But Kleven also points out that the higher Scandinavian taxes finance government policies that make it easier for many people to work — in particular “provision of child care, preschool, and elderly care.” He writes: “Even though these programs are typically universal (and therefore available to both working and nonworking families), they effectively subsidize labor supply by lowering the prices of goods that are complementary to working. … [T]he Scandinavian countries … spend more on such [labor] participation subsidies … than any other country. …”
I like the phrase “complementary to working.” Obviously, getting transfer payments is a substitute for working. But getting support for child care and elder care is complementary to working.
I am reflexively adverse to most government programs due to inefficiency vs cash transfers and high implicit marginal tax rates. As I imagine are many with some degree of economics training.
But I agree that this “complements to working” is an interesting avenue to explore.
Might leisure itself fall into this category? What if the government acquired access to premium leisure activities like backstage concert tickets and beachfront resorts. Then offered them at subsidized prices to people in lower income cohorts who met some sort of work or work improvement threshold?
A few trillion a year to up the US female labor force participation rate from 56 percent to the 61 percent rate in Norway and Sweden would certainly be picking low hanging fruit a great morale booster for social engineering much in the same way boosting Medicaid enrollment under Obamacare has been deemed the greatest public policy achievement in human history. But just as Medicaid coverage doesn’t mean anyone actually gets to see a doctor, so too we must wonder if a federal childcare program would actually mean children are cared for. I suppose we could import the entire population of Honduras to work in chilcare delivery services. It would probably be an improvement over existing headstart programs. But, the politically incorrect might question if doing so would actually be better for the children.
But would it work in the United States? Might it have the same effect that public school has? Do you want to use just any child care, preschool, and elderly care, or will you find yourself spending even more for a house and enjoying an even longer commute for the sake of these services?
This is covered in the post, the Nordics finance a lot of their programs with a VAT, which ends up being a regressive tax on consumption. Basically, ordinary Scandinavians generally end up paying for all those services they get themselves.
Scandinavia works in part because its social insurance, rather than welfare. High trust high productivity people providing services to one another. Not permanent transfers to an underclass or manna from heaven from “the rich”.
There was a post going around.
Ignoring some specific policy proposals, one thing I like about it is the attempt to fairly compensate those that stay home with children rather than work, and to scale that properly based on # of children.
https://www.peoplespolicyproject.org/2019/02/15/the-family-fun-pack-makes-parenting-easy-for-everyone/
Parental Leave.
Families will receive 36 weeks of paid leave for the birth of a child. In single-parent families, the sole parent is entitled to all 36 weeks. In two-parent families, each parent is entitled to 18 weeks but may transfer up to 14 weeks to the other parent. The paid leave benefit will be set equal to 100 percent of earnings up to the minimum wage and 66 percent of earnings beyond the minimum wage. All recipients will be entitled to benefits equal to at least the minimum wage but no more than the national average wage.
Free child care.
After the parental leave period, children will be entitled to a spot in a free public child care center. Parents who wish to care for their children at home can opt out and receive a home child care allowance equal to the per-child wages of child care workers. For example, if public child care workers are tasked with caring for four kids at a time, then the home child care allowance would be equal to one-fourth of the pay of child care workers.
Child allowance.
Parents will receive $300 per month for every child they are caring for under the age of 18. This benefit will replace the child tax credit, child and dependent care tax credit, dependent care flexible savings accounts, 529 accounts as used for elementary or secondary school, and head of household filing status. It will also mostly replace the earned income tax credit.
Making it % of earnings is eugenic.
Paying stay at home parents of infants/toddlers per child makes sense.
$300 a month is like a UBI for fertility. Brilliant.
Arnold,
Are you suggesting the US gov subsidize supply after restricting the demand for labor through high income taxes?
Rwanda outperforms the Nordics with an 86 percent female labor participation rate. Enacting the Green New Deal might get us there without the need for any additional child care programs.
