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April 21, 2013

Danes Aren't Working???

Josh Barro tweets:
As @DeanBaker13 points out, that NYT story on Danish welfare didn't really make the case that Danes aren't working.
Here's Dean:
NYT Uses News Story to Express Dislike of Danish Welfare State, by Dean Baker: The NYT ... features a diatribe against the Danish welfare state that is headlined, "Danes Rethink a Welfare State Ample to a Fault." There's not much ambiguity in that one. The piece then proceeds to present a state of statistics that are grossly misleading and excluding other data points that are highly relevant. ...
The piece ... goes on to describe the extent of the Danish welfare state with its 56 percent top marginal income tax rate, telling readers:
"But few experts here believe that Denmark can long afford the current perks. So Denmark is retooling itself, tinkering with corporate tax rates, considering new public sector investments and, for the long term, trying to wean more people — the young and the old — off government benefits."
Hmmm, it would be interesting to know what data the experts are looking at. According to the IMF, Denmark had a ratio of net debt to GDP at the end of 2012 of 7.6 percent. This compared to 87.8 percent in the United States. Its deficit in 2012 was 4.3 percent of GDP, but almost all of this was do the downturn. The IMF estimated its structural deficit (the deficit the country would face if the economy was at full employment) at just 1.1 percent of GDP. Furthermore, the country had a huge current account surplus of 5.3 percent of GDP in 2012... This means that Denmark is buying up foreign assets at a rapid rate. ...
If there is something unsustainable in this picture, it is not the sort of data that economists usually look at. Is marijuana legal in Denmark?
Then we find the real problem is that no one in Denmark is working:
"In 2012, a little over 2.6 million people between the ages of 15 and 64 were working in Denmark, 47 percent of the total population and 73 percent of the 15- to 64-year-olds.
"While only about 65 percent of working age adults are employed in the United States, comparisons are misleading, since many Danes work short hours and all enjoy perks like long vacations and lengthy paid maternity leaves, not to speak of a de facto minimum wage approaching $20 an hour. Danes would rank much lower in terms of hours worked per year."
So in spite of the generous Danish welfare state a higher percentage of its working age population works than in the United States. (Actually Denmark ranks near the top of the world in employment to population ratios.) Yet, somehow this doesn't really count because people in Denmark get vacations, work shorter hours, and have a higher effective minimum wage.
This ranks pretty high in the non sequitur category, apparently when you want to bash the welfare state, the rules of logic apparently do not apply. Danes, like most Europeans, have opted to take much of the gains in productivity growth over the last three decades in the form of shorter work years rather than higher income. (One interesting result of this practice is that we have some hope to save the planet from global warming -- greenhouse gas emissions are highly correlated with income.) Of course Danes still work about 8 percent more hours on average than hard-working Germans, according to the OECD. If there is a problem in this picture, the NYT might want to devote a few paragraphs to telling readers what it is.
As far as the $20 an hour effective minimum wage, isn't the problem of a high minimum wage supposed to be that it creates unemployment. But the NYT just told us that Denmark has higher employment... (My brain hurts.)
Okay, we get it. The NYT doesn't like Denmark's welfare state. It doesn't really have any data to make the case that Denmark's welfare state is falling apart and leading to all sorts of bad outcomes, but they can wave their arms really fast and hey, they are the New York Times.

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