Danish welfare – how does it actually work?

At least since Bernie Sanders brought Denmark into the American political debate, but probably even before, views and information has been circulated on the net about our welfare system. Some of which is true and some of which is not.

So I decided to do a little blogging on the subject. The following is written for those outside Denmark who has an interest in how our society works. The aim is not to convince you that the so-called Nordic model is perfect – which it is not. It is just to offer some facts and perspectives from someone who has both personal experience with it and who has studied its history. While on a conceptual level the Nordic countries – and especially Scandinavia – has a lot in common, there are also many minor differences, for instance in the specific ways our welfare systems work. So, to make things a bit easier for myself I’m writing about Denmark only.

It is important to stress, that while the Nordic model is certainly about public welfare, it’s is also about the labour market, the political system and a lot of other things. But you’ve got to start somewhere. So in this post, I shall try to describe the key features of the Danish public welfare system. Then, maybe, in a later post, I shall focus on some of the other issues related to the Nordic model – and the dangers and criticism it is facing.

To be specific, I have cited the exact figures of some of the welfare benefits below. I know that this doesn’t necessarily make much sense to someone, who is not familiar with Danish incomes and cost of living. But just to give you some basic figures for comparison: The average income in Denmark per month is DKR 25.600, and the average disposable income (after tax etc.) is DKR 18.300. Mind you: This is the average of all taxpayers from CEO’s through employees and students to pensioners and those living of social benefits. The average income of an employee in the statistical category “basic level” is DKR 28.900 while the average income of an employee at “highest level” is DKR 45.400. (Source: Statistics Denmark)

Welfare

The following are what I believe to be some of the major elements of our welfare system. I have concentrated on public welfare, which makes up the core of the system. However, Danes may also receive social benefits from other sources, most notably the collective agreements between unions and employers. Where such benefits are of special importance, they have been mentioned too.

Please note: The Danish welfare system is complicated. And I am no expert in all of its present aspects. The information given below is correct to the best of my knowledge, but you are well advised to check up on the details, that might be of special interest to you.

The sources for the following are a number of official websites, mostly in Danish. If you want to go hunting for more information, good places to start would be Life in Denmark, Denmark.dk or Statistics Denmark.

Now, on to the facts:

Birth and childhood

As a parent you have the right to 52 weeks of parental leave, starting no later than 4 weeks before expected birth. Some of it is reserved for the mother; some can be used by the other parent. As a minimum, you will be paid 90% of your usual salary, up to a maximum of currently DKR 4.245 pr. week. However, some employees have a right to full salary, as part of their union’s agreement.
When the paternal leave is finished, more than 90% of all children will be in day-care, typically a municipal nursery or kindergarten. These are subsidised, but not free – payment varies, but is typically DKR 1.600-1.800 pr. month for kindergarten (age 3 to 5).
As a parent you will also receive a child-caring bonus from the state for any child below the age of 18. The amount varies with the age of the child, from DKR 17.964 pr. year (0-2 years) to DKR 11.184 (7-17 years). If one of he pants have an income above DKR 749.000 pr. year, the bonus will be reduced. The bonus is paid automatically. However, if you are a family in special need or a single parent, you may also apply for an increased child-caring bonus. For instance a single parent with one child may be eligible to an extra DKR 11.188 pr. year.
Parents who are public employees have the right two two days paid leave pr. year of their own choice for each children below 8 years. This is commonly referred to as “compassionate leave”. Many employees in the private sector has the same right, as part of their union agreement. Furthermore, it is stipulated by law that a parent have the right to take at least one day of from job, in case a child under 18 has an acute illness or for similar reasons are in need of parental care. Many, but not all employees will be paid their usual salary in this case, due to their union agreement.

School and education

With a few minor exceptions, all education is free, from primary school to university. In primary school, but not in higher education, books and sometimes tablets etc. are supplied as a loan for free. Students at the age of 18 or more are entitled to public support, in the form of grants. Grants range from DKR 934 to DKR 6.015 pr. month, depending on your age, social situation and type of education.
Access to most higher educations is limited – usually a high school exam passed with certain grades is required.

Healthcare

All citizens are provided with a personal health care card, which gives free access to primary health care at a general practitioner, as well as free hospital treatment. Some specialized care is not free, but subsidized; most notably dental care. Medicine are also not free, but subsidized.
As an employee, you are as a minimum entitled to a 90% of your normal salary, up to a maximum of currently DKR 4.245 pr. week in a maximum of 52 weeks, if your sickness prevents you from working. But many employees will receive their full salary, due their union agreement.

Vacation

All employees has the right by law to 5 weeks paid vacation. This is, however, dependant on the employee having been at work at least one year before (for the same or another employer) – if not, vacation is reduced proportionally. Most employees have the right to extra vacation – typically one week – as part of their union agreement.

Housing

If you are living in a rented apartment, you are mostly eligible for housing subsidies. The average amount paid is DKR 2.114 pr. household pr. months, but with great variations. The exact amount is computed on an individual basis, based on your rent, your income, the size of your family and other factors.

