DENMARK: THE NORDIC WELFARE MODEL –
POSSIBILITIES AND CHALLENGES
Peter Abrahamson
University of Copenhagen
pa@soc.ku.dk
Presentation to the conference ‘the Nordic
welfare model: what’s in it for Latvia?,
Stockholm School of Economics,
Riga, Latvia, November 15th 2012
1
Introduction
Crisis symptoms are the same in
Scandinavia as elsewhere:
 Bank bankruptcies
 A ‘frozen’ housing market
 A slow down in economic activity =>
 Rapidly increasing unemployment
but unevenly severe among the
countries and with Norway as an
exception
Yet,
Well preparedness and
Robustness
2
Well preparedness: Recent welfare reforms
(the Danish example)
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 (a strong
cushioning effect)
4
The Scandinavian Welfare Regime







universal and (therefore) expensive;
tax financed;
based on public provision of both transfers
and services;
emphasizing personal social services vis-àvis 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
5
‘...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)
6
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).
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Welfare States in Times of Crisis
The so-called golden age of welfare
state development in Europe – the
period of time from the end of the
Second World War and to the first oil
shock in 1973 was, generally speaking, a
period of full employment.
Most of the Scandinavian countries
managed to maintain relatively low levels
of unemployment into the early 1990s,
but then the consequences of financial
market liberalization were felt,
particularly hard in Finland and Sweden,
but also in Iceland and Norway; and in
Denmark unemployment had been high
since the mid 1970s.
8
1970
1975
1980 1985 1990
1995
2000
2005
2008
2009
Den.
..
..
7.8
6.6
7.2
6.8
4.3
4.8
3.4
6.0
Finl.
2.6
2.9
5.3
6.0
3.2
15.1
9.6
8.3
6.4
8.2
Iceland
..
..
..
..
2.5
4.9
2.3
2.6
3.0
7.2
Norway
1.7
2.3
1.7
2.6
5.8
5.5
3.2
4.5
2.5
3.2
Sweden
1.5
1.6
2.1
2.9
1.8
8.8
5.6
7.7
6.2
8.3
OECD
..
..
..
..
6.1
7.3
6.2
6.8
6.1
8.3
9
10
The recent development has been
rather uneven in Scandinavia
before the current crisis.
While poverty increased by 75
percent in Finland and by 50
percent in Sweden from 1997 to
2008, very modest increases have
occurred in Denmark, Iceland and
Norway;
and Norway stands out as the only
country hardly affected by the
current crisis which can be
explained by its considerable oil
revenue.
However in all cases the initial levels
were very low:
11
At-Risk-of-Poverty European Union
2004
2006
2008
2010
2011
Denmark
16,5
16,7
16,3
18,3
..
Finland
17,2
17,1
17,4
16,9
17,9
Iceland
13,7
12,5
11,8
13,7
..
Norway
15,8
16,9
15,9
14,9
..
Sweden
16,9
16,3
14,9
15,0
16,1
EU-27
25,6
25,2
23,5
23,4
..
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Annual growth rate GDP
2007
2008
2009
2010
2011
2012
Denmark
1,7
-0,8
-5,8
1,3
1,1
0,5
Finland
5,3
0,3
-8,4
3,7
2,9
0,6
Iceland
6,0
1,3
-6,8
-4,0
3,1
2,4
Norway
2,7
0,0
-1,7
0,7
1,7
1,8
Sweden
3,3
-0,8
-4,8
5,8
4,0
0,9
13
14
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Table 4. Functional Distribution of Social Expenditure
in Scandinavia 2008 in Percent
Families & Children
Denmark
13
Finland Iceland Norway
12
13
13
Sweden
10
Unemployment
5
7
2
2
3
Illness
Old Age
Disability
Surviving Relatives
23
38
15
0
27
35
13
3
40
22
14
2
33
31
13
1
26
40
15
2
Housing
Social Assistance
3
3
2
2
3
3
1
3
2
2
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Table 5 Labor Market Participation Rates in Scandinavia 2009,
men and women ages 16-64
Denmark Finland Iceland Norway Sweden
Men
Women
78
74
69
68
80
76
78
74
75
71
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Absolute
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Denmark
1747
1752
1724
1735
1771
1746
1725
1760
1778
1802
1850
1909
1892
Fertility
Finland
1761
1746
1700
1735
1729
1726
1718
1760
1800
1803
1837
1829
1846
Iceland
2120
2040
2048
1994
2076
1948
1932
1990
2033
2052
2074
2094
2140
Norway
1889
1857
1814
1845
1851
1784
1754
1797
1828
1836
1904
1901
1957
Sweden
1607
1532
1511
1503
1547
1570
1653
1717
1752
1769
1854
1880
1907
18
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Denmark
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)
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Spring Package 2.0: Growth, Climate, Lower Taxes
It was expected that the tax reform would reduce
income taxes by more than 28 billion DKK =>
1½ per cent of GDP (long-term, permanent effect)
21
The tax reform will reduce marginal personal income
tax
and
Increase environmental taxes
22
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
23
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
24
Some of the changes can be summed up as:
administrative reform:
in 2011 “Payment Denmark” was established
and is expected to take over a number of
municipal case-administration areas (those
with “objective” criteria)
Free choice of technical aids for disabled has
been inroduced
Reimbursement was changed to increase
incentives for activation (30 percent for
passive periods, 50 percent for active
periods)
25
Local authorities must no later than 1. August 2011
provide a healthy luncheon in all day care institutions
(but parents have to pay)
26
Conclusion
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?
27
The many initiatives to
increase activity within
construction renovation
and building
have reduced
unemployment in the
sectors that are the
hardest hit
28
Tax reductions
disproportionately will
benefit the better off in
Denmark and hence
increase inequality
while the opposite is
expected in Sweden
29
Income poverty/relative poverty
and inequality have been on
the increase in Scandinavia
since the mid 1990s
However, given the initial 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
30
The welfare reform and other
public initiatives taken
immediately prior to and during
the current crisis in Scandinavia
were all made within a particular
Scandinavian political culture
based on consensus and
compromise and a tradition for
taking inspiration and advise
from ad hoc policy commissions
31
They were, furthermore
embedded in a culture
characterized by a high degree
of trust both in government and
in each other, which again is a
reflection of extremely low levels
of corruption that prevail in
Scandinavia.
This poses limitations to the
transferability of Scandinavian
experiences to regions with
different traditions and
conditions
32
Thank you very much for your attention!
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