Income Distribution, Social Fairness and Welfare Policies in Finland Antero Kiviniemi A

Some Basics on Finland Nordic Country: Member of the European Union and Euro zone 5.5 million inhabitants Very homogeneous population Sparely populated Performs well in international (UN, OECD, EU) comparisons on well-being and equality A Nordic Country with SE, DK, NO (and IC) Capital: Helsinki Member of the European Union and Euro zone 5.4 million inhabitants Homogeneous population Sparely populated regions Performs relatively well in many international (UN, OECD, EU) comparisons on well-being and equality

Starting point: Relatively Good Social Situation According to international comparisons and statistics, the social situation is relatively good: Low poverty rates Relatively high employment rates Even income distribution, strong social integration and cohesion – despite some changes occurred from the mid-1990s on No radical collapse of the social situation in the current economic and financial crisis – social protection and welfare services play a key role in this success

Aim and structure of the presentation Aim: to explain why and how the income distribution is so even in Finland, through Starting Points of Welfare Policies Structures of Social Protection Example of a Retaired Person Its price, legitimacy and current challenges

The perspective resulting from University studies in political science, international relations, law and economic Career in the Finnish Ministry of Social Affairs and Health (management and reforms), in the EU (comparisons, analysis, law) and within the OECD (comparisons, analysis, reforms)

‘Ideology’ on Welfare Policies and Social Fairness Universalism: Comprehensive social protection, social security and welfare services, including school and health services, are accessible and offered to all the residents of the country. Equal treatment, equal rights: Whole population, all the residents have (more or less) identical rights to social protection and welfare measures, independently from their work status or family situation for example. Welfare and social integration of all the residents are to be equally enhanced. Rights are mainly individualized, they support individual's independency, no family dependency. This is a very important element, among other things, to enhance the gender equality and women's position in society. A comprehensive approach to welfare: Wellbeing is not only about money and/or incomes, nor social fairness about income distribution. Fairness is also about health, education and accessible services that should be available to everybody,. Public welfare policies and the welfare state have taken in many respects responsibility over action, measures and aspects that are carried by the family or/and informal communities in many other welfare systems. The Finnish model makes part of the so called Nordic Model, together with Swedish, Norwegian and Danish ones.

Main mechanisms of income distribution Starting point: low differences in wages Collective, comprehensive wage agreements to ensure fair wealth distribution High quality school is at disposal of everyone: high social mobility (Income) taxation and social security (contributions) play an important role in income redistribution with progressive income tax rates, they diminish (average) income differences by 15 %.

Social Protection – Cash Transfers Earnings-related, kind of insurance based benefits old age, invalidity, unemployment, sickness allowance, work injuries, parenthood Basic benefits for the same causes Supplements for housing, care, domestic aid, training, activation and rehabilitation for example Financial support for subsistence to cover housing, food, water, electricity, water, telephone, clothes among other things

Beyond Cash Benefits and Financial Aid, Equally Important High quality welfare services accessible to all the residents of the country who need them: Primary and specialized health care; rehabilitation Comprehensive Social Services Support in social difficulties, housing, against violence, sudden crisis, child wellbeing, parenthood, functional limitations, substance abuse, and so on Other: preschool, school, education, library, sport etc

Distribution of social expenditure by target group, %   Illness and health 23,8 Disability 10,6 Old age 37,9 Widow and other relatives 2,8 Family and children 9,9 Unemployment 8,0 Housing 1,9 Other social security 2,7 Administration 2,6 Total 100

Concrete Example: How the Welfare State protects an Old Age Retiree? Earnings related pension benefit, financed by pension contributions and their investment returns (~ 60 % / gross income) Completed, if needed, by National and/or Guarantee pensions (i.e. minimum pension), financed by taxes (~ 10 % / gross income) Completed, where necessary, by housing, rehabilitation, domestic aid and care supplements, financed by taxes Universal welfare services: health, rehabilitation, old age care, social services, culture, libraries etc etc About 80 % of the retirees own the house they live in

Share of Low Income people (less than 60 % of MI) by age group - 18 v 10,9 18–24-v 25,2 25–34-v 13,3 35–49-v 8,4 50–64-v 10,5 65–74-v 9,9 75 v + 24,2 Whole population 12,8

Cost of Welfare Policies

% share of public taxes and social contributions in some countries in 2015 (World factbook)

Legitimacy of the Model Strongly supported by the population: Nordic welfare ideology is deeply rooted: People think there is a high return for the money. Strong trust on the system – no corruption. The model has been developed through strong national consensus and co-operation, through important common efforts, and by different governments and political parties; social partners, institutions and citizens are strongly involved. National pride: No political movement seriously questions the basics of the model. To note: the population in Finland is homogeneous, social classes do not exist as they may do in many other countries

Main Challenges - Need to reform Smooth running of the system requests (relatively) high employment rates, taxes and social security contributions and a reasonably low dependency ratio. Employment and appropriate, fair earnings from work are the cornerstone of the welfare. Although employment rate is relatively high, it is lower than in other Nordic countries, in particular due to invalidity. As many other countries, Finland too has a rapidly ageing population: shrinking workforce with an increasing number and share of the long living elderly : old age dependency ratio is at stake: a necessity to accommodate pension system, care and services to the changes. Current difficult economic situation -in particular increasing (youth) unemployment: more people in need of support and social protection and less financial resources available. Need to update the system in order to meet the changes in work life during the last decades: nature of work contracts, unemployment, job creation, self-employment, globalisation: work incentives, workability: highest possible employment rates and longest possible working careers. Government is working hard on this. Simplify the social security system, reduce the bureaucracy, lighten the administration (and costs): system, very complex – there are more than 100 benefits. To guarantee the equal treatment, the access to welfare services also in sparsely populated regions is a huge challenge. Concerning income equality, it is to be noted that women’s average earnings are lower than men’s. This is in particular because they are more employed in public sector and work more part-time than the men, and also because they stay on parental leaves for long time.  

Conclusion The Income Distribution in Finland is relatively even, thanks to common efforts and appropriate reforms done when needed, and the high legitimacy of existing tax, social protection and wage arrangements. Still, there are major challenges to face in order to perform well also in the future. Government is working hard to get there.

Thank you very much for your attention!