Loss of employment

As an employee you are advised to be a member of an unemployment insurance fund, often associated to your union. The typical fee will be DKR 450-500 pr. months. This entitles you to a compensation of 90% of your normal salary, up to a maximum of currently DKR 4.245 pr. week for up to two years.
If you for some reason could not meet the requirements for becoming a member of an unemployment insurance fund, or if you are unemployed for more than two years, you may receive social security benefit. The rate of this varies, depending on your age, whether you have children and a number of other factors. The lowest rate is DKR 3.466 pr. month, while the highest – paid to those who have children to provide for – is DKR 14.808 pr. month.
To receive unemployment insurance or social security benefit, you are obliged to be actively seeking for employment.
If you are permanently unable to work because of a chronical disease or a disability, you might apply for early retirement pension. This will normally require you to go through an elaborate test of your ability to work, which often takes several years. Early retirement pension is typically DKR 15.650 (co-habiting) or 18.412 (single) pr. months.

Retirement and old age

At least from the age of 68 you are entitled to state pension if you retire from work. This is currently DKR 9.383 (co-habiting) or 12.711 (single) pr. months. To this, various extra benefits may be added, depending on your social situation.
Furthermore, an increasing number of employees have a pension scheme as part of their union agreement. Payments from this are added to the state pension.
Pensioners are eligible to home care, based on an assessment of their specific need. Those who are no longer able to stay in their old home may apply for residence in a home for the elderly. These are typically run by the municipality and subsidized, but not free.

Death

A spouse, child or friend may choose to become a full time companion for a person, who has been diagnosed as terminally ill. Until the death of that person and two weeks after, the person who is taking care of him or her, is entitled to full compensation of their salary.

Financing

Some of the welfare services mentioned above are partly paid for by those who receive them, i.e. day-care, where parents pay roughly a quarter to a third of the expenses. Very few are partly paid for in the form of insurance, most notably unemployment benefits, to which you are only eligible if you have paid a premium to an unemployment insurance fund, as described above. However, these funds are also heavily subsidised by the state.

Copenhagen

Overall, it is safe to say that the overwhelming part of the welfare system is financed through taxes. Most notably by a personal income tax, which make up roughly 45% of the total public income. Other important sources are a sales tax, making up 29% of total public income. Then there are corporate taxes and different types of special taxes, i.e. on petrol, alcohol, etc. All in all, 99% of public income is from taxes (source).

However, some of the allegations made about tax-payment in Denmark in public and internet debate are either not true or heavily distorted. Sometimes it’s claimed that Danes pay 50% or more of their income in taxes. This is misleading – at least if presented as personal income tax. We typically pay 34-42% in tax, depending on the size of our income. At first glance, this still makes the Danish income tax the highest among the 21 member-states of the OECD. But this is again misleading, as in many countries employers, employees or both have additional social security expenses, which are all included in the income tax in Denmark. If such mandatory social expenses are added to the income tax paid in countries like Germany, France or Italy, Danes actually pays considerably less than people living in these countries.

On the other hand, other types of taxes, such as for example sales tax (which is 25% in Denmark), should also be taken into account. If personal income tax, sales tax, housing taxes and all forms of special taxes are added together, Danes actually do pay 53-58% of their income in tax. That is far above the up to 39% paid in the USA (which of course does not cover healthcare etc.) and 47% in Great Britain, but still below the up to 67% paid in Belgium, 62% in France and 59% in Germany, when mandatory social expenses are added to the taxes paid in these countries.

Only if tax is measured in relation to GDP, can the often made claim that Denmark is the country in the world with the highest taxes, be said to be true. But this becomes a bit technical too, as different countries have different ways of paying taxes and of doing statistics. In many countries, social benefits are received as a net income. In Denmark, however, you are required to pay tax from social benefits. This, of course, makes the total amount of taxes paid higher. If this is taken into account, tax payment in relation to GDP is higher in France than in Denmark (the source of all these tax-figures is this article in Danish).

Bottom line

The bottom line is the following: We have a rather generous public welfare system in Denmark, at least compared to most other countries. We also pay high taxes, even though not as excessively high as is sometimes claimed. But since wages are also high, the net result is a material standard of living, which is among the highest in the world.

It is generally recognized, that the Nordic model for public welfare based on income redistribution through taxation, of which Denmark is an example, has effectively reduced poverty, promoted egalitarianism and gender equality and strengthened social cohesion and the overall feeling of public trust and security. (source)

The model is far from perfect, and faces criticism and challenges, as I shall write about in a later post. Never the less, I am personally convinced that this is a better model than those based on low taxes, limited public welfare and private insurance, as for example in the USA. You are of course perfectly entitled to feel otherwise. But if you have had the patience to read as far as this, I hope you at least feel you have learned some facts about the Danish welfare system. And in these times of post-factual political debate, that is at least something…..

Leave a Comment