WHERE ARE THE INCENTIVES?

A couple of days ago I wrote about how high taxes makes it less worthwhile to work instead of staying at home. The same thing is obviously true with generous welfare systems. Combine the two - high taxes on income and a generous welfare system - and the effect may be lethal to the economy. And unfortunatly the combination isn't uncommon - after all, the welfare systems are often the very reason for having high taxes.

For those of you who want to get less theoretical and see what effects high taxes and a generous welfare system have in reality, I suggest you read this article on DN Debatt (at least if you understand Swedish). In it Dr Helene Sandmark and Ms Monica Renstig present the result of a study they've written regarding the reasons for the relatively high ratio of women who have been away from the labour markets for a long time. They list several reasons for this, among them the slowness and inefficiency of the Swedish health care system, and one of those reasons directly concerns our subject. Dr Sandmark and Ms Renstig has discovered that 90% of the long time sick-listed women would actually loose money if they returned to work! And yes, that number is accurate: 90%.

The median salary for these women after all taxes has been paid was 10 368 SEK (approximatly $1450 US) per month, and subtracting increased costs for lunch and transportation related to work their disposable amount of money ended up at 8 878 SEK (approximatly $1250 US). If instead they chose to stay on the sick-list these same women acquired 9950 SEK (almost £1400 US) thereby making more money by staying home. Who'd go back to work under these conditions?

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