How the Welfare State Affects Inequality and Social Mobility: A Comparison of the U.S. and Denmark

James J. Heckman

Category: Lectures

Date: 24 August 2022

Quality: HD MD SD

How the Welfare State Affects Inequality and Social Mobility: A Comparison of the U.S. and Denmark  (2022) - James J. Heckman


The Scandinavian welfare state is widely regarded as a paradigm for promoting equality and social mobility. What are the sources of its apparent success? Denmark is a laboratory for understanding inequality and social mobility. Reducing inequality and promoting social mobility is a central focus of the modern Danish welfare state. Traditional explanations of inequality and social mobility related to social policy do not hold in Denmark. I take a fresh look at the origins of inequality and social mobility. There is a high level of social services and social insurance in Denmark. Equality in services offered is mandated in Denmark. There is universal health care, free daycare, and free college. Teachers are paid the same everywhere. There is greater social cohesion. Post tax and transfers, income inequality is low, and intergenerational income mobility is higher in Denmark than in the U.S. The reduced inequality and greater intergenerational mobility are not due to superior production of child human capital. Educational intergenerational mobility (education of children related to that of parents) is remarkably similar in the U.S. and Denmark. There are substantial skill and education gaps across families by background. Advantages from Denmark’s universal access to services are reaped relatively more by the affluent rather than by the disadvantaged (Matthew Effects) who do not often know how—or find it more difficult—to use these services. There is strong evidence of sorting of families by parental income and education. “Power of place” is real. It is a consequence of family sorting and family influence, not of place per se. Families purposefully choose neighborhoods and timing of moves. These are not random in terms of potential gains from location choice (in contrast to influential claims otherwise). Sorting in Denmark is comparable to that in the U.S. This sorting affects estimated intergenerational mobility. Sorting leads to strong family income gradients in child outcomes. Also, teachers sort into more advantaged districts. Despite equal wages across neighborhoods, payment to teachers differs in terms of the quality of students taught. A closer look at Danish society challenges the uncritical appeal to the Danish model as a paradigm for reducing inequality through “family friendly” policies.