Stefán Ólafsson NRR Conference, Grand Hotel, Reykjavík, September 13th 2007

The Icelandic Welfare State in an International Comparison

Contents

• Iceland in Context • Characteristics of the Icelandic

Welfare State – International comparison

• Iceland, USA, Scandinavia

• Welfare changes during the 1990s • Current issues and prospects

Societal context •  Rapid modernization in the 20th century •  Culture: Strong individualism, materialism and a forceful work ethic •  Reservations about state protectionism •  Resistance to taxation •  Iceland’s Welfare Model deviates a little from the Nordic Model •  Iceland is not fully a social-democratic country •  Part Scandinavian – Part American culture...

Societal context •  Last decade growth was above OECD average •  Real pay level has grown significantly •  Debt levels have also grown extensively •  Overheating of Economy since 2000 •  Globalization effects were strong from 1995 •  Immigration into lab. market quite extensive •  FDI to other countries extensive since 1995 •  Icelandic corporations have expanded abroad •  So change has been fast ...

Welfare state comparisons - Profiles in figures -

Economic prosperity

Economic prosperity of OECD-CountriesGDP per capita (PPP values), averages for 2000-2004

05.000

10.00015.00020.00025.00030.00035.00040.000

Norw

ayUS

AIre

land

Switz

erla

ndDe

nmar

kAu

stria

Icela

ndCa

nada

Neth

erla

nds

Aust

ralia UK

Belg

ium

Swed

enFi

nlan

dFr

ance

Japa

nG

erm

any

EU15

OEC

D to

tal1

Italy

Spai

nNe

w Ze

aland

Gre

ece

Portu

gal

Kore

a

Czec

h Re

publi

cHu

ngar

y

Slov

ak R

epub

licPo

land

Mex

icoTu

rkey

Social Expenditures as % of GDP

Social Protection Expenditures in EU-Countries in 2004% of GDP

0

5

10

15

20

25

30

35

Swed

enFr

ance

Denm

ark

Ger

man

ySw

issBe

lgiu

mAu

stria

Nede

rland

sEU

25

Finl

and

UKNo

rway Italy

Gre

ece

Portu

gal

Slov

enia

Icela

ndLu

xem

bour

gHu

ngar

ySp

ain

Pola

nd

Czec

h Re

publi

cM

alta

Cypr

usSl

ovak

iaIre

land

Rom

ania

Esto

nia

Lith

uani

aLa

tvia

Tota

l exp

endi

ture

s on

Soc

ial P

rote

cctio

n, %

of

GD

P

Iceland has been catching up

Change in Social Protection Expenditures 2000 to 2004Change in % of GDP

-4-3-2-1012345

Icel

and

Por

tuga

lC

ypru

sLu

xem

bour

Irel

and

Bel

gium

Mal

taS

wed

enN

eder

land

sS

wis

sD

enm

ark

Fran

ceR

oman

iaN

orw

ayFi

nlan

dIta

lyH

unga

ryA

ustr

iaE

U 2

5P

olan

dG

erm

any

Gre

ece

Spa

inC

zech

Slo

veni

aE

ston

ia UK

Slo

vaki

aLi

thua

nia

Latv

ia

Old-age pension expenditures in 2004

Expenditures on old-age and survivors benefits in 2004% of GDP

02468

1012141618

Italy

AustriaSwiss

Greece

France

Sweden

German

y

BelgiumEU 25

Poland UK

Denmark

Nederl

ands

Portug

al

Slovakia

Finlan

dMalt

a

Hunga

rySpa

in

Cyprus

Luxe

mbourg

Czech

Rep

ublic

Norway

Icelan

d

Slovenia

Latvi

a

Lithu

ania

Estonia

Roman

ia

Irelan

d

Pen

sion

exp

endi

ture

s as

% o

f GD

P

Seniors’ Participation People aged 55-64, at work, year 2003

0

10

20

30

40

50

60

70

80

90

100

Icelan

da

Sweden

Norway

Switzerla

nd

New Zea

landJa

pan

Denmark

United

States

United

Kingdo

m

Canad

a

Portug

al

Austra

lia

Finland

Irelan

d

Netherl

ands

Greece

Spain

German

y

France Italy

Austria

Belgium

Luxe

mbourg

a

% w

orki

ng a

ge p

opul

atio

n

Near absence of early retirement in Iceland

