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THE SCANDINAVIAN MODEL OF WELFARE:
THE CASE OF DENMARK IN THE CURRENT CRISIS
Peter Abrahamson
Seoul National University
National Taiwan University
May 25th 2009
Introduction
Crisis symptoms are the same in Denmark as
elsewhere:
Bank bankruptcies
A ‘frozen’ housing market
A slow down in economic activity =>
Rapidly increasing unemployment
Yet,
Well preparedness and
Robustness
2
Well preparedness: Recent welfare reforms
1994: Labor Market Reform
1997: Social Assistance Reform
2003: Start Allowance
2003: Welfare Reform Commission =>
2006: Welfare Reform
2007: Structural Reform:
2007: Labor Market Commission
3
Robustness
Many years of experience of handling social
integration through public intervention
The so-called Scandinavian welfare regime
4
A very peculiar time when the crisis hit Denmark
September 2008:
Unemployment rate: 1.7 percent
Employment rate (16-64 men and women) 77.4
5
The Scandinavian Welfare Regime
universal and (therefore) expensive;
tax financed;
based on public provision of both transfers and
services;
emphasizing personal social services vis-à-vis
transfers;
provides high quality provision;
has high compensation rates and is therefore
egalitarian; and
is based on a high degree of labor market
participation for both sexes
6
‘...the Nordic model is about... universalism,
generous benefits, social citizenship rights, dual-
earner model, active labor market policies, and
extensive social services’ (Joakim Palme 1999: 15) .
7
The Nordic countries are generally characterized by
publicly funded and administered programs that have
comprehensive and universal coverage and relatively
egalitarian benefit structures. Traditionally, they have
been supported by redistributive general taxes and
strong work orientations, in terms of both
programmatic emphasis on work and economic
policies that stress full employment (Duane Swank
2000: 85).
8
Total Social Expenditure 1995 - 2006
1995 2000 2005 2006
In % of GDP 31.9 28.9 30,1 29.1
Index 100 90 94 91
1995 = 100
Per capita at fixed 7.509 7.530 8.437 8.435
2006-prices PPP
€
9
Functional distribution of social expenditure in Denmark,
2007, as percentage of GDP
Sickness Invalidity Old Age Families Employme Housing Social Ass. Administra
nt tion
6.1 4.2 10.7 3.7 1.6 0.7 0.7 0.8
10
Substantial change in distribution of financing
State Municipality & Employers Employees
Region
1987 43.8 39.8 11.7 4.7
1990 49.3 36.6 8.4 5.7
1995 39.3 35.1 10.9 14.7
2000 28.6 39.8 9.8 21.8
2004 26.8 41.2 19.9 21.0
2007 21.1 40.7 17.3 20.9
11
Absolute fertility rate 1901 -2008
12
Flexicurity
13
A flexible labor market?
14
15
Indeed
the Danish labor market is very flexible
16
A Generous Unemployment Benefit System?
On paper the Danish transfer payments to
unemployed people look very good. There are no
waiting days and in principle the amount is 90
percent of prior wage or salary. However, since there
is a ceiling compensation is in average much lower:
1995 2004
Insured 67% 60%
Uninsured 47% 41%
Single parent 77% 69%
17
Generous, seems to be an exaggeration, specially
concerning social assistance
Nevertheless, the benefit period may be said to be
generous with respect to benefit period.
Within the unemployment insurance system one can
receive benefits for a total of four years including
periods of activation, and in principle social
assistance can be received indefinitely
18
Evaluating Activation Measures
Interviews with the clients revealed that half of them
did not see any aim of going through activation other
than they had to in order to keep their benefits. When
they were to judge the effects of activation they more
often pointed to issues such as improvement of their
every day life and self confidence than to issues of
being qualified for regular employment
19
There appear to be rather limited effects of activation
measures;
but one ‘curious’ effect has been identified by
economists; one which they have labeled the
‘motivation effect’,
or as it would better be understood by sociologists:
the ‘scare effect’
20
Unemployed people significantly increase their job
search and hence employment when they approach
the time of activation,
meaning that
the prospect of activation may be more effective than
activation itself
21
‘…throughout the period [from 1994 and onward] the
policy has included complementary elements of
social disciplining and social integration. There is no
doubt, however, that developments have been
shifting from a significant focus on social integration
to a much stronger emphasis on social disciplining’
(Larsen and Mailand 2007: 3)
22
Crisis governance: Government initiatives
On April 21st 2009 the newly appointed Prime
Minister, Lars Løkke Rasmusen presented the
government’s work program for the coming six
months, and stated that
‘handling of the crisis is of course the totally
dominating objective’ (Prime Minister’s Office 2009:
1; author’s translation)
23
Spring Package 2.0: Growth, Climate, Lower Taxes
It is expected that the tax reform will reduce income
taxes by more than 28 billion DKK =>
1½ per cent of GDP (long-term, permanent effect)
24
The tax reform will reduce marginal personal income
tax
and
Increase environmental taxes
25
Part of the agreement was also to return to citizens
the earlier collected compulsory pension saving
Other elements concerned grants to renovation of
own home
Enabling the municipalities to build more public
housing
In short, the exercise was to increase private
consumption substantially
26
Initiatives from the Ministry of Social Affairs
Fighting ghettoization and building more units
Reducing the number of people facing eviction
from their apartment because of arrears
Support to NGOs to establish debt counseling
services
DKK 850 million in funds to enable the
municipalities to renovate and construct ‘citizen
near’ institutions
27
Initiatives from the Ministry of Justice
A number of initiatives to combat the increasing gang
violence
Essentially of the nature of sharpening punishments
and increasing police work
28
Conclusion
With a high degree of certainty it can be expected
that the initiatives taken together will:
Increase private consumption substantially
It is, however, much more uncertain whether that will
lead to
an increase in domestic production/growth or to
an increase in imports?
29
With a high degree of certainty it can be expected
that
the many initiatives to increase activity within
construction renovation and building
will reduce unemployment in the sectors that are the
hardest hit
30
With a high degree of certainty it can be expected
that
Tax reductions disproportionately will benefit the
better off and hence increase inequality
31
Income poverty/relative poverty and inequality have
been on the increase since the mid 1990s
Gini coefficient 1996: 20
2006: 24
At-risk-of-poverty 1994: 7% (10%)
2006: 10 % (12%)
Poverty 1994: 3.6%
2006: 5%
32
Given the very low level of inequality and poverty,
and especially the very small prevalence of long-term
unemployment and long-term poverty the increases
are not expected to spill over into less social
cohesion
33
Flexicurity is delivering, yet it comes with a price:
Marginalization of the least productive
34
In line with the general idea behind the universal
welfare state that services should benefit all or most
of the population the Danish government has chosen
to govern crisis intervention to the benefit of the
population at large instead of targeting the
unemployed and the marginalized. The philosophy
seems to be that the rising tide will lift all ships, small
as well as big ones. But it could only do so because
of the very favorable situation which prevailed when
the crisis reached Denmark
35
Thank you very much for your attention
36
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