VI. Income Security: - VI. Income Security:
- 1) Important similarity among the European countries is the importance of safety nets to provide income and employment security
- 2) Econ security is provided by the state, w/ greater generosity than in the Anglo-Saxon M with its emphasis on individual reliance.
- One of the principle activities of governments in modern mkr economies involves modifying the income distribution. This involves the use of transfer payments, the public provision of goods that might otherwise be supplied privately and the finance of both these expenditures out of taxation. We generally refer to this activity as the operation of “welfare state”
- In Sweden the state guarantees the entire population with access to a wide range of services—free education, free health care, etc.
- 3) Sweden conducted the most ambitious experiment in transferring income and benefits from one group to another in 1960’s and 1970’s.
- Swedish Model
- The Swedish model aimed at providing econ security, including full employment, and egalitarianism, which included both reducing income differences and eliminating poverty.
- It is an example of market efficiency with socialist equity
- in terms of the mechanisms used to allocate resources, Sweden is a market economy.
Features of the Swedish Model: - Features of the Swedish Model:
- Mostly private ownership of the means of production
- Large public sector financed by high and progressive tax rates
- Tax rates were raised gradually, culminating in 1971 tax reform that left workers with a marginal take home pay rate less than 30% (if worker earns an extra 1000 SEK, it keeps 300kr. at 30%) and executives with a marginal take home pay rate of some 10-15% (now 33-60%)
- High level of taxes are required to finance redistribution policies
- Centralized wage bargaining to even out wages
- developed after WW II. Employers wanted more orderly bargaining. Unions wanted wage solidarity (largest wage increases to the lowest-paid workers). Wage negotiations take place at the national level. During 1945-1970, central bargaining worked well. In 1970 departures from the central agreement became common and inflation rose above the average of other industrial countries. Disagreements over wage solidarity have weakened the system.
- The most heavily unionized society in the world-85-90% of the workers are covered by collective bargaining agreements. The objectives of collective bargaining agreement is the eliminations of strikes and labor disputes.
- “Wage solidarity”—to keep the earnings of the workers more closely grouped, in order to eliminate class conflict
- Problems of centralized bargaining
- No work incentives
- Inefficiently allocated labor between occupations and industries
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