Approaches to Social Investment and Their Implications for Poverty in Sweden and the European Union

CROP/UiB Global WORKING PAPER SERIES on Global Challenges, Issue #4. Authors: Axel Cronert & Joakim Palme

This series seeks to disseminate research focused on issues such as poverty and inequality, sustainability, and other relevant global Challenges.

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ABSTRACT

The concept of social investment has gained increasing traction among European Union policymakers, as a strategy to reconcile the goals of employment, growth, and social inclusion. In recent years, however, scholars have criticized the social investment approach for not being able to achieve its intended distributional consequences and have raised doubts about whether the goals of increasing employment and decreasing poverty are reconcilable. This paper argues that distinguishing between the 'Nordic approach' and the 'Third Way approach' to social investment is key both for describing policy developments and for understanding the relationships between social investment policies, employment and poverty. Based on an exploration of recent trends in social investment policies, employment and poverty in Sweden, we propose that the recent noticeable increase in poverty can best be accounted for by changes in social insurance policy and tax policy that represent a shift from the Nordic approach to the Third Way approach, whereas an 'employment vs. poverty' trade-off is mitigated by the sustained presence of a compressed wage structure. A set of panel data analyses on 24 European countries over the last decade provide preliminary evidence that these mechanisms extend also beyond Sweden.