A Big Safety Net and Strong Job Market Can Coexist. Just Ask Scandinavia. [View all]

[eridani]

http://www.nytimes.com/2014/12/18/upshot/nordic-nations-show-that-big-safety-net-can-allow-for-leap-in-employment-rate-.html?ref=economy&_r=4&abt=0002&abg=0


It is a simple idea supported by both economic theory and most people’s intuition: If welfare benefits are generous and taxes high, fewer people will work. Why bother being industrious, after all, if you can get a check from the government for sitting around — and if your choice to work means that much of your income will end up in the tax collectors’ coffers?

Here’s the rub, though: The idea may be backward.

Some of the highest employment rates in the advanced world are in places with the highest taxes and most generous welfare systems, namely Scandinavian countries. The United States and many other nations with relatively low taxes and a smaller social safety net actually have substantially lower rates of employment.

<snip>

Robert Greenstein, the president of the Center on Budget and Policy Priorities, notes that wages for entry-level work are much higher in the Nordic countries than in the United States, reflecting a higher minimum wage, stronger labor unions and cultural norms that lead to higher pay. (In October, my colleagues Liz Alderman and Steven Greenhouse wrote about $20-an-hour Burger King employees in Denmark.)

Perhaps more Americans would enter the labor force if even basic jobs paid that well, regardless of whether the United States provided better child care and other services. The employment subsidies Mr. Kleven cites surely help coax more Scandinavians into the work force, Mr. Greenstein agrees, but shouldn’t be viewed in isolation.