Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2008:10: Distribution and labour market incentives in the welfare state – Danish experiences

Torben M. Andersen () and Lars Haagen Pedersen ()
Additional contact information
Torben M. Andersen: School of Economics and Management, University of Aarhus, Postal: Aarhus C, Denmark
Lars Haagen Pedersen: Danish Economic Councils, Postal: Amaliegade 44, Copenhagen, Denmark

Abstract: In recent years, Denmark has been successful in ensuring and maintaining a low unemployment rate. However, almost one third of the working-age population remains dependent on public transfers, a fact which poses questions on both social inclusion and financial pressures on the welfare state. In this paper, we consider more closely the interaction between the social safety net and the need and scope for maintaining a high employment rate in a welfare state of the Scandinavian type. The focus is on the basic dilemma between ambitious distributional goals on the one hand and work incentives on the other. The paper discusses policy issues related to minimizing welfare dependence that improve the transition from welfare to work. We consider these issues in a life cycle perspective considering entry into the labour market, maintenance of labour market contact, and exit from the labour market. Finally, we consider some recent reform proposals and initiatives in Denmark.

Keywords: Incentives to work; Social safety net; Distribution

JEL-codes: I30; J10

48 pages, May 17, 2008

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