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In-Work Benefits and the Nordic Model

Ann-Sofie Kolm () and Mirco Tonin

No 7084, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: education; unemployment; wage adjustment; in-work benefits; Nordic model; skill formation; earnings (search for similar items in EconPapers)
JEL-codes: H24 J21 J24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm and nep-lma
Date: 2012-12
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Published as 'Benefits Conditional on Work and the Nordic Model' in: Journal of Public Economics, 2015, 127, 115–126

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Working Paper: In-Work Benefits and the Nordic Model (2013) Downloads
Working Paper: In-Work Benefits and the Nordic Model (2012) Downloads
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