Research Papers in Economics, Department of Economics, Stockholm University
In-Work Benefits and the Nordic Model
() and Mirco Tonin
Abstract: Welfare benefits in the Nordic countries are often tied to
employment. We argue that this is one of the factors behind the success of
the Nordic model, where a comprehensive welfare state is associated with
high employment. In a general equilibrium setting, the underlining
mechanism works through wage moderation and job creation. The benefits make
it more important to hold a job, thus lower wages will be accepted, and
more jobs created. Moreover, we show that the incentive to acquire higher
education improves, further boosting employment in the long run. These
positive effects help counteracting the negative impact of taxation.
Keywords: Nordic model; in-work benefits; wage adjustment; unemployment; education; skill formation; earnings; (follow links to similar papers)
JEL-Codes: H24; J21; J24; (follow links to similar papers)
30 pages, January 10, 2013
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