The Nordic countries have a well-developed social safety net. One of the characteristics of the Nordic welfare model is that – unlike most other parts of the world – benefits are universal and relatively generous. The policy aim of jobs for all also means that income distribution policy and social policy are inextricably linked to education and employment policy.
The combination of high standards of living, equality and a large public sector means that the Nordic countries often show up well in international comparisons. The model builds on certain shared general characteristics of the way in which social and welfare policy are implemented.
The social safety net is central to the Nordic model. The fundamental principle is universalism, i.e. in general every individual has the right to help in times of need, irrespective of factors such as income and assets. One major difference from other welfare models is that rights are not dependent on contributions (e.g. national insurance) made in the past or status (e.g. employment). Welfare is paid for collectively from the tax base.
Another key objective for the safety net is to maintain reasonable and decent standards of living. As a result, the basic benefit levels are higher than in other countries.
In practice, the safety net is made up of a range of systems associated with different life events and situations. The main elements include health insurance, unemployment insurance, social security benefits, early retirement pensions and old age pensions. Benefits are paid out when circumstances dictate, i.e. when individuals find it difficult or impossible to make ends meet. In other words, another way of describing the Nordic model is as a general form of income or maintenance insurance contingent on life events.
Social security and pensions are often said to be the key elements in the safety net, as they constitute the ultimate form of insurance for people of working age and beyond. In practice, these arrangements are not completely universal – they are dependent upon income, assets, social position and family situation.
The overall aims may be the same, but there are major differences between the welfare systems in the Nordic countries. For example, unemployment insurance is voluntary in Denmark, Finland and Sweden but compulsory in Norway and Iceland, and the period of maximum entitlement varies between 200 days in Sweden and three years in Denmark.
The existence of the safety net presents particular challenges to the labour market and to employment policy. Individuals are insured in the event of losing their job or the ability to work, but it is also a policy goal to ensure that the largest possible number of people have equal access to jobs. A high level of employment is also a precondition for funding a comprehensive welfare system from the tax base.
A safety net with relatively high benefit payments has an impact on the labour market – it pushes up wage levels as well as the threshold at which people consider jobs worth taking. Another key policy goal is to avoid the existence of a working poor, i.e. employment targets must not be based on forcing people to accept poorly paid jobs. Two of the core pillars of the Nordic model – education/qualifications and proactive employment policies – make it possible to combine these requirements with the need for a high level of employment.
Education policy trains as many people as possible for the world of work. In general, high salaries mean that employers demand a highly qualified workforce. Employment policy usually places demands on and offers help to unemployed people that they must accept to be eligible for benefits. Courses and training are used to improve qualifications, and unemployed people have to focus on job hunting. This means that the social safety net is not passive in the sense of everybody being free to choose whether or not to work. On the one hand, it guarantees an income but only if the recipients are engaged in active endeavours to return to gainful employment.
Other welfare services, e.g. childcare provision, also help people take jobs. A well-developed childcare system is of direct benefit to families, helps socialise children and promotes gender equality in the labour market.