Denmark, Finland, Netherlands and Sweden: the four Nordic countries?

Jenni Blomgren Senior researcher The Social Insurance Institution of Finland (Kela)

GINI concluding conference, Amsterdam, 4–5 June 2013 Finland

Sweden

Denmark

The Netherlands

2 This presentation

• The presentation is based on those facts that were highlighted in the country chapters (not on the 442 pages of the big reports…)

• Each country chapter is structured slightly differently, and only few things are presented exactly similarly – therefore some comparative data from Eurostat (concerning some issues treated in the country reports) are also used

• Similarities and differences between the country experiences 3 Context of the four countries

• Traditionally strong welfare states, with benefits and services to guarantee means for living for those who are unable to provide for themselves • Even after retrenchment of the welfare state, high level of redistribution through taxes and transfers • Also traditionally low inequality – but substantial increases during the last decades • Universal access to education, strive for equality of opportunity

4 Context: GDP volume growth, 1975–2012

8,0

6,0

4,0

2,0 Denmark Finland % 0,0 Netherlands 2011 2011 -2,0 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Sweden -4,0 EU 27

-6,0

-8,0 Source: -10,0 5 Eurostat Context: unemployment rates among 15–74-year-olds, 1983–2012

% 18 16 14 12 Denmark 10 Finland 8 Netherlands 6 Sweden EU 27 4 2 0 2011 2011 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 Source: 6 Eurostat Context: Social spending, % of GDP

% of GDP 40 35 Denmark 30 Finland 25 Sweden Netherlands 20

15 OECD 10 United States 5 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

7 Source: OECD SOCX database Gini of equivalized disposable income, 1980–2010

Gini 0,40 Denmark 0,35 Sweden * 0,30 Netherlands ** 0,25 Finland

0,20

0,15

0,10 Source: country reports 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

* Old household definition 1980–1990, new definition 1991–2010 8 ** Series break in 2000 Rise in Gini – slower or steeper

• Netherlands: rise in inequality particularly in the second half of the 1980’s, then rather stable • Total rise of Gini from lowest to highest point: 19 % (+0.05) • Denmark: slow but steady rise from the mid-1980’s • Total rise of Gini from lowest to highest point: 28 % (+0.07) • Finland and Sweden: steep rise especially after the recession of the early 1990’s • Total rise of Gini from lowest to highest point: • Finland: 42 % (+0.08) • Sweden: 54 % (+0.11) • These countries are now on the same level of Gini as the Continental European welfare states

9 Reasons for growing income inequality

• Countries emphasize different things – but it is difficult to compare the relative role of the explanations • To which extent are there real differences • Or do the country chapters just reflect differences in the effort to quantify things

• For example: The Netherlands chapter (also Denmark to some extent) mentions changing household structure as a key driver – possibly this is a key driver also in other countries but they have not tried to quantify it

10 Points that the countries emphasize (1)

Sweden • Tax reform in 1991: flat-rate tax on capital income • Increasing share of income to the top • Decreasing coverage of social policy programmes after the recession of the 1990’s, and later in the 2000’s • Lowest deciles lagging behind also relative to the median • The gap between the insiders and outsiders of the labour market has increased Finland • Tax reform in 1993: flat-rate tax on capital income à shift of income from earnings to capital income • Increasing share of income to the top • Cut-backs or lagging behind of the levels of social security benefits after the recession of the 1990’s 11 • Persistently high unemployment rate Points that the countries emphasize (2)

Denmark • Growing share of students and young people taking up low- paid jobs • Higher labour market participation of women in full-time jobs • Increasing proportion of singles • Recent increase due to changes in tax system: marginal tax of top incomes decreased Netherlands • Wages are a core determinant of rising income inequality: top incomes • Policy changes: lower the minimum wage and social benefits after the recession of the 1980’s • Government’s ”work work work” strategy • Tax reform in 1990: higher effective tax rate on low incomes 12 • Household formation patterns affect equivalization Common to all countries

• Increase in inequality fuelled by increase of top incomes – either by earnings or capital income