Complement to working is a nice phrase, much nicer sounding than taxing care by relatives, which is just as apt a description. Many of the Nordic countries (and other enhanced capitalism countries) are steadily pushing toward a system where you cannot opt out of paid work for unpaid work. As Asdf notes VAT taxes are significant sources of revenue, worth 8-10% of GDP, and a person staying home to raise their children or care for a parent pays for everyone else’s care when they go to the store. Policies like these are why the Nordics have low individual consumption levels for their GDP per capita levels.
In Denmark you get your free day care so you can become a 2 income family, double income outs you very quickly into the top marginal tax rate of around 60%. Average income tax rates are 45% there, plus a non deductible 25% VAT, plus a 45% top marginal rate for capital gains in case you were trying to save for retirement, plus a 1-3% land tax.
Are these taxes creating ‘equality’? Nope, Denmark has a widening gap in wealth and income, they have started from a very narrow distribution, but have steadily worked to hollow out the middle class. It makes no sense to earn in the middle of their income distribution, you either need to drop into the range where you receive net benefits or jump way into the top of the income range to afford what amounts to top rates of 70-80%.
“provision of child care, preschool, and elderly care.”
If they have a problem doing this on their own, they have an existential problem.
Since they exist, they must have done this at many times in the past.
What has changed that they have lost the skill?
You haven’t really observed life in modern America until you’ve spent a few years in a household where someone — usually a frazzled middle aged woman — is tending to an elderly parent with Alzheimers or a husband stuck in a wheelchair with an incurably bad back or the like.
It’s just such FUN changing diapers on an 80 year old, you wouldn’t believe.
And there such 80 year old incontinent people. And people in their 90’s.
This is reality, but most conservative critics of the current day Welfare State are still looking back to the Good Old Days of say the 1950’s, when there weren’t these troublesome old folks because most of the geezers died in their 60s.
You got a policy to get us all back to the Wonder Years? Tell us about it.
My mother took care of my grandmother when she was dying. She came to live with us. Most old people I know would prefer to go out that way. Being cared for by loved ones rather than shoved off into a nursing home where they receive depersonalized half assed care from the cheapest labor the home could afford. One of my friends working in the place had to watch one of the old people try to kill themselves just not to be there anymore, while the admin was bilking Medicare/Medicaid out of huge sums.
I was always taught that one of the signs of true love for your parents was their dying in your home rather then shoving them into a nursing home.
It would be frazzeled to try to hold down a job and keep a budget while taking care of an old person. You can ameliorate that by paying them directly for taking care of dependents. It doesn’t have to be $0 compensation if you do it yourself but free if you send them to a home and have Medicaid do it.
The same applies to child care. I think it’s crazy to provide assistance to people to young children ONLY if they will have a stranger raise their kids.
complementary to working.
Is indeed a good phrase, and an important aspect of a good social safety net. We want more able bodied people working – or taking care of babies.
That’s why the employment rate is more important than the unemployment rate.
Tho a sustainable society also needs a culture, and policies, that are
complementary to being married, with children.
Hungary is explicitly trying to do this, and more European countries are likely to be following. Quick ABC link: https://abcnews.go.com/International/video/hungarys-prime-minister-promises-subsidies-families-multiple-children-61019930
Among these benefits – women with 4 or more children become exempt from income taxes.
Deeper analysis of prior Hungarian incentives, including the big change in the Constitution in 2011:
https://ifstudies.org/blog/is-hungary-experiencing-a-policy-induced-baby-boom
gives couples the financing they need to get a new home and live together, provided they are willing to get hitched. Hungary’s tax benefits favor families with children, and favor married filers with children the most.
I wonder what the “unintended consequences” will be. Will there be sham marriages for favorable tax treatment? Will people stay in a marriage for tax purposes while transferring their affections to someone else, maybe only pretending to live with the official “spouse”? Alas, not feeling very creative this morning.