rules governing how much social security
benefits someone may receive and for how long.
One of the key innovations of the Nordic
model is the reconciliation of an efficient labour market
with a comprehensive social security system. The Danish “flexicurity”
system, for example, claims to combine labour market flexibility
with employment security. (Although the term was coined by
the Danish, the system is employed to varying degrees in all
the Nordic states.) “Flexicurity” consists of
three components:
(a) a flexible labour market;
(b) generous unemployment insurance (UI) benefits; and
(c) active labour market policies/ programmes (ALMPs).
All three are necessary to balance one another.
A flexible labour market, for example in terms of hiring and
firing workers, lowers the cost of labour for employers and
enhances economic competitiveness. The uncertainty and volatility
it creates for workers is mitigated by generous UI benefits,
which are partly funded by worker contributions and mostly
by the state.
Work-based Criteria
To reduce the disincentive to work created by the UI scheme,
unemployed workers have to register at the state public employment
offices and undertake to accept the first suitable job offered
in order to receive their UI benefits. To help unemployed
workers return to the workforce as quickly as possible, they
can take part in ALMPs, which fall into four broad categories:
adult training (encompassing both formal and informal training,
work-related education and personal development programmes),
job search services (such as job matching and counselling)
and sanctions on UI benefits if the work conditions are not
complied with, incentive programmes for private sector employers
(e.g., wage subsidies), and direct employment programmes in
the public sector.
Consequently, employment churn is high:
in Denmark, for instance, worker turnover is estimated to
be about 30% in any given year, and it is considered normal
to have five or six jobs over one’s career with unemployment
spells lasting about three to five weeks. About 60% of registered
unemployed people find jobs after two months;1
22.6% of the total unemployed are considered long-term unemployed
(generally more than one year of unemployment).2
At the same time, at least 80% of workers are members in a
UI fund (85% to 90% in Sweden), even though membership is
voluntary, which is remarkable in a scheme that in theory
should be too susceptible to adverse selection to be viable
without mandatory participation.3
Partnership
with Unions
The “flexicurity” system would not be possible
without the cooperation of the “social partners”,
namely the trade unions and employers’ organisations.
However, unions are a double-edged sword: they both enable
and lock in the present labour market policy. Having the unions
on their side, for example, makes it difficult for the government
to scale back on UI benefits, as the new Swedish government
was trying to do. The union-negotiated wage forms the de facto
minimum wage, as it applies to all workers in the industry,
union member or not, citizen or foreigner.
The relationship between the government
and the unions may be changing: Although unionisation rates
are still very high, union membership is falling, in part
because the young are less interested in the unions, especially
when faced with a strong labour market, and in part because
of the growing trend in part-time and informal work. At the
time of our visit, the new Swedish government was considering
making UI fund membership compulsory, to sever the historical
link between UI fund and union membership, which would weaken
the unions.4
IIII |
|
