PERSPECTIVE ARTICLE: The impact of Nordic countries’ family friendly policies on employment, wages, and children

Abstract

The Nordic countries at the same time exhibit a remarkably high participation rate of mothers and a more moderate decline in fertility rates compared to other Western countries. This has been attributed to the fact that the welfare state model and, especially, the family friendly policies chosen in the Nordic countries are unique. In this paper we evaluate the impact of Nordic countries’ family friendly policies on employment, wages and children’s well-being. We demonstrate that, although the ‘Nordic model’ has been successful in boosting female employment, it is a costly solution. Furthermore, family-friendly policies mainly directed towards giving mothers the right to be on long paid maternal leave have adverse effects on women’s wages with consequences for gender equality. Indeed, extensive family-friendly schemes may even have created a ‘system-based glass ceiling’ hindering women’s career progression. There is no evidence however of a trade-off between family-friendly policies and family welfare as effects on child development and children’s well-being of publicly provided child-care are found to be modest or even positive.

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Notes

  1. 1.

    See Jaumotte (2004). However, for Iceland there are still considerable disincentives for second earner labor supply.

  2. 2.

    The United States introduced an unpaid leave period (cf. the FMLA) in 1993.

  3. 3.

    The concept of ‘parental leave’ also includes the Danish ‘child care leave’ scheme. We do not include in the definition of ‘leave’ the Finnish and Norwegian cash subsidy for child care because these schemes are very different from traditional leave schemes.

  4. 4.

    Although certain large groups in the labor market have negotiated special agreements with even higher replacement rates, e.g. 90% of former earnings in the case of all state and government employees in the public sector in Sweden.

  5. 5.

    When the compensation is based on former earnings and the maternal leave periods are long as in the Nordic countries, an important question is whether the compensation is based on former hourly or annual earnings. In Sweden, it is former annual income, and this means that the compensation rate declines over time if the mother gives birth to additional children within a few years i.e. she has no or little employment between childbirths. It can be said that Sweden has a ‘speed premium’ which implies that women who give birth to their second or subsequent child within a relatively short time period after the birth of a child can maintain the benefit level, despite their previous wage income not qualifying for this benefit level. In Denmark, the compensation is based on previous hourly or monthly earnings, not annual income, and thus, the compensation rate does not usually decline over time.

  6. 6.

    Hiilamo and Kangas (2005) attribute this in part to the prevailing political discourse in Finland which has emphasized the positive qualities of home care and women’s “freedom to choose”, contrasted to the very different debate in Sweden and other Nordic countries where home-based care has been seen as a “trap for women”.

  7. 7.

    The definition of participation rates may overstate the ‘real’ attachment to the labor market if mothers on maternal leave from a job are registered as being labor force participants. This is typically the case for mothers on formal leave in the Nordic countries. For this purpose, employment rates may be more reliable.

  8. 8.

    In a recent micro-study of 22 countries, Blau and Kahn (2003) demonstrate that highly centralized wage bargaining settings increase female wages relative to male wages by setting wage floors at the bottom of the distribution where females tend to be located, and therefore decentralization should adversely affect the gender wage gap.

  9. 9.

    This permanent loss may reflect different career paths and promotion chances for men and women in the private sector. For instance, the number of women who reach top positions (CEO-level) in the Nordic countries is low compared to many other countries; see Smith et al. (2006) and Henrekson (2004).

  10. 10.

    These jobs are not typically low paid jobs in the sense that they often demand high qualifications and education, and also offer full job protection and full rights to social security goods etc.

  11. 11.

    In fact, a relevant question which we do not address here could be to what extent publicly-provided care and services tends to “crowd out” private care. See for example Cutler and Gruber (1996) for an analysis of this type on the insurance market.

  12. 12.

    The “speed premium” refers to the entitlement of a longer parental leave period if children were born relatively close to each other.

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Acknowledgements

We thank Gösta Esping-Andersen, Anders Björklund, Tor Eriksson, Siv Gustafsson, Olli Kangas, Ann-Sofie Kolm, and Marianne Simonsen for commenting on the manuscript, Maria Stanfors for providing useful information on the Swedish parental leave system and Inga Persson and other workshop participants at Lund University for helpful suggestions. All remaining errors are the responsibility of the authors.

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Correspondence to Mette Verner.

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Datta Gupta, N., Smith, N. & Verner, M. PERSPECTIVE ARTICLE: The impact of Nordic countries’ family friendly policies on employment, wages, and children. Rev Econ Household 6, 65–89 (2008). https://doi.org/10.1007/s11150-007-9023-0

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Keywords

  • Family friendly policies
  • Parental leave
  • Child care
  • Female labour force participation
  • Nordic countries

JEL Classifications

  • J1
  • J2
  • D1