safety net..16712_5.28_000006090065XSmall

Entitlements: What is the Right Size for the Safety Net?

Apr 23, 2013 • Behavioral Economics, Economic Debates, Economic Growth, Economic Thinkers, Education, Health Care, Innovation, Labor, Macroeconomic Measurement, Regulation • 237 Views    No Comments

At the beginning of The Intouchables, we meet an unemployed French worker awaiting a job interview. Uninterested in being hired, he needs a third signature for his benefits form to prove he is looking. Inexplicably, he gets the job and the result is a great movie.

While The Intouchables is not really about entitlements, it took me to Denmark’s dilemma. Long thought to be the ideal welfare state, Denmark’s entitlements include free college, free health care and universal child-care payments. Private businesses can run public institutions and, unlike the French, fire workers freely (which means they will hire more willingly). Still, some Danes are increasingly concerned that public sector perks are diminishing the work ethic.

As a result, during June 2010, Denmark halved the time that you could receive unemployment benefits from 4 years to 2. Displaying why, the following graph shows that the number of people who get jobs spikes just when fired or 4 years later (or 5 years during the 1990s) when they figure they better take any job because their benefits will soon expire. However, because it is tough to go back to work after 4 years, many do not.

Just before unemployment benefits expire, joblessness decreases.

Debating the merits of the welfare state, most researchers look at haves and have-nots inside countries. Instead, in this paper, 3 economists look at the impact of the Scandinavian welfare state on other nations. Fascinatingly, they conclude that the world would be less affluent and less innovative (see below) if we all adopted Denmark’s “cuddly form of capitalism.” As they tell us in their last sentence, “we cannot all be like the Scandinavians, because Scandinavian capitalism depends in part on the knowledge spillovers created by the more cutthroat American capitalism.”

From "Can't We All Be More Like Scandinavians?"

From “Can’t We All Be More Like Scandinavians?”

Sources and Resources: For more from those who totally agree with Denmark’s welfare state, I suggest reading this post from Dean Baker and The Economist’s series of articles on Scandinavia. Tilting toward the other side, are these articles (and my unemployment graph), here and here, from the NY Times. But, if you had to choose just one paper to read, I recommend the introduction and conclusion that frame the AceMoglu, Robinson, Verdier paper, “Can’t We All Be More Like the Scandinavians?”

Related Posts

« »