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This week the renowned British journal The Economist drew a favourable portrait of the Nordic countries and the societal model they have developed. One of the characteristics of the Nordic countries is their level of taxation which averages just below 50% but, as The Economist points out, on several important parameters such as happiness and competitiveness the group of countries scores well and most often all of them are in the global top 10.
Another the key feature of the Nordic welfare model is the high level of social security (paid for by taxes) which in the current economic climate is under scrutiny. In Denmark the employers’ organisations and politicians from the right wing Liberal Alliance claims that the high level of social security is a disincentive for people to get a job. However, just as the high level of taxation is not a hindrance to competitiveness there is no negative relation between social security and labour market participation. According to statistics from the OECD countries with high level of social security actually enjoys much higher labour market participation than countries with low taxes and low security. So while economic classical theory and models may argue convincingly historically there is no evidence to back up the argument.
