The Nordic countries have a finely meshed social security net. One way in which they distinguish themselves from other countries is that benefit systems are for all and are relatively generous. Coupled with the objective of improving job opportunities for all, this means that there is a close link between distribution and social policy on the one hand and education and labour market policy on the other.
In international comparisons, the Nordic countries often come out on top in terms of combining a high standard of living with equality and an extensive public sector. This is called the Nordic welfare model, and it builds upon the general organisational principles of Nordic social and welfare policy.
The social security net is central to the Nordic welfare model. It is rooted in the basic principle of universal rights, i.e. everybody has the individual right to assistance from the public sector if they are unable to look after themselves. As a point of departure, these rights are the same for all, regardless of factors such as income and assets. One crucial way in which the Nordic system differs from other welfare models is that rights are not acquired on the basis of previous payments (e.g. national insurance payments) or status (e.g. employment). Welfare is funded collectively via taxation, and the individuals’ rights are not linked to their tax history.
Another central objective for the social security net is that public-sector support is designed to facilitate the maintenance of a reasonable and decent standard of living. As a result, the basic level of Nordic social benefits is high compared with other countries.
In practice, the social security net comprises a number of schemes linked to different events and life situations. The main elements include health insurance, unemployment insurance, social security, and pensions for both early and later retirement. Benefit entitlement is therefore determined by life situations that render individuals incapable of sustaining themselves. The Nordic welfare model can therefore be characterised as a form of general income or maintenance insurance.
Social security and pensions are often said to be the key links in the social security net, as they are the most basic form of insurance for people of working age and older citizens respectively. In practice, these schemes are not completely universal – they are dependent upon income, assets, social position and family situation.
Even though the overall aims are the same, there are major differences in the ways that the individual Nordic countries organise their systems. For example, unemployment insurance is voluntary in Denmark, Finland and Sweden but complusory in Norway and Iceland. The entitlement period varies between 200 days in Sweden and four years in Denmark.
A finely meshed social security net presents a particular challenge when it comes to the labour market. The system provides insurance in the event of individuals losing their job or their ability to work, and also aims to ensure that the largest possible number of people have equal access to jobs. At the same time, a high level of employment is a precondition for funding a substantial welfare system via taxation.
A finely meshed social security net with relatively high benefits has an impact upon the labour market – it affects wage levels and/or raises the entry requirements for suitable jobs. One central policy goal is to avoid the existence of a working poor, i.e. employment targets should not be reached on the basis of people accepting poorly paid jobs. In order to meet both these requirements and the need for a high level of employment, two central elements in the Nordic model must come into play – i.e. education/qualifications and, specifically, an active labour market policy.
Education policy is designed to ensure that as many people as possible gain qualifications that enable them to find a job. As salary demands are high, so is the demand for a highly qualified workforce. The active labour market policy typically places a range of demands and makes various provisions that the unemployed must accept to be eligible for benefits. This helps to improve qualifications among the unemployed through courses and education, and also encourages the unemployed to actively focus on job seeking. The social security net is therefore not passive, in the sense that all may choose freely between working or not. Rather, it provides a secure income as long as the demand for active participation in the labour market is met.
Participation in the labour market is also supported by welfare schemes such as childcare. An extensive childcare system has a direct welfare effect for families and helps to socialise children. It also helps to ensure gender equality in terms of opportunities to participate in the labour market.