Nima Sanandaji, Sweden and Norway: Consequences of welfare reform

Sweden and Norway are, in many ways, quite comparable countries. They have a similar geographical situation, closely related cultures and similar languages. Until recently they also had similar policies. The difference is that Norway has great oil wealth and this has meant that Norway has not reformed its welfare state. Norway still has welfare systems that are so generous that the incentives for work are sometimes small or even non-existent. In a sense, a comparison of Sweden and Norway is almost a natural experiment that illuminates the consequences of welfare reform.

The centre-right government in Sweden which was in power between 2006 and 2014 focused on a broad reform agenda. The policies that were introduced included the following measures: somewhat less generous benefits; tax reductions aimed particularly at those with lower incomes; liberalisation of temporary employment contracts; and a gate-keeping mechanism for receiving sickness and disability benefits. These policies were intended to address high hidden unemployment. Indeed, the number on sick leave and in early retirement has fallen following the reforms. In 2006, 20 per cent of the working-age population in Sweden was supported by some form of government benefit. During the following six years, the Swedish economy was significantly affected by the global financial crisis. Despite this, the share supported by government benefits fell to 14 per cent in 2012 (Statistics Sweden 2013a).

In Norway the share of the population depending on public benefits was also 20 per cent in 2006. In 2012 it had been reduced by less than 1 per cent (Aftenposten 2013a). Since Norway relies on oil wealth, the country should, if anything, have been better at creating employment following the crisis (especially given the rising oil price). That Sweden managed to reduce public benefit dependency considerably more indicates that the reforms were indeed successful.

Norway is unusual among western European countries. During recent years, almost all nations in this region have seen a dramatic fall in support for the traditional social democratic parties, which have dominated the political landscapes. The social democratic parties have adapted by moving towards greater emphasis on the benefits of free markets and individual responsibility. In several countries the former communist parties now claim that they fill the role of traditional social democrats. However, although Norwegian social democrats in 2013 lost an election to the centre right, the country has yet to experience a similar transition.

One consequence of the generous welfare policies in Norway is a deterioration in the work ethic. The TV series Lilyhammer, starring Sopranos actor Steven Van Zandt as a US expat to Norway, regularly makes fun of the lack of work discipline in the country. This phenomenon is also apparent outside popular culture. In 2014 the Financial Times reported: ‘Norway’s statistics office says many people have started to call Friday “fridag” – “free day” in Norwegian. The state railway company says commuter trains serving the capital are less full on Fridays, and the main toll road operator says traffic is noticeably quieter on Fridays and on Mondays.’

In particular, young Norwegians are adapting to a system with limited incentives for hard work. Employers are therefore turning to foreign labour, including from Sweden. Between 1990 and 2010 the number of young Swedes employed in Norway increased more than 20-fold. Swedish youth have come to make up almost one-fifth of the Norwegian capital oslo’s youth population (Aftenposten 2013b). one reason why Swedes are attracted to the Norwegian labour market is that wages are higher there as a result of the wealth that comes with oil revenues. Another is that the work ethic has deteriorated more in the generous Norwegian welfare system than in the Swedish, somewhat more workfare-oriented, model.

In a recent survey three out of four Norwegian employers answered that Swedish youth working in the country have a better work ethic than Norwegian youth. out of those questioned, 28 per cent said that Swedes between the ages of 16 and 24 years have a high work capacity. Merely 2 per cent held the same opinion for young Norwegians. The differences existed in various sectors, including both government and private employers. Stein André Haugerund, the president of the employment company Proffice which carried out the survey, argued that policy differences could explain the situation. According to Haugerund, the Norwegian welfare model has created a situation where incentives for hard work are limited, which in turn affects the behaviour of youth (Dagens Möjligheter 2012).

The comparison between Norway and Sweden shows that welfare reforms can play an important role in reducing exclusion from the labour market, and also in strengthening working norms. An interesting question is how sustainable the Norwegian welfare model is. The country can certainly afford its welfare system due to its oil wealth. For the same reason Norway can continue to have less economic liberty than the other Nordic nations. However, Norwegian policy makers have good reasons to be concerned about the social and economic consequences that follow long-term welfare dependency and a deterioration in the work ethic. It is also vital for the country to promote entrepreneurship and reduce state involvement in the economy rather than rely on old economic structures.

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