The Scandinavian model—An interpretation

Abstract

The small open economies in Scandinavia have for long periods had high work effort, small wage differentials, high productivity, and a generous welfare state. To understand how this might be an economic and political equilibrium we combine models of collective wage bargaining, creative job destruction, and welfare spending. The two-tier system of wage bargaining provides microeconomic efficiency and wage compression. Combined with a vintage approach to the process of creative destruction we show how wage compression fuels investments, enhances average productivity and increases the mean wage by allocating more of the work force to the most modern activities. Finally, we show how the political support of welfare spending is fueled by both a higher mean wage and a lower wage dispersion.

Cutthroat Capitalism Versus Cuddly Socialism: Are Americans More Meritocratic and Efficiency-Seeking than Scandinavians?

“…The same picture emerges if we compare these societies in terms of the top one percent earners in society: they capture almost 18-19% of total income in the United States, but only around 5-8% in the Scandinavian countries (Atkinson, Piketty, and Saez, 2011). The United States and the Scandinavian countries also differ dramatically with respect to redistributive policies, with the Scandinavian countries having a significantly higher tax level and a more generous welfare state than the United States (Barth, Moene, and Willumsen, 2014).…”

The perception of the poor: Capturing stereotype content with different measures

“…The Scandinavian countries (Sweden, Norway, Denmark, Finland) stand out in many ways, with for example a well-developed and large-scale welfare system (BlancNoel, 2013), with relatively generous welfare benefits, contributing to keeping the differences in Socio-Economic Status (SES) low (Barth, Moene, & Willumsen, 2014;Fochesato & Bowles, 2015). In addition to this, Sweden is among the most tolerant countries in the world (World Values Survey, 2015).…”

The Nordic Model of Economic Development: Shocks, Reforms and Future Prospects

“…This is done by presenting stylized empirical evidence on indicators related to the future sustainability of the Nordic welfare states, and by highlighting a subset of the recent economic research on the effect of population aging on automation and in turn on wage inequality (Acemoglu and Restrepo, 2017;Asplund et al, 3 2011). Summarizing, the three parts of the paper identify developments that have triggered or might trigger future changes in the mechanisms described in the conceptual framework based on Barth et al (2014). This research contributes to the literature by providing an up-to-date estimation of the robustness of the institutions of the Nordic model of economic development and welfare.…”

“…In order to provide a conceptual framework for the different shocks and trends at hand, the paper starts by analytically defining the key elements and mechanisms of the Nordic economies, as presented in a chosen segment of the recent economic and political economy literature (mostly relying on Barth et al, 2014). The three distinct but interrelated features of the Nordic model are a high degree of compression of wage differentials, a dynamic process of creative destruction and innovation, and a high level of public welfare spending.…”