When you think about it, it simply doesn’t make sense to compare the highly diverse American society with highly homogenous Nordic societies. A better analogy would be to compare the Nordic countries with a small part of the United States, populated mainly by a single ethic group. How strong is, for example, social mobility within the parts of Utah populated mainly by the Mormons, compared to within Denmark? How strong is it among the parts of Minnesota populated largely by those of Nordic descent, compared to within Sweden? Unfortunately, as far as I know, researchers haven’t gathered the data necessary for carrying out this analysis. But there is a way of comparing apples with apples so we can figure out if it is the American or the Nordic model that offers the greatest opportunities for upward mobility: look at immigrants. The American Dream is ultimately about the chances that society grants to recent immigrants. Immigrants are an interesting group since they are part of the minority population both in the Nordic countries and in America. By looking at the opportunities of those born abroad, it becomes possible to figure out where the American Dream really comes to life for people who start with an empty hand. So let’s begin the comparison.
By looking at the opportunities of those born abroad, it becomes possible to figure out where the American Dream really comes to life for people who start with an empty hand.
One of the best indicators of integration is the possibility to get a job. As the following table shows, the United States is far ahead of the Nordic countries in this regard. In America those who are born abroad actually have a higher employment rate than the native born, while in the Nordics they have much lower rates. This might come as a surprise to those who believe that Nordic societies have created a system where just about anybody can succeed. It is, however, common knowledge for those who follow the development in northern Europe. Studies show that European welfare states are quite bad when it comes to giving immigrants the opportunity to find jobs. The Nordic countries are particularly bad at this, which comes as no surprise since they have extensive welfare systems. The United States, on the other hand, having a smaller government model, is quite good at integrating the foreign born in the labor market.12 This, of course, makes sense. In countries where the government taxes you heavily when you work and gives you generous benefits when you don’t, the incentives to finding a job are more limited. Taxes also reduce entrepreneurship and growth of existing businesses, which reduces the creation of new jobs. Lastly, welfare states tend to have rigid labor market laws, which also reduce job growth. Since immigrants are outsiders in the job market, they are particularly sensitive to the effects of high taxes, generous welfare benefits, and strict labor laws.
EMPLOYMENT LEVELS COMPARING NATIVE BORN TO FOREIGN BORN
COUNTRY
FOREIGN BORN HAS
UNITED STATES
4% HIGHER EMPLOYMENT RATE THAN NATIVE BORN
FINLAND
6% LOWER EMPLOYMENT RATE THAN NATIVE BORN
NORWAY
10% LOWER EMPLOYMENT RATE THAN NATIVE BORN
DENMARK
11% LOWER EMPLOYMENT RATE THAN NATIVE BORN
SWEDEN
15% LOWER EMPLOYMENT RATE THAN NATIVE BORN
Source: OECD and author’s calculations.
The employment rate among those born in Somalia is merely 21 percent in Sweden, far less than the 54 percent in the United States.
Of course, looking at immigrants as a single group doesn’t really tell us enough. Some immigrants have university degrees while others only have basic education, or in extreme cases are illiterate. So let’s separate skilled immigrants from less skilled ones. We certainly know that low-skilled immigrants face great difficulties in creating a future for themselves in Nordic countries. One example is Somali immigrants. A Swedish government report has shown that the employment rate among those born in Somalia is merely 21 percent in Sweden, far less than the 54 percent in the United States.13 Similarly, in Denmark and Norway half of those born in Somalia are neither employed nor educated.14 The point isn’t that Somali immigrants are thriving in the United States. They still have limited education, low incomes, and high unemployment, but over half of the Somalis in the United States do have a job. This is far from the case in Sweden, where only one-fifth do. Once we compare apples to apples, the case for the American Dream coming true in the Nordics rather than America isn’t looking that compelling.
Now, let’s compare immigrants with a low education level with native-born individuals who are similarly educated. As the following table shows, the relative employment prospects of the immigrants are much better in the American labor market. In the United States immigrants with a low education level have considerably lower unemployment than native Americans with similar educational level. In all Nordic countries, the immigrants have a higher unemployment level. What does this tell us? One explanation is, of course, that the Nordic welfare state model is making it more difficult to find work. The Nordic countries follow the same economic laws as the rest of the world. Generous public handouts, strict regulations on the job market, and high taxes do affect employment opportunities for outsiders. Another way of looking at it is that the native born in the Nordics are prospering due to the unique Nordic success norms. Since it is culture, rather than the welfare state, that explains much of the success of the region, we shouldn’t be surprised that the success of the natives isn’t transferred to those born abroad.
UNEMPLOYMENT LEVELS BETWEEN LOW-EDUCATED NATIVE BORN AND FOREIGN BORN
COUNTRY
LOW-EDUCATED FOREIGN BORN UNEMPLOYMENT IS
UNITED STATES
4% LOWER THAN LOW-EDUCATED NATIVE BORN
DENMARK
6% HIGHER THAN LOW-EDUCATED NATIVE BORN
NORWAY
7% HIGHER THAN LOW-EDUCATED NATIVE BORN
FINLAND
9% HIGHER THAN LOW-EDUCATED NATIVE BORN
SWEDEN
10% HIGHER THAN LOW-EDUCATED NATIVE BORN
Source: OECD and author’s calculations.
