5th January:

“The Welfare Trap”

John G. Bernander, Director General, NHO

The NHO’s Annual Conference 2011 has been given the title “The Welfare Trap”.

While country after country in Europe has been forced to implement what must be termed rather harsh welfare cutbacks, we here in Norway are fortunate enough to be able to stash away several hundred billions of petroleum revenues in the Norwegian Government’s Pension Fund. But our good welfare schemes are still not sustainable over time – sooner or later, we too will have to implement cutbacks, and the later these cutbacks come, the more severe they will have to be. This is what is meant by the welfare trap.

Three demographical booms have rather dramatic consequences:

• The boom of elderly people is caused by the fact that we live longer. That is great, but it also means great costs in the form of increased expenditures relating to increased pensions, health, nursing and care services.
• The migration boom means that our population is growing faster than ever before. This gives us more people who are able to contribute through workforce participation. But lower workforce participation among some immigrant groups may serve to put our welfare system under pressure.
• The boom in social security benefits is caused by the fact that people are being partly pushed and partly pulled out of the workforce, young people who have dropped out of school, immigrant and middle-aged people with low skills and older workers with a good personal economy.

As we are doing our best to cope with these booms, we are faced with a number of dilemmas:

• The high levels that characterize the various social benefit schemes in Norway result in small differences, but it also means that larger groups end up on benefits.
• High workforce productivity yields value creation and welfare, but it also makes it more difficult for those with low competencies to gain labor market entry.
• We require labor that can help us meet our growing demand for nursing and care services. Labor immigration may give us a temporary solution, but in time these immigrant workers will also be entitled to welfare and social security benefits, and if their workforce participation rate remains low, as a worst-case scenario it could serve to increase our problems long–term.

At the NHO’s Annual Conference we will be discussing these dilemmas. And we will attempt to edge closer to a policy designed to increase workforce participation. We will be looking at how the corporate sector can contribute, and what the public sector must do. Tackling these dilemmas is no easy task, but it is absolutely vital that we handle these challenges. Norway has already introduced an extensive reform to strengthen the policy that as many people as possible should be working, the pension reform. The NHO would like to take the initiative to a fundamental reform of our national insurance system and welfare scheme modeled on the pension reform, for the way to salvage our welfare state is through increasing workforce participation, and not by increasing the workforce drop-out rate.

At the NHO’s Annual Conference you will meet among others Harvard professor Kenneth Rogoff, Monika Queisser from the OECD and Norway’s Prime Minister Jens Stoltenberg.

Welcome!

CONFEDERATION OF NORWEGIAN ENTERPRISE (NHO)

John G. Bernander

Director General