The Nordic Welfare Model and the Refugee Crisis: Buffer or Weakness?

social justice reportAnne Skevik Grødem, research director at the Institute for Social Research in Oslo. In collaboration with Bertelsmann Stiftung.

Demanding labor markets, high social benefits – many people believe that the universal Nordic welfare states may be less able to face the challenges of migration than other countries. But does empirical evidence support this view?

The Nordic countries tend to be found near the top when levels of living, redistribution and social inclusion are measured and ranked. In the Bertelsmann Stiftung’s latest EU Social Justice Index Sweden, Denmark and Finland occupy the first three positions in the ranking.

The inclusive Nordic welfare model, and its long tradition for social investment, has been discussed with fascination and often admiration for decades. But in the current situation, with unprecedented high levels of migration to Europe, new concerns emerge: can this model survive a mass influx of “outsiders”?

The Nordic countries have seen very high levels of immigration in recent years, both as labour migration from the European Economic Area (EEA) and as humanitarian migration from third countries.

The different countries have chosen different approaches to migration management: Sweden has gained a reputation as one of the most liberal countries in Europe, Denmark as one of the strictest. When it comes to migration management, there can be no talk of a distinct and unified Nordic model.

The challenges facing the welfare states are however similar: how can comprehensive and inclusive welfare states absorb thousands of immigrants, often with limited laboor market skills and different cultural and religious beliefs?

This can be seen as a challenge to all European countries in the current situation, but given the universal nature of the Nordic welfare states it can be argued that the challenges are written particularly large here. On the other hand, it can also be argued that the Nordic model, with its emphasis on activation and inclusion, has unique strengths when it comes to integrating newcomers.

SJI-2015

Nordic labor markets may pose a particular challenge to integrating migrants

There are two main lines of argument as to why immigration can be particularly challenging for the Nordic welfare states: one economic and one political.

The economic line of reasoning points out that the Nordic welfare model is premised on high employment rates, among women as well as men. Given the combination of high taxes and high social benefits, non-employment represents a “dual loss” at a higher scale than in other countries: high incomes are lost for the state while high costs are incurred.

At the same time, the well-regulated Nordic labour markets may be difficult for immigrants to gain access to. The compressed wage structure implies that even the lowest wages are relatively high. For this reason, there are few “working poor” in Scandinavia. This however gives employers an incentive to replace unskilled labor with capital where possible, leading to fewer available jobs for low-skilled workers.

It also potentially makes employers extra risk-averse, as they will be particularly careful to hire workers who are assumed to have a productivity to match the high wage. Immigrants’ expected productivity is often low or uncertain: either because they lack education or language skills, or because they are unable to document the skills they have.

In short, then, the need to include immigrants in employment may be more acute in the Nordic countries than elsewhere, but the odds of success may be lower.

The Nordic tradition for inclusive policies seems to benefit migrants

These concerns are high on the political agenda in all the Nordic countries, and a number of measures are put in place to increase employment among immigrants from outside the European Economic Area (EEA). Benefit systems have been tweaked in order to avoid perverse incentives, and there are ongoing discussions about whether lower wages or short-term contracts should be allowed in some cases.

The most important approach is however the systematic endeavours to increase employability of immigrants. The emphasis on education – including state-sponsored kindergartens with high rates of participation, free schooling, and activation and life-long learning programs for adults – is an important part of the reason why the Nordic countries have high labour market participation rates.

This approach is extended to refugees and their family members through the so-called introduction programs. Such programs exist in all the Nordic countries. The aim of the programs is to teach newcomers a minimum of language skills and knowledge about the country they now live in, and thus to make them better able to move on to employment.

Available data do not indicate that immigrants systematically fare worse in the Nordic countries than elsewhere in Europe in terms of employment. The Nordic traditions for inclusive and qualifying policies therefore also seem to benefit migrants.

Little evidence that ethnic and religious cleavages undermine support for welfare state

Even if immigrants are reasonably well included in the labour market, it can still be argued that it is more difficult to sustain universal welfare arrangements in countries with large ethnic and religious cleavages. This is the political argument for immigration as a challenge: the feeling of community and shared risk will crumble when strangers settle in the country.

While this argument is plausible, empirical evidence is weak: support for welfare arrangements in the Nordic countries – indeed in Europe as a whole – is high and stable. Anti-immigrant parties have increased their support in Norway, Denmark, Sweden and Finland, but these parties are not (any longer) anti-welfare parties: instead, they portray themselves as the saviours of welfare for the insiders.

