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?