TemaNord 2016:503 TemaNord Nordic Council of Ministers Ved Stranden 18 DK-1061 Copenhagen K www.norden.org NORDIC ECONOMIC POLICY Nordic Economic Policy Review REVIEW NORDIC ECONOMIC POLICY REVIEW POLICY ECONOMIC NORDIC The Nordic Economic Policy Review is published by the Introduction Nordic Council of Ministers. This year’s issue is part of the Torben M. Andersen and Jesper Roine Danish presidency programme for the Nordic Council of The Nordic welfare model in an open European labor market Ministers in 2015. The review addresses policy issues in a Bernt Bratsberg and Knut Roed way that is useful for in-formed non-specialists as well as Future Pathways for Labour Market Policy: Including the Excluded for professional economists. All articles are commissioned Michael Svarer and Michael Rosholm from leading professional economists and are subject to Economics of Innovation Policy peer review prior to publication. Tuomas Takalo and Otto Toivanen The review appears once a year. It is published Taxing mobile capital and profits: The Nordic Welfare States Guttorm Schjelderup electronically on the website of the Nordic Council of Ministers: www.norden.org/en. On that website, you can Nordic family policy and maternal employment also order paper copies of the Review (enter the name Julian V. Johnsen and Katrine V. Løken NUMBER 2 / 2015 NUMBER 2 of the Review in the search field, and you will find all the Education and equality of opportunity: What have we learned from educational reforms? information you need). Helena Holmlund Retirement and Health in the Nordic Welfare State Nabanita Datta Gupta and Bent Jesper Christensen The future of Welfare services: How worried should we be about Wagner, Baumol and Ageing? Andreas Bergh TemaNord 2016:503 ISBN 978-92-893-4450-0 (PRINT) Ethnic fractionalization and the demand for redistribution – Potential implications for the Nordic model ISBN 978-92-893-4452-4 (PDF) Johanna Mollerstrom ISBN 978-92-893-4451-7 (EPUB) ISSN 0908-6692 The social upper classes under Social Democracy Kalle Moene NUMBER 2 / 2015 TN2016503 omslag.indd 1 09-02-2016 07:49:39 TN2016503 omslag.indd 2 09-02-2016 07:49:39 Managing Editor Professor Torben M. Andersen, Department of Economics, University of Aarhus, Denmark. Special Editors for this volume Professor Torben M. Andersen, Department of Economics, Aarhus University and Professor Jesper Roine, Stockholm Institute of Transition Economics, Stockholm School of Economics. Papers published in this volume were presented at the conference “Whither the Nordic Welfare Model” hosted by the Ministry of Finance, Finland, October 2015. This project was financed as part of the Danish presidency flagship program “The Nordic ‘supermodel’?” Nordic Economic Policy Review Whither the Nordic Welfare Model? Torben M. Andersen, Jesper Roine, Bernt Bratsberg, Knut Roed, Michael Svarer, Michael Rosholm, Tuomas Takalo, Otto Toivanen, Guttorm Schjelderup, Julian V. Johnsen, Katrine V. Løken, Helena Holmlund, Nabanita Datta Gupta, Bent Jesper Christensen, Andreas Bergh, Johanna Mollerstrom and Kalle Moene TemaNord 2016:503 Nordic Economic Policy Review Whither the Nordic Welfare Model? Torben M. Andersen, Jesper Roine, Bernt Bratsberg, Knut Roed, Michael Svarer, Michael Rosholm, Tuomas Takalo, Otto Toivanen, Guttorm Schjelderup, Julian V. Johnsen, Kat- rine V. Løken, Helena Holmlund, Nabanita Datta Gupta, Bent Jesper Christensen, Andreas Bergh, Johanna Mollerstrom and Kalle Moene ISBN 978-92-893-4450-0 (PRINT) ISBN 978-92-893-4452-4 (PDF) ISBN 978-92-893-4451-7 (EPUB) http://dx.doi.org/10.6027/TN2016-503 TemaNord 2016:503 ISSN 0908-6692 © Nordic Council of Ministers 2016 Layout: Hanne Lebech Cover photo: PUB, UNIT/NCM Print: Rosendahls-Schultz Grafisk Printed in Denmark This publication has been published with financial support by the Nordic Council of Ministers. However, the contents of this publication do not necessarily reflect the views, policies or recom- mendations of the Nordic Council of Ministers. www.norden.org/nordpub Nordic co-operation Nordic co-operation is one of the world’s most extensive forms of regional collaboration, in- volving Denmark, Finland, Iceland, Norway, Sweden, and the Faroe Islands, Greenland, and Åland. Nordic co-operation has firm traditions in politics, the economy, and culture. It plays an im- portant role in European and international collaboration, and aims at creating a strong Nor- dic community in a strong Europe. Nordic co-operation seeks to safeguard Nordic and regional interests and principles in the global community. Common Nordic values help the region solidify its position as one of the world’s most innovative and competitive. Nordic Council of Ministers Ved Stranden 18 DK-1061 Copenhagen K Phone (+45) 3396 0200 www.norden.org Contents 1. Introduction .......................................................................................................................................... 