Is the UK’s welfare state to blame?

I came across this graph whilst trawling the World Wide Web. A hat tip to Daniel Sage from whose account the graph was sourced. The commentary is mine.

Is it really necessary to cut UK social spending?

The graph indicates that high social spending is not an impediment to high employment levels.

This finding runs counter to the current popular consensus in the UK which is in support of the government’s agenda to dramatically reduce social spending. The widespread  belief is that employment levels will increase as a consequence of reduced social spending. Cuts to social spending will remove the disincentive to work that is believed to cause unemployment. Or so the story goes. The graph does not support that thesis.

The R-squared figure cited on the graph  tells us that the correlation coefficient between the two variables is roughly +0.5.  This is high given that a correlation coefficient can not exceed unity (one) or fall below zero. Visual inspection and the line of best fit shown on the graph tells us immediately that the two variables move in positive sympathy with each other. Note particularly how Denmark, Sweden and Finland (Scandinavia) lead the pack. Notice also how the UK’s profile is atypical in that its employment levels were high but its social spending low.

Are we being deceived?

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5 comments

  1. We are absolutely being deceived – by people who have ideological commitment to small state & low taxation, despite the evidence from Scandinavia and elsewhere that large state & high taxation is not incompatible with employment & growth. That’s not the only piece of deceit, either. Just look at the relative positions on this chart of Greece, Italy, Spain and Germany. Which one has the highest social spending? Not what the “profligate periphery” merchants say, is it!

  2. Also interesting that (1) Danish unemployment benefits are time-limited, (2) has had a more stringent “workfare” type program and (3) for a decade or more, has had very tight immigration comtrols. IMHO all these contribute more to the low unemployment level than high social expenditure as portrayed in the graph above. Also the Danish economy now has low growth & much higher unemployment levels (than in 2006) as a result of the financial crisis; she faces quite similar problems as the rest of the western economies, they too have had to reduce spending. Just some quick thoughts.

    • HI Art-Li

      Thanks for your comments.

      Here is a link to a description of the Danish welfare system as it existed in 2007.http://www.usatoday.com/money/world/2007-03-06-denmark-usat_N.htm.

      You are right to point out that unemployment benefits are lifetime limited (to 4 years). However, I understand the help given to claimants to find work is much more generous and helpful than that isupplied by the UK’s work-for-your-benefits schemes. Moreover, unemployment benefit is set at 90% of a claimant’s last salary.

      Kindest

      The Uxbridge Graduate

    • Hi Art-li

      Just for the sake of clarity I did not suggest that high social spending contributed to high employment levels (although it might do so in the Danish case). The point of the graph was that is shows high social spending does not impede the achievement of high employment levels. Put another way, social spending and employment levels may be independent of each other and so it is ideology or a prior (and spurious) logic that perceives them to be linked. Usually it is politically advantageous to persuade we proles that a negative linkage exists,i.e., that an increase in the value of one variable must be accompanied by a decrease in the value of the other. This way, the rich and powerful can justify the demolition of the welfare state and the infliction of suffering on needy citizens.

      The graph shows the thesis of negative correlation to be untrue, at least in the EU in 2006 but which by induction renders the proposition to be false and without universal application.

      Kindest

      The Uxbridge Graduate


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