• Changing policies are key reasons of rising inequality, for example: • Benefits are left lagging behind • Changes in taxation • The pro-work attitudes of the governments

• Changing demographics, though this is not always documented

13 At risk of poverty (60 % of median), 1995–2011

At risk of poverty rate (%) 18 EU 27 16 Sweden 14 12 Finland 10 Denmark 8 Netherlands 6 4 2 0 2011 2011 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

14 Source: Eurostat EU2020 indicator: % persons at risk of poverty or social exclusion *

% 30

25

20 EU 27 15 Denmark Finland 10 Sweden Netherlands 5

0 2011 2011 2004 2005 2006 2007 2008 2009 2010

* At risk of poverty / severely materially deprived / lives in a low work intensity household 15 Educational attainment

• Educational attainment has increased in all countries à more equality in education • However, returns to education have increased – the employment rates of those with only compulsory education are more and more lagging behind

• One further reason of this may be increasing selection to the groups with only basic education

16 Social and cultural impacts of increasing inequality?

• No clear and unambigous effects of inequality on social and cultural issues such as family formation, health, trust, life satisfaction and social participation

• Some outcomes seem to be more affected by economic cycles than inequality (for example: fertility in Finland, trust in Denmark)

17 Total fertility rates 1970–2011

2,60

2,40

2,20

Sweden 2,00 Finland 1,80 Denmark Netherlands 1,60 EU 27

1,40

1,20 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: Eurostat database 18 Health: life expectancy at birth, years

MEN WOMEN 84 84 82 82 80 80 Sweden Sweden 78 78 76 76 Netherlands Finland 74 74 Denmark Netherlands 72 72 Finland Denmark 70 70 EU 27 EU 27 68 68 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Source: Eurostat database

19 Life satisfaction: very or fairly satisfied

1 0,95 0,9 0,85 0,8 Sweden 0,75 Denmark 0,7 Netherlands 0,65 Finland 0,6 EU 0,55 0,5 11/1985 11/1985 11/1988 11/1989 11/1999 11/2010 04/1980 10/1982 04/1984 05/1987 03/1991 05/1994 01/1996 05/2001 10/2004 04/2006 10/2007 06/2009 10/1992 05/2012

20 Source: Eurobarometer Political participation: voter turnout in general national elections

% 95 90 Denmark 85 Sweden 80 Netherlands 75 Finland 70 EU 27 65 60 55 50 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

21 Source: Country reports; Eurostat Trust in government (% who tend to trust)

80%

70%

60%

50% Denmark 40% Netherlands 30% Finland Sweden 20% EU 10%

0% 11/2011 11/2003 11/2009 05/2011 10/2004 06/2005 10/2005 04/2006 09/2006 05/2007 10/2007 04/2008 10/2008 06/2009 06/2010 05/2012

22 However: widening differences between socioeconomic groups

• Effects are not visible in the averages but they may be hidden in the margins of the society • Trends of increasing socio-economic differences can be observed (especially in health and mortality), but not sure whether these are caused by increasing inequality • Socioeconomic gap in the level of trust is increasing at least in Finland and in Sweden • General polarization, lack of trust and satisfaction in some groups • Consequences: rise of anti-immigration political parties

23 Role of politics

• Changing policies are key drivers of rising inequality: less redistributive policy through cutting back social benefits and changing taxation • Despite cuts of the welfare benefits, support for a strong welfare state remains high in (at least) Finland and in Sweden • In Finland and in Sweden, shift in political power have taken place in favour of right-wing policies favouring the well-off strata and employers • Demands to increase incentives for work – especially Sweden has cut back benefits and

24 tightened eligibility rules Summary

• Traditionally strong and equal welfare states but moving towards higher inequality – speed of change among the highest in OECD • Simultaneous retrenchment of the welfare state • However, social and cultural consequences are difficult to see: what is the role of inequality? • Some polarization of the society may have occurred: increasing socio-economic gradients observed in many phenomena • However, inequality is still on a comparatively low level; satisfaction is high; the countries still fare well 25 as welfare states Paradises in the world?

Thank you!

26 Source: Google images search, first page search results for country name