Late retirement Average age at retirement 1997-2002

50

55

60

65

70

75Ic

elan

d

Irela

nd

Japa

n

Portu

gal

Switz

erla

nd

Uni

ted

Stat

es

Nor

way

Den

mar

k

Swed

en

Turk

ey

OEC

D

Can

ada

Spai

n

New

Zea

land

Uni

ted

King

dom

Gre

ece

Aust

ralia

Italy

Ger

man

y

Luxe

mbo

urg

Finl

and

Fran

ce

Net

herla

nds

Aust

ria

Pola

nd

Cze

ch R

epub

lic

Belg

ium

Slov

ak R

epub

lic

Hun

gary

MenWomen

OEC

D S

ocie

ty a

t a G

lanc

e 20

05

Sickness and health expenditures 2004

Expenditures on sickness and health care% of GDP

02468

10

Fran

ceN

orw

ayN

eder

land

sSw

eden

Icel

and

Slov

akia

UK

Belg

ium

Ger

man

yEU

25

Aust

riaPo

rtuga

lSw

iss

Irela

nd

Cze

ch R

epub

licG

reec

eFi

nlan

dIta

lyD

enm

ark

Spai

nH

unga

ryLu

xem

bour

gR

oman

iaM

alta

Slov

enia

Esto

nia

Cyp

rus

Lith

uani

aPo

land

Latv

ia

% o

f GD

P

Disability expenditures in 2004

Disability expenditures in 2004% of GDP

0123456

Nor

way

Swed

enD

enm

ark

Swis

sFi

nlan

dIc

elan

dLu

xem

bour

gN

eder

land

sPo

rtuga

lU

KAu

stria

Pola

ndG

erm

any

EU 2

5H

unga

ryBe

lgiu

mSl

ovak

iaFr

ance

Slov

enia

Cze

ch R

epub

licSp

ain

Italy

Gre

ece

Lith

uani

aEs

toni

aLa

tvia

Mal

taR

oman

iaIre

land

Cyp

rus

% o

f GD

P

Family and child expenditures in 2004

Expenditures on families and children in 2004% of GDP

00,5

11,5

22,5

33,5

44,5

Denm

ark

Luxe

mbo

urg

Icela

ndNo

rway

Ger

man

yAu

stria

Finl

and

Swed

enIre

land

Fran

ceHu

ngar

yEU

25

Belg

ium

Cypr

usSl

ovak

iaSl

oven

iaEs

toni

aG

reec

eUK

Czec

h Re

publi

cRo

man

iaLa

tvia

Nede

rland

sSw

issPo

rtuga

lIta

lyLi

thua

nia

Mal

taPo

land

Spai

n

% o

f GD

P

Unemployment expenditures in 2004

Unemployment benefit expenditures in 2004% of GDP

00,5

11,5

22,5

33,5

4

Belg

ium

Den

mar

kSp

ain

Finl

and

Ger

man

yFr

ance

Swed

enEU

25

Ned

erla

nds

Aust

riaG

reec

eIre

land

Mal

taPo

rtuga

lSw

iss

Luxe

mbo

urg

Slov

enia

Cyp

rus

Nor

way

Cze

ch R

epub

licPo

land

Slov

akia

UK

Hun

gary

Icel

and

Italy

Rom

ania

Latv

iaEs

toni

aLi

thua

nia

% o

f GD

P

Housing and social exclusion expenditures in 2004

Housing and social exclusion expenditures in 2004% of GDP

00,20,40,60,8

11,21,41,61,8

Den

mar

kU

KN

eder

land

sFr

ance

Gre

ece

Cyp

rus

Swed

enEU

25

Irela

ndSw

issFi

nlan

dIc

elan

dN

orw

ayG

erm

any

Slov

akia

Rom

ania

Cze

ch R

epub

licLu

xem

bour

gBe

lgiu

mH

unga

ryM

alta

Aust

riaSl

oven

iaSp

ain

Lith

uani

aEs

toni

aLa

tvia

Pola

ndPo

rtuga

lIta

ly

% o

f GD

P

Benefits in cash and services in 2004 Percentage shares

61,1 64,148,5

60,1 58,6 66,7

38,9 35,951,5

39,9 41,1 33,2

0%10%20%30%40%50%60%70%80%90%

100%

Denmark Finland Iceland Norway Sweden EU 15average

Cash benefits % Services in kind %

Rather Inexpensive Welfare System

• The Icelandic Welfare State is one of the less expensive in NW-Europe

– Why? • Extensive use of income-testing of

benefits • Basic soc. sec. pensions are rather low

• Population is young >Lower expenditures on old-age

>But should be more on families and children • Role of Third Sector is relatively large

• High employment participation

Welfare system characteristics: USA, Scandinavia, Iceland

Comparing USA, Scandinavia and Iceland American Scandinavian Icelandic