7 Torben M. Andersen and Jesper Roine 2. The Nordic welfare model in an open European labor market .................................... 19 Bernt Bratsberg and Knut Røed 3. Future Pathways for Labour Market Policy: Including the Excluded ........................ 43 Michael Rosholm and Michael Svarer 4. Economics of Innovation Policy ................................................................................................ 65 Tuomas Takalo and Otto Toivanen 5. Taxing mobile capital and profits: The Nordic Welfare States ..................................... 91 Guttorm Schjelderup 6. Nordic family policy and maternal employment ..............................................................115 Julian V. Johnsen and Katrine V. Løken 7. Education and equality of opportunity: What have we learned from educational reforms? ...................................................................................................................133 Helena Holmlund 8. Retirement and Health in the Nordic Welfare State .......................................................171 Nabanita Datta Gupta and Bent Jesper Christensen 9. The future of Welfare services: How worried should we be about Wagner, Baumol and Ageing? ...................................................................................................197 Andreas Bergh 10. Ethnic fractionalization and the demand for redistribution – Potential implications for the Nordic model ..........................................................................................219 Johanna Mollerstrom 11. The Social Upper Class under Social Democracy .............................................................245 Kalle Moene 1. Introduction 1.1 Whither the Nordic Welfare Model? Torben M. Andersen, Department of Economics, Aarhus University and Jesper Roine, Stockholm Institute of Transition Economics, Stockholm School of Economics The Nordic Welfare Model frequently attracts international attention and is by many seen as a social model to be inspired by or even to be copied. In recent years, the “Nordic Way” has been a topic for discussion at the World Economic Forum and it has even appeared on the cover of The Economist under the heading “The next supermodel”.1 Somewhat paradoxically, however, the debate in the Nordic countries often fea- tures skepticism on the future of the model. Does this reflect a timely concern voiced by those best placed to see what is going on, or are the doubts on the contrary a result of model-hypochondria? A first caveat – or perhaps part of the answer – has to do with the meaning of the very concept “Nordic welfare model”. Is it really mean- ingful to talk about the existence of such a thing? Is the term well- defined given how large the differences are between the Nordic coun- tries and given the major policy shifts in the past decades? The answer clearly depends on what one includes in the meaning of the model con- cept. If one thinks that it is associated with a certain set of specific poli- cies or certain levels of tax rates or benefits, then clearly the concept is questionable. These things have indeed changed over time and are also different across the Nordic countries. For example, unemployment in- 1 The Economist, 2 February 2013, http://www.economist.com/news/leaders/21571136-politicians-both- right-and-left-could-learn-nordic-countries-next-supermodel Nordic Economic Policy Review 7 surance is voluntary in Denmark, Finland and Sweden, but mandatory in Norway. Pension systems are fundamentally different spanning from a large role to funded occupational pensions in Denmark to a notionally defined contribution scheme in Sweden. While tax burdens are high in the Nordic countries (except for Iceland), the tax structure differs with Denmark having the larger share of tax revenue accruing from direct income taxes and value added tax, while Sweden raises much more tax revenue from social contributions. However, in a longer perspective such a focus on certain policies would seem odd. If one were to look at reforms and levels of tax rates and benefits over the whole history over which the concept of a “Nordic model” has been identified and discussed, these have varied a lot. In- deed, continuous change has been a distinguishing feature of the model, and the changes over the past decades are not in any obvious way larger in magnitude than those in the preceding decades. If one instead identifies the Nordic model as being concerned with a number of broader principles and goals in terms of outcomes, the con- cept becomes more well-defined. What matters then are the overall ob- jectives and the