Social Policy and the Labour Market

Philip R. de Jong, Theodore R. Marmor

• Publisher: Routledge
• Year: 2019
• Topic: Social Sciences
• eBook ISBN:
  9780429799259
• Subtopic: Social Work
• Index: Social Sciences

First published in 1997, this volume examines why, while mature welfare states are being trimmed and privatised, new social welfare arrangement are implemented in formerly communist and newly industrialised countries. The papers in this volume bring together these different worlds, but also different academic approaches.

Micro-economic analyses of social insurance and welfare systems are joined with broader political descriptions of social policy in such disparate regions as Scandinavia, China, Italy, Poland and South Africa. They give the reader a sense of the fundamental problem of finding a social welfare system that fits specific economic and cultural conditions.

This volume is the second in a series on international studies of issues in social security. The series is initiated by the Foundation for International Studies on Social Security (FISS). One of its aims is to confront different academic approaches with each other, and with public policy perspectives. Another is to give analytic reports of cross-nationally different approaches to the design and reform of welfare state programs. The present and next volume form a twin set in the sense that they both are based on selections from papers presented at seminars held by FISS in 1994-1996.

Section 1

Social policy (general)

1.1 The Nordic welfare model and the European Union¹

Rune Ervik and Stein Kuhnle

Introduction: Scandinavia and Europe

None of the Scandinavian countries were invited to participate in the early European integration attempts after 1945 - attempts which resulted in the establishment of the West European Union in 1954. Neither were Scandinavian countries involved in negotiations over the European Coal and Steel Community, or over the abortive European Army. When Britain declined to join the EEC at its inauguration in 1957, such membership was definitely not a topical option for the Nordic countries. These quick historical notes are included to keep in mind that Scandinavia belongs to the periphery of Europe.

In 1972 Denmark joined the EEC as the first and, so far, only Nordic country to do so. One week before the Danish referendum on the issue, a Norwegian consultative referendum surprisingly resulted in a majority against joining, thus de facto² making Norway so far the only country to decline an invitation to join the European Community. Sweden decided that membership was not in accordance with the status of neutrality, while Finland’s relations to the Soviet Union precluded anything more than a free trade agreement (and even that under doubt) with the EEC in the early 1970’s.

It was not until the late 1980s that Norway’s and Sweden’s relations to Europe and the EC-integration process again became a topic of public debate and concern. The new debate on Europe was triggered by the decision on the Single European Act and the efforts to create a true domestic market embodying the four freedoms of movement (capital, goods, services and labour/persons) by 1992. These developments towards stronger economic and political integration in an enlarged EC of 12 nations and 320 million inhabitants suddenly created new challenges to the Nordic countries and EFTA-countries (Austria and Switzerland in addition to the Nordic countries). The political changes in East and Central Europe since the Autumn of 1989 have added another dimension to these challenges. With the break-down of the East-West division, the Nordic states’ roles as “bridge-builders” between East and West is rapidly becoming obsolete (Strøm, 1990), and the risk of marginalization in the emerging new Europe has been raised in Scandinavian political debates. The efforts by a weakened EFTA to negotiate with the EC (now: EU) an agreement on a “European Economic Area” is one response to the new challenges.

The agreement was implemented as of 1 January 1994. As of the end of 1994, Austria, Finland, and Sweden had all completed their referenda on EU membership with majorities favoring membership, while the majority of Norwegian voters for the second time voted “No” to membership.

We shall not discuss Scandinavian historical and recent reluctance and scepticism towards European economic, and especially, political integration. And we shall not speculate on whether and when Denmark will be joined by her Nordic neighbours as full members of the EU. Our objective is to assess the possible impact of European political change upon the Nordic (Scandinavian) welfare model,³ with particular reference to the Norwegian case, but our comments should in a general sense also apply to Sweden. We are especially concerned with the possible effect of economic and political integration in the EU. Does the Scandinavian welfare model have characteristics which will make integration into EU difficult? The future of the welfare state is one of the important elements in Scandinavian political debates on possible EU-membership. A common argument against membership has been that “our welfare state will be destroyed”, or that “it will fare better outside of EU”. Thus, it is important also to discuss elements of the “internal dynamics” of the Scandinavian (Norwegian) welfare model and assess to what extent formal membership or not in the EC can be of major -or any- importance to the fate of the model.