So what about immigrants who have studied for a higher degree? The odd thing about the Nordics is that even skilled immigrants struggle to get a job. A paper by Kristian Rose Tronstad at the Institute for Labor and Social Research in Norway shows that the poor integration of Somali immigrants in the Norwegian labor market could in part be explained by factors such as low education and lack of social capital. Tronstad reported that labor market exclusion is also true for Iranian migrants in the country. This is more surprising, since “Iranians are mainly political refugees with rather long duration of residence in Norway. They are mostly from urban areas; as secular as most Norwegian, educational level is relatively high for both men and women.”15 A study by Statistics Norway confirms this. The study finds that Iranians in Norway have unusually high educational levels when compared to other immigrant groups. Still, the group had almost as high unemployment rates as those born in Somalia. At the time of the study, fully 41 percent of adult Iranians surveyed responded that they were unemployed and actively seeking work at some point during the latest year. This is only slightly lower than the rate among those born in Somalia, where 44 percent were unemployed and seeking work.16
In Sweden, it is difficult to find studies where the outcomes for groups born in different parts of the world are shown separately. Some studies, however, report historic data for specific minority views. One such study follows the prospects of Iranian immigrants, who, as in Norway, are a highly educated group. In 1999, some fifteen years after the average Iranian had migrated to Sweden, a large segment was still trapped in welfare dependency. Fully a third of Iranian households were at the time supported by welfare handouts. Another third were mainly supported by various forms of public transfers, with some additional work income. Merely a third of Iranian households supported themselves mainly through work, almost exclusively through low-income jobs.17
Another Swedish study has calculated the incomes of immigrants to Sweden from Iran and Turkey. Between 1993 and 2000, the inc
ome from work for the average Iranian immigrant was only 61 percent of the average income of a native Swede. For Turkish immigrants the corresponding figure was 74 percent.18 We can compare this to American data for roughly the same period. According to the U.S. Census for 2000, those born in Iran had an income that was 136 percent of the average for native-born residents, compared to 114 percent for those born in Turkey.19 Granted, the individuals who migrated from Turkey and Iran to the United States were not identical to those who went to Sweden. But many of them did have similar backgrounds. Most of those who traveled to Sweden and the United States belonged to Turkey’s and Iran’s middle classes. It seems that while many achieved the American Dream in the United States, few did so in Sweden.
Some Iranians who migrated to America belonged to the upper class, bringing wealth with them. A better comparison is immigrants to Canada, who, like those to Sweden, mainly came from the middle class.20 Data from Statistics Canada shows that the majority of the Iranian population living in the country in 2006 had come during the last five years. Their full-time work income was on average C$47,000 annually. This is just slightly below the Canadian average of C$51,000. The unemployment among Iranians was 10 percent, only somewhat above the average of 7 percent in the country.21 The Canadian system, with a free labor market and greater incentives to work, obviously granted more chances for work to the Iranians than the Swedish system.
[In Sweden] outsiders are not nearly as successful, as even the highly educated immigrants struggle to find work.
Another example is a group of well-educated Iraqi citizens who fled from Saddam Hussein’s reign to Sweden at the end of the 1980s and the beginning of the 1990s. Those Iraqis who arrived and stayed in Sweden between 1987 and 1991 were almost all highly educated. The group was 2.3 times as likely to have a higher education of more than three years compared to native Swedes. However, even this elite group struggled to find work in the Swedish labor market. In 1995, only 13 percent of the women and 23 percent of the men were employed.22 There really can’t be any doubt about this: while Sweden on paper looks like a country that offers people the chance to climb the social ladder, an important reason for this is that most Swedes have the same cultural background. Outsiders are not nearly as successful, as even the highly educated immigrants struggle to find work.
Of course, one reason for the differences is that different groups of immigrants are attracted to different countries. Economics professors Assaf Razin and Jackline Wahba explain that there is “growing literature on how welfare-state generosity works as a magnet to migrants.” The reason is that individuals who have valuable skills prefer to live in countries with low taxes, where they can keep the fruit of their work. Those who have less-valuable skills are attracted to countries where generous welfare systems provide them with tax-funded benefits.23 Not surprisingly, the research literature shows that highly qualified labor migrants tend to migrate to countries where wages for experts are high and taxes are low.24 This is a partial explanation for the difficulties that the Nordic countries are facing when it comes to integrating foreign-born people: to a large degree, their social systems are attracting those with low skill sets, while the more skilled migrants are going to America and other low-tax countries. However, as the example of the highly educated Iranian and Iraqi immigrants shows, selection is just part of the problem: the Nordic welfare states fail to integrate even the highly skilled migrants. We can look at how highly educated immigrants on average fare in different countries. As shown in the following table, America again comes at top. While highly educated immigrants in the United States have marginally higher unemployment rates than natives with similar educational background, the gaps are considerably higher in the Nordic countries.