Welfare roles Role of the state: Small Large Medium-Large Role of the market: Large Medium Medium

Role of NGOs: Large Medium-large Very large

Social security system:

Universality of coverage: Medium Large Large

Main beneficiaries: The Poor All citizens All citizens/the poor Income-testing of benefits: Large Small LargePrimary services:

Main provision of care: Market/family State/family/marketState, NGOs, familyand market

Hospitals: Mainly private State run State run

Education: Big private role Primarily state Primarily state

Public expenditures on welfare: Small Large Medium Taxation levels Low High Medium

American Scandinavian IcelandicDistribution effects:

Comparing USA, Scandinavia and Iceland American Scandinavian Icelandic

Distribution effects:

Income inequality: Large Small Small-Medium

Extent of poverty: Large Small Small

Gender and class effects: Neutral Pro-equality Pro-equality

Home ownership: High Medium Very high

Employment regimes:

Employment participation: High High Very high

Work week length High Low High

Actual retirement age: High Medium-high Very high

Labor market regulation: Low regulation Regulated Flexible/low reg.

Entrepreneurship High Low High

Characteristics of Welfare State Main features of comparison:

Icelandic Welfare state versus Scandinavian WS:

• Cash Benefits in Iceland: – Have some anglo – saxon characteristics

• Welfare services in Iceland: – Similar to the Scandinavian societies

• Higher work participation in Iceland

Explaining different national systems

Scandinavian universal Welfare Model

Labour movement -Struggle for rights -Collective bargaining

Politics -Social democrats -Center parties

Social conditions -Social problems, -Prevailing values

Influences on Welfare Development: Scandinavian Model

Union pressure

American residual Welfare Model

Labour movement -Struggle for rights -Collective bargaining

Politics -Republicans -Democrats

Social conditions -Social problems, -Prevailing values

New Deal -F.D. Roosevelt

Against state protectionism

Influences on Welfare Development: American Model

Icelandic Welfare Model

Labour movement -Struggle for rights -Collective bargaining

Politics -Right of center strong -Left parties weaker

Social conditions -Social problems, -Prevailing values

Independence party strong

Egalitarian culture

Influences on Welfare Development: Icelandic Model

Priority on industry

Contemporary issues and prospects

Changes since the 1990s • Welfare restraint and expansion

– Social Security Pensions lagged behind wages – Increasing user fees in health sector+education – Child benefits were cut relative to early 1990s,

but raised again in the last years • Unemployment now at a higher level

– Unemployment pension lagged behind wages from 1997-2005; new better unemployment benefit from 2006

• Income inequality increased since 1994 – Taxation has increased inequality

• Maternal and especially paternal leaves for birth were improved

• Private pensions are getting a larger role

Current issues What consequences of current changes? •  Increasing privatization and marketization •  Growing inequality>different social environment •  What future for welfare citizenship? •  Public pensions – private pensions? •  Increasing user charges? •  Increasing class differences in health, welfare and housing? •  Increasing globalization: •  Increasing immigrant population •  Work life – home life tension •  New problems – new design of welfare state

Thank you!