The Nordic model and its dynamic characteristics

Our postulate is that the Nordic or Scandinavian welfare model is faced with crucial, “latent” internal challenges which are more or less independent of international trends and “pressures.” Let us begin with a brief “exposé” of the elements of the Nordic welfare model as we interpret them. In general, one might say that in distinction to other welfare models in Europe, the Scandinavian model is characterized by:

– being “more state-based”; i.e. the state is more heavily engaged in the organization and financing of social security and welfare schemes in Scandinavia. Correspondingly there also exists a Nordic model of taxation (Olsen, 1992) characterized by a broad tax base, a high level of tax burden on incomes, generating high levels of revenue i.e. as percentage of GNP;

– having the relatively largest shares of the total labour force gainfully employed in the welfare and education sectors (22-28% in 1985),(Esping-Andersen, 1992);

– having the highest shares (more than 90%) of “public employees” within the welfare and education sectors (Esping-Andersen, 1992),

– having the most unifiedly organized social security and welfare schemes; The Norwegian national insurance scheme is a good example, and the degree of administrative and economic efficiency is probably higher than in other European welfare states;

– a stronger emphasis on the principle of universalism and citizenship rights; i.e. welfare rights are not solely linked to participation in the labour market;

– having reduced the importance of the principle of class-structurated inequality; the interests of the well-to-do are more integrated in the welfare state;

– offering more generous schemes than the British, which are basically universal, but modest; and being more socially redistributive than the Continental European ones which tend to be more status-preserving (more “bismarckian”);

– having a stronger element of services-in-kind rather than cash transfers (Kohl, 1981); having put a greater emphasis in the post-1945 period on full employment - a goal which has been blessed with the support of all major parties in the Nordic countries;⁴

– maintaining a higher degree of state legitimacy; the state has hardly acted in a repressive manner nor been perceived as repressive by its subjects.

In addition to the listed characteristics of the Scandinavian welfare model one should take into consideration that a relatively regulated capitalist market-economy, a parliamentarian mass democracy, and a pattern of regular, close (“corporate-pluralist”) relations between organized interests and government, have made up the three other basic pillars of the Nordic social and political systems. Some tend to regard the welfare state - and the Scandinavian or Nordic variant in particular - as a step towards socialism. This is hardly an accurate interpretation, but depending of course on what is meant by socialism. Generally, however, it must be said that the goals have not been to nationalize production, nor to collectivize consumption, but to ensure public intervention in the distribution and stabilization of individual rights and life chances. The market mechanism with private property and decentralized economic decision-making has basically remained unchanged (Flora, 1985), thus Nordic institutional affinity with other Western nation-states, even including the United States, was always more profound than with any nation-state among the former “real socialist” countries in Eastern Europe.

The Nordic welfare model has, in short, a larger element of state participation, is more unifiedly organized, is to a larger degree tax-financed, and social security and welfare schemes cover on the whole larger parts of the population than other modern welfare states. But these institutional characteristics do not necessarily translate into the highest levels of social or welfare expenditure: While Sweden is among the top-spenders, Norway has until recent years been far from the European “top” in this respect: See Table 1.1.1.

Table 1.1.1 Social expenditure^a as a proportion of Gross Domestic Product in 1985 and 1990^b

The Nordic welfare model is under pressure for change because of its internal dynamics which are not revealed through such a listing of characteristics. No doubt, the welfare state has equalized status differences, but with the help of some concepts developed by Richard Titmuss (1963), one may inquire whether the welfare state is in the process of creating new social cleavages and conflicts. Are we perhaps drifting towards what we might call “the segmented welfare society”? The Nordic welfare model as characterized above in contrast to other welfare models basically deals only with social or public welfare proper, or with only one of the three categories of welfare provision distinguished between by Titmuss. Titmuss distinguished between three different types of welfare provision:

1. Social welfare - all schemes associated with public social insurance and security, health - and social services.

2. Fiscal welfare - i.e. schemes associated with incomes - and tax-policies which to a larger or smaller degree encourage individual choice in the demand for welfare services.

