The Welfare State - Findings
ESOP has several projects focusing on the impacts of specific welfare state policies, exploring detailed register data.
Impacts of subsidized child care | The equality multiplier | The welfare state and the labor market | Health and income | Optimal taxation
One paper that we would like to emphasize is Tarjei Havnes and Magne Mogstad (2010), «No Child Left Behind. Subsidized child care and children's long-run outcomes», published in American Economic Journal: Economic Policy. The Scandinavian countries were the first to introduce subsidized child care on a large scale, and their experience is currently a unique source of information about its long-run consequences. The article explores how adult earnings and education are affected by access to universal child care using information on around half a million children, born around 1970. The comprehensive study shows that access to child care raises adult education, as well as the probability of college attendance, high school completion and labour market participation. The effects are particularly strong for girls and children of low educated mothers, indicating that universal child care promotes social mobility and narrows the gender wage gap. The precise and robust difference-in-difference estimates show that child care exposure improves long-run prospects of children considerably, both educational attainment, labour market attachment, and welfare dependency. The additional 17,500 child care places produced 6,200 years of education.
Many other works by ESOP staff also evaluate the interdependencies between welfare arrangements and labour market. Erling Barth and Kalle Moene have investigated how equality can multiply due to complementarities between wage determination and welfare spending. A more equal wage distribution fuels welfare generosity via political competition. A more generous welfare state fuels wage equality via its support of weaker groups. Together the two effects generate a cumulative process that adds up to an important social multiplier. This mechanism explains how equally rich countries may differ in social equality and why countries cluster around different worlds of welfare capitalism. Empirically we identify a sizeable equality multiplier using a panel of 18 OECD countries and a 50 year time series from the US.
Several works focus on disability pensions – A topic which is of great importance for the viability of the welfare state. For instance, Mari Rege has a study where she looks into how plant downsizing in Norway affects the flow into disability pensioning: She finds substantial effects, parts of which must be interpreted as caused by weak employment prospects rather than a result of concrete disability. Another group of works study migrant workers in the labour market. Bernt Bratsberg, Oddbjørn Raaum, and Knut Røed study how migrants fare over the business cycle. They find that immigrant employment is particularly sensitive to the business cycles, and that the economic downturns of the 1980s and 1990s accelerated their labour market exit.
ESOP has also focused on various health issues: Kjell-Arne Brekke has studied the inequality of health in Nordic countries. International comparisons reveal that the Nordic countries all have a high degree of correlation between income and health. Øystein Kravdal has analyzed the consequences of health shocks, i.e. cancer, for the family, in several works. He has studied various issues in particular related to the sharing of burdens within the family. He finds that married men and married women receive a lower income after a cancer diagnosis. Strikingly women's earnings were adversely influenced to the same extent by their own as by their spouses' cancer. Such an effect was not found for men.
A large group of ESOP’s works have investigated the tax financing of the welfare state. Kjetil Storesletten and Fabrizio Zilibotti have studied optimal taxation of capital. Vidar Christiansen opposes the common view that high marginal income taxes are purely distortive. Scandinavian countries are often highlighted as prime examples of countries with harmful tax distortions. However, assessing social efficiency by taking marginal tax rates at face value may lead to exaggeration of the tax distortions. The key argument is that the public provision of some private goods, another typical feature of the Scandinavian economies, can make a difference. When selected commodities are publicly provided, part of the marginal income tax reflects real costs, and part of the tax is nondistortionary because it reflects real costs. This could be one among other reasons why the Scandinavian economies perform so well, although they have very high marginal tax rates.