It has also been argued that inclusive and universal welfare arrangements have the capacity to breed trust, even as societies become more diverse. This is because such arrangements are transparent and outcomes are easy to predict, which gives less room for speculation about discrimination and favourable treatment of specific groups. Again, therefore, features of the Nordic welfare states can be buffers rather than weaknesses.

Immigration at a mass scale is likely to be challenging for any country, and how the challenges are perceived will be influenced by institutional arrangements in the host countries. The current challenges may look different in the Nordic countries than they do in the South or in Central- and Eastern Europe, but available evidence does not allow us to conclude that the universal Nordic welfare states are less able to face these challenges than other countries.

As the EU Social Justice points out, “If policies are designed well and EU countries act on the basis of solidarity, the current “refugee crisis” can – in the longer run – also turn into a chance for Europe.

Useful links

The Bertelsmann Stiftung conducts an annual study of developments in opportunities for social participation in all 28 EU member states. The latest report (Social Justice in the EU – Index Report 2015) shows that despite economic recovery, the gap between young and old is growing and the social divide between northern and southern Europe remains immense.

OECD Migration Insights

The facts about Greece

gov glanceBill Below, OECD Directorate for Public Governance and Territorial Development

Government at a Glance 2015, to be published on Monday, offers a dashboard of key indicators to help analyze international comparisons of public sector performance. Given the timing of the release, it seems appropriate to focus this powerful tool on Greece to gain a balanced understanding of Greece’s challenges—and strengths.

Budget balance. While a large number of OECD countries were running primary fiscal deficits, Greece ran a budget surplus of 0.4% of GDP in 2014. If interest payments on the public debt are taken into account, Greece recorded an overall budget deficit of 3.5% of GDP in 2014.

Public spending. Public expenditures dropped considerably since 2009 both in per capita terms and as a share of GDP. In 2014, the Greek government spent annually USD 12,942 per capita (on a purchasing power parity basis) which is about USD 3,700 below the level of per capita public spending in 2009 (USD 16,643). As a share of GDP, general government spending decreased by 4.7 percentage points between 2009 and 2014, from 54.0% of GDP to 49.3%, among the highest decrease over the period.

Public debt. According to the Systems of National Accounts definition, government debt reached 181% of GDP in 2014. This is much higher than the OECD average of 109% of GDP for the latest year available.

Old age pensions accounted for 14.4% of GDP in 2013 or about three quarters of social protection spending which is the highest share among OECD countries.

Structure of government expenditures by selected function: social protection, 2013

Social protection

Sources: OECD National Accounts Statistics (database); Eurostat Government finance statistics (database). Data for the OECD non-European countries (apart from Japan) and for Turkey are not available. Iceland and Spain: 2012

Public sector employment. Between 2009 and 2013, public sector employment decreased by 2.4 percentage points from 19.9% to 17.5% of the total labour force. This is the highest decrease in public sector employment across OECD countries for which data are available. Recent public employment reforms include recruitment freezes, non- or partial replacement of retiring staff, pay freezes and reduction or elimination of allowances in the public sector.

Public procurement. Greece has among the lowest public procurement expenditure in relation to GDP (9.8%). Beyond value for money, countries can use procurement to achieve environmental sustainability, support SMEs and innovation in goods and services. However, more needs to be done to monitor the performance and results of public procurement against the intended objectives, for instance in the area of environmental sustainability.

Citizen satisfaction. Measured through perception-based surveys, satisfaction with institutions and services is low and decreasing, especially for healthcare. In addition, citizen satisfaction with the education system (45%) is below OECD levels (67% in 2014) and confidence in the judicial system has decreased since 2007 to 44% in 2014 which is below the OECD average (54%).

Healthcare needs. More than 16% of low-income individuals reported having some unmet care needs for financial or other reasons in 2013. This is among the highest share across OECD countries.

Government at a Glance 2015 identifies progress and persisting challenges in public sector reform and highlights areas where public sector efficiency might be further improved. It helps countries measure their own achievements in a comparative perspective, showing trends across countries and over time. With this information, countries can benchmark their actions and achievements and better explore the link between governance practices and performance.

For journalists, analysts and the greater public, Government at a Glance 2015 provides an objective, comparative view on the progress of countries as they strive to deliver prosperity, inclusiveness, fairness, well-being and accountability.

Useful links

Government at a Glance 2015 will be published on Monday, July 6. Visit the web site here.

Discover the Government at a Glance 2015 “Every Page Tells a Story” campaign