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Norway has one of the highest public employment rates (as a fraction of the total employment) in the "developed world" (around 30%, the highest in the OECD32 and about twice the average of the OECD32, as of 2008).

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However, Norway total public spending (as a percentage of the total GDP) is low (or moderate) and much lower than those ones from countries with high public employment rates (Denmark, Sweden, Finland, and France). I would guess that expenditure in public jobs is a big fraction of the total government spending, together with pensions. And this seems to be confirmed to some extent by the two previous charts, at least for those countries with the highest public employment: Denmark, Sweden, Finland, and France have high public spending (greater than 55%) and high public employment rates (greater than 20%). However, Norway seems to be one exception. Why is that? Is because the fraction of high-qualified public workers (doctors, professors, teachers -- those who have a higher income) is not as high as in France, Sweden, Denmark, and Finland?

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Below you can see a chart with the public spending segmented in categories. Is the reason that most public jobs are usually in education and health, and Norway public spending in these sectors is as high as in Sweden, Finland, Denmark, or France? Os is it due to something else?

enter image description here

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    So basically this means a lot of people work for the Norwegian government, but that their salaries are very low? Or just that the government saves money another way? – Bregalad Jul 31 '15 at 9:04
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    Don't have an answer, but if it doesn't involve the word "oil" I would be extremely surprised. – user4012 Jul 31 '15 at 14:54
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    It could be due to their revenue from their huge sovereign fund. With it maybe they can compensate? – Joze Jul 31 '15 at 14:56
  • @Joze Can you elaborate your comment? I didn't know about that sovereign fund. Sorry for my ignorance. – drake Jul 31 '15 at 15:28
  • @user4012 I'm expecting that the answer involves both oil and pensions. Oil makes Norway different from the other countries with high public employment. The point is: how does oil help Norway government save money? I would expect that oil increases exportations and public revenue, but this is not the same as decreasing public spending. – drake Jul 31 '15 at 15:33
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Norway's ratio of government spending to GDP per capita is so low because their GDP per capita is so high. With $100,579 per year and head it is the second highest in Europe (only Luxembourg got slightly more, but Luxembourg is a special case in many regard). For comparison, the economical heavyweights of the EU, Germany and France, only got $45,000 and $44,099 respectively. Main reason for the high GDP of Norway is its very profitable oil- and natural gas industry.

Source for GDP statistics of European countries.

Also, Norway doesn't just have a high rate of public employment, but also a very low unemployment rate (4.3%, European average 11.1%). For most developed countries, welfare spending is one of the biggest numbers in their budget. When the government needs to pay the unemployed anyway, they can just as well offer them jobs and put them to good use for their money. So when increasing government employment results in lower unemployment, it is not as costly as one would think. Especially not when their work is profitable: The biggest employer in Norway is the 67% government-owned oil- and gas company Statoil.

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    Haha, +1 good point. Perfect example of the danger of the interpretation % numbers because we applying linear reasoning, but the base value for the 100% is always different. Also, there is a relationship between cost and benefits. If the USA spends 50% on military, that's not the same as when Switzerland spends a large % of GDP towards good universal healthcare & mainly free education. You'd need to look at the per-capita expenditure in $$$, not the % of GDP - And also you need to compare the type of services/jobs recieved in return for the spending for those numbers to have any meaning. – Quandary Aug 3 '15 at 10:57
  • So your point is that public spending (in constant dollars and constant PPP) per person is not lower than those of Sweden, Denmark, Finland. What you say about employment I think that does apply to France, but not Sweden, where the employment rate (as opposed to the unemployment rate) is similar to or greater than that of Sweden. According to what you claim, Norway's economy must be very sensitive to oil prices. I have to check how the "recent" fall in oil prices has affected Norway. – drake Aug 3 '15 at 17:28
  • I don't understand: why is Norway's oil and natural gas industry so profitable when it is in dire straits in other countries like Venezuela and Russia? – J Doe Jan 10 '17 at 18:42
5

GDP is the wrong denominator to use here. It's like calculating a company's operating costs as percentage of its revenue, while including proceeds from liquidation of assets as part that revenue. It's just bad accounting.

What ought to be used is GDP net of resource rents. In 2008, 21.43% of Norway's GDP was from the liquidation of its natural resources (mostly oil), while Denmark's was 3.54%. As a percentage of GDP net of resource rents, Norway's public spending was 56.5% and Denmark's 59.8%. A little less, but not that different (and within standard margin of error).

Total natural resources rents (% of GDP)

  • Thanks. I don't understand that. Your are decreasing Norway's denominator about 5 (100/21) times and Denmark's about 29 times (100/3.5), so Denmark's ratio should become even greater. What am I missing? (I'm assuming that "GDP net of resource rents" is proportional to the liquidation of its natural resources ) – drake Jan 9 '17 at 3:43

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