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In-Work Benefits and the Nordic Model

Ann-Sofie Kolm () and Mirco Tonin

No 2013_1, CEU Working Papers from Department of Economics, Central European University

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.

New Economics Papers: this item is included in nep-hrm and nep-lab
Date: 2012-12-14, Revised 2012-12-14
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