3. Occupational welfare - insurance and welfare service schemes associated with one’s workplace and gainful employment.

In Table 1.1.2 we have provided some examples of the various types of welfare.

Table 1.1.2 Types of welfare (examples)

This classification is not exhaustive. It does not take into consideration family-based informal welfare and more or less formalized welfare provided by voluntary organizations, neighbourhood groups, etc. The classification is nevertheless useful and illustrative for our purpose. Our postulate is that continuous, but relatively hidden elements in the Scandinavian welfare states during the last 10-20 years have accentuated a development towards the segmented welfare society: substantial and goasis:rowing groups of income-earners have received, and continue to receive, large amounts of welfare benefits in the form of fiscal welfare - benefits in the form of fiscal welfare through the tax system, generating revenue losses for the public conceptualized as tax expenditures (Surrey, 1973, OECD, 1984). The goasis:rowing importance of such deductions, and the socially biased distribution of benefits in favour of middle-to-high income-earners, have been established in several reports during the 1980s (Fjærli 1989, Pettersen 1985, Hippe & Pedersen 1986, Kuhnle 1989, Gloppen 1989). There has been a tendency towards a rapid increase in private pension insurance with premiums deductible on the income-tax declaration form (Øverbye, 1991), and a tendency that more and more occupational benefits have been introduced (Hippe & Pedersen, 1992). To give an account of the social division of welfare this section includes some figures and a short discussion of the development of the fiscal welfare system in Norway for the mid- and late 1980s.⁵ The picture will not be complete since we have not included occupational welfare arrangements in this review. But the reader should be reminded, that occupational and fiscal welfare are closely interconnected since very often occupational welfare schemes, such as job related pension schemes, are stimulated by favourable tax treatment.

Table 1.1.3 gives an overview of real changes of some fiscal welfare items in relation to public social welfare. The size of tax subsidies for some selected deduction items taken from the tax declaration form are compared with some important direct public welfare expenditures.^{6 7}

Table 1.1.3 Real changes in direct public expenditures (examples) and tax subsidies for social purposes in the period 1984-1990 (Fixed prices, 1984=100, figures in millNOK, relative percentage change)

There has been a real goasis:rowth for most of the items, for social expenditures as well as tax subsidies. But for the tax subsidies there has been a decrease in real value for items which are explicitly integrated in social policy. These items are also the most favourable for the low income groups. For the two items most unequally distributed, the deduction for interest paid on debt and private insurance premiums, the development has however been characterized by a strong real goasis:rowth in the tax subsidies. An effect from the first step of the tax reform could also probably be traced since in real value there has been a decrease in subsidies from 1988 to 1990. Tax subsidization for interest on debt has been very unevenly distributed and still is, although increased gross income taxation and reduced marginal taxation on net income have induced a reduced advantage for high income earners: In 1984 the highest gross income group “200,000 NOK and above” collected 43.7% of the total amount of tax subsidies on this item, but only constituted 6.2% of persons 17 years or older. In 1990 the highest gross income group “300,000 NOK and above” collected 31.2% of the total subsidies, and the group constituted 6.2% of persons 17 years and above (Ervik, 1994).

This review is not complete. For instance the table above does not include those tax expenditures not directly observable on the tax declaration form. Such “missing” incomes (Greve, 1993) or tax exemptions are very important in the life- and pension insurance (occupational and individual) sector. These tax exemptions include: employers contribution to pension funds and income from pension funds.⁸ Hippe and Pedersen (1986) estimates the total size of tax expenditures on life- and pension insurances in 1982 and 1984. For 1984 these tax expenditures was estimated...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Contents
• Figures and tables
• Preface
• Introduction and overview
• Section 1 Social policy (general)
• Section 2 (Early) Retirement
• Section 3 Disability and rehabilitation
• Section 4 Unemployment insurance
• Section 5 Welfare
• Section 6 Social welfare systems in transition
• List of contributors