That is the easy part. Balancing generosity and dynamism is harder. Part of the solution is to top up the wages of low-paid workers. AngloSax on countries have done this well since reforms in the 1990s and 2000s. But wage top-ups are of little use to the jobless and are often scant compensation for people who lose good jobs to forces beyond their control. Paltry support for the unemployed in Britain and America preserves incentives to work but at high human cost. The sparsity of social insurance has undermined political support for creative destruction, the catalyst for rising living standards. Continental Europe tends to underwrite traditional workers’ incomes more generously. But the distortion of incentives leads to higher unemployment and divisions between coddled insiders and a precariat. Both sides of the Atlantic lack a permanent safety net that insures gig workers and the self-employed.
There is one country that combines labour market flexibility with generosity: Denmark, which spends large sums- 1.9% of GDP in 2018—on retraining and on advising the jobless. These interventions stop the unemployed from falling into dependency. The inadequacies of policies elsewhere are often glaring. Britain’s efforts have flopped. America’ s comparable spending is less than a 20th as large as Denmark’s, even though the few lucky beneficiaries of its “trade-adjustment assistance” earn $50,000 more in wages, on average, over a decade.
For years social spending has favoured the elderly and an outdated safety net. It should be rebuilt around active labour-market policies that use technology to help everyone from shop-workers who are victims of disruption to mothers whose skills have atrophied and those whose jobs are replaced by machines. Governments cannot eliminate risk, but they can help ensure that if calamity strikes, people bounce back.