THE DIFFERENCE IN UNEMPLOYMENT BETWEEN HIGH-EDUCATED NATIVE BORN AND FOREIGN BORN
COUNTRY
HIGH-EDUCATED FOREIGN BORN UNEMPLOYMENT IS
UNITED STATES
1% HIGHER UNEMPLOYMENT THAN HIGH-EDUCATED NATIVE BORN
NORWAY
3% HIGHER UNEMPLOYMENT THAN LOW-EDUCATED NATIVE BORN
DENMARK
5% HIGHER UNEMPLOYMENT THAN LOW-EDUCATED NATIVE BORN
SWEDEN
8% HIGHER UNEMPLOYMENT THAN LOW-EDUCATED NATIVE BORN
FINLAND
8% HIGHER UNEMPLOYMENT THAN LOW-EDUCATED NATIVE BORN
Source: OECD and author’s calculations.
Could the reason be discrimination? A way of explaining why immigrants have a greater chance of getting a job in the United States is that American society is more inclusive culturally, while Nordic societies are exclusive. There is indeed a case to be made for the Nordic countries combining a cold climate with a rather cold culture. Scandinavian culture isn’t outgoing; therefore, immigrants often find it difficult to make new friends. In American society, immigrants can more easily bond with their neighbors and by doing so, gain a foothold in society. After comedian Gregory Poehler (brother of Saturday Night Live star Amy Poehler) moved to Sweden with his girlfriend, he decided to star in a comedy show about his real-life experiences with culture shock as an American moving to Sweden. The show, Welcome to Sweden, regularly makes fun of Swedish habits of social isolation. For example, some Swedes look through the peephole of their apartment doors before they go out: they want to make sure they won’t run into neighbors when they are leaving, since having to greet the neighbors is seen as a social inconvenience.
Many immigrants view the Swedes, and other Nordic people, as hostile since they seldom have a relation to their neighbors. What the immigrants sometimes fail to realize is that this isn’t necessarily racism, but rather, simply part of Scandinavian culture. The World Value Survey has measured how common racist views are. The survey includes only Sweden out of the Nordic countries. It turns out that less than 4 percent of Swedes would mind having foreign-born neighbors, as compared to 14 percent in the United States. Similarly, 14 percent of Swedes believe that employers should give priority to natives, compared with 50 percent of Americans.25 So, although foreigners in Sweden can struggle to get acquainted with their neighbors, outright discrimination is quite uncommon in the country.
According to Swedish economist Andreas Bergh, the explanation for why Nordic countries fail in integration is simple: welfare state policies and labor union wage setting. Through a statistical analysis he found that two factors significantly influence job prospects for immigrants: “First, welfare state generosity keeps immigrants away from the labor force. Second, given that immigrants enter the labor force, collective bargaining agreements explain immigrant unemployment.”26 The Nordic system, where labor unions negotiate nearly all wages in medium-sized and large places of employment, gives strong influence for worker’s organizations. But these organizations represent the interest of those who have a job, not necessarily those who are outside the job market. Unions push for high entry-level jobs in collective bargaining. These high entry-level wages make it difficult for immigrants (and the youth) to enter the job market.
Indeed, the generous welfare systems of the Nordic countries do not only provide various forms of social good. They can also directly counteract the American Dream by creating dependency and hindering buildup of social and financial capital through work. In the paper “Immigration as a Challenge to the Danish Welfare State?” Peter Nannestad explains how welfare state benefits can reduce incentives to work as well as acquire new skills:
In addition to broad coverage, transfer payments in the Danish welfare state are also quite generous relative to minimum wages in the labor market. Thus the welfare state weakens economic incentives for labor market participation, especially for lowskilled, low-paid individuals. While the net present value of social benefits may be a little lower than the net present value of earnings from labor even for unskilled immigrant workers in Denmark, the difference to the net present value of earnings in their homelands will normally still be large. Due to their relatively low educational achievement levels, this applies to a rather large
proportion of the population of immigrants and descendants from non-western countries in Denmark. Through the same mechanism the welfare state may also weaken immigrants’ incentives to invest in acquiring the necessary preconditions for labor marked participation, like minimum levels of language and social skills.27
A paper published by the OECD shines light on the same problem. There we can read about the concept of the “benefit trap”:
One factor that discourages immigrants from working is the low economic return, compared with living on public income support. The Danish welfare system is generous: so-called “short-term” benefits such as unemployment insurance and social assistance are intended to provide people back to supporting themselves … For native Danes, the system appears to fulfil this role, in sharp contrast to the situation of migrants … Migrants from non-western countries are particularly vulnerable to finding themselves in a welfare trap because their average earnings prospects are so much lower than for native Danes. Seen in that light, it is remarkable that around one in five immigrants and descendants in work would be financially better off drawing unemployment insurance, while another third gain less than [Danish kronas] 500 per month by working … The situation for these low paid workers does not show any improvement until they have been working around five years.28
Debunking Utopia Page 12