Danes can show Europe the way
Danes can show Europe the way
MONDAY, MAY 22, 2006
WASHINGTON Sarah Surratt is a serial casualty of the trade wars. For 21 years, Surratt worked for Allied Signal in Kannapolis, North Carolina, until her job was moved to Mexico in 1992. She was lucky to snare a post at Pillowtex, a local textile maker. But in July 2003, she was again out of work, when Pillowtex, unable to compete with rising imports, shut down. Surratt then found work at a local community college, making 29 percent less than she did at Pillowtex.
Surratt is not alone. The average American who loses his or her job due to trade stands a one-in-two chance of making less money in a new position, assuming he or she can get one. In a recent study by the U.S. Government Accountability Office of four plants shuttered because of imports, three of ten laid-off workers had not found a job after more than a year of looking.
Facing the likelihood of prolonged unemployment and a cut in pay, it is little wonder that American workers - and their counterparts in Germany, France and Italy among other industrial nations - worry about trade.
American economists and business leaders - and their soul mates in Britain - have long bemoaned such sentiments as rank protectionism. Preferring to focus on the benefits of globalization, boosters have ignored the human and societal costs attendant with adjustment to more open economies. In today's world, any attention to the needs of the losers is little more than a slippery slope to protectionism - a prescription for deadly economic rigidity.
But morally it is unacceptable that competitiveness trumps compassion. And practically it is possible to have an economy that is both successful in the global marketplace and socially responsible. Take Denmark. The Danes - in a policy response to globalization that they have dubbed "flexicurity" - have struck a successful balance between labor market flexibility and a social safety net.
Denmark's payoff has been the highest employment rate in Europe, a dramatic drop in long-term unemployment and the most equal income distribution among industrial countries.
Flexicurity is a three-legged stool whose successful balance depends on businesses' ability to hire and fire with ease, workers' willingness to accept change and government's provision of ample unemployment benefits and help with retraining.
Today, Denmark has one of the world's most flexible labor forces. On an index developed by the World Bank measuring the difficulty of hiring a new worker, the rigidity of rules on working hours and the costs involved in dismissing a worker, with a score of 100 being the worst, Denmark scores a 20, Germany 55 and France 66. One reason is that the cost of a new hire in Denmark is just 0.7 percent of his or her salary. In Germany, hiring costs 21.3 percent of salary; in France, 47.4 percent.
And, unlike many European countries, Denmark has few labor laws. As a result, for more than three quarters of the Danish work force it is possible for employers to vary weekly hours of work to allow for fluctuations in production.
In return for not resisting change, workers get a strong social safety net. The lowest paid laid-off workers receive 90 percent of their lost income, while unemployment benefits for more highly paid workers decline proportionate to their previous earnings. Despite such benefits, about half of those who register for unemployment are out of the unemployment system within six months and 70 percent find a job within a year.
This success rate is, in part, attributable to the government's tough-love approach with the unemployed. After a year without a job, people must enter retraining in another field. They have no choice. If they refuse to seek work, benefits are cut.
The third leg of "flexicurity" is Denmark's commitment to provide workers with the retraining they need to upgrade skills or to find new employment. Companies can enroll workers in short-term retraining programs, with the government picking up the tab for the course and workers' salaries. The government will also pay part of the initial salaries of unemployed people if an employer will take them on and agree to retrain them. Better training has helped keep Denmark globally competitive.
Such benefits don't come cheaply: Taxes equaled 49.6 percent of the Danish economy in 2004, compared with 43.7 percent in France, 34.6 percent in Germany, and 25.4 percent in America. But the price tag for "flexicurity" demonstrates Denmark's commitment to a social safety net and constant upgrading of its workers' skills. In 2003, Denmark spent 4.4 percent of its GDP on income maintenance and training. Germany spent 3.5 percent, France 2.95 percent and America just 0.5 percent.
Transplanting "flexicurity" is not easy. Former German chancellor Gerhard Schröder aped Denmark's reforms by cutting the duration of unemployment benefits. But those who administer the new German program are not nearly as tough as Danish labor counselors and, as a result, costs went up, not down. Danes say their model won't work if elements are cherry-picked. The lesson is that flexibility without meaningful security will be resisted.
The globalization-induced pressure for both greater business flexibility and an enhanced worker safety net is being felt in the United States, where long-term unemployment is rising and wages are stagnating. But Denmark is an unlikely model for the United States in a post-Reagan era that celebrates small government and market-based solutions to economic problems. So, the Danish experience may prove more illustrative than prescriptive for America.
Nevertheless, the Danish experience demonstrates that a more adaptable labor force supported by ample unemployment benefits and mandatory retraining is a boon for workers, companies and countries in an increasingly competitive international economy. Faced with the same globalization- driven market forces and social stresses, both non-Scandinavian Europe and the United States would do well to consider their own variants of "flexicurity."
Bruce Stokes, the international economics columnist for the National Journal, is also a journalism fellow with the German Marshall Fund of the United States, which supported research for this article. Reprinted with permission from YaleGlobal Online (yaleglobal.yale.edu).
Surratt is not alone. The average American who loses his or her job due to trade stands a one-in-two chance of making less money in a new position, assuming he or she can get one. In a recent study by the U.S. Government Accountability Office of four plants shuttered because of imports, three of ten laid-off workers had not found a job after more than a year of looking.
Facing the likelihood of prolonged unemployment and a cut in pay, it is little wonder that American workers - and their counterparts in Germany, France and Italy among other industrial nations - worry about trade.
American economists and business leaders - and their soul mates in Britain - have long bemoaned such sentiments as rank protectionism. Preferring to focus on the benefits of globalization, boosters have ignored the human and societal costs attendant with adjustment to more open economies. In today's world, any attention to the needs of the losers is little more than a slippery slope to protectionism - a prescription for deadly economic rigidity.
But morally it is unacceptable that competitiveness trumps compassion. And practically it is possible to have an economy that is both successful in the global marketplace and socially responsible. Take Denmark. The Danes - in a policy response to globalization that they have dubbed "flexicurity" - have struck a successful balance between labor market flexibility and a social safety net.
Denmark's payoff has been the highest employment rate in Europe, a dramatic drop in long-term unemployment and the most equal income distribution among industrial countries.
Flexicurity is a three-legged stool whose successful balance depends on businesses' ability to hire and fire with ease, workers' willingness to accept change and government's provision of ample unemployment benefits and help with retraining.
Today, Denmark has one of the world's most flexible labor forces. On an index developed by the World Bank measuring the difficulty of hiring a new worker, the rigidity of rules on working hours and the costs involved in dismissing a worker, with a score of 100 being the worst, Denmark scores a 20, Germany 55 and France 66. One reason is that the cost of a new hire in Denmark is just 0.7 percent of his or her salary. In Germany, hiring costs 21.3 percent of salary; in France, 47.4 percent.
And, unlike many European countries, Denmark has few labor laws. As a result, for more than three quarters of the Danish work force it is possible for employers to vary weekly hours of work to allow for fluctuations in production.
In return for not resisting change, workers get a strong social safety net. The lowest paid laid-off workers receive 90 percent of their lost income, while unemployment benefits for more highly paid workers decline proportionate to their previous earnings. Despite such benefits, about half of those who register for unemployment are out of the unemployment system within six months and 70 percent find a job within a year.
This success rate is, in part, attributable to the government's tough-love approach with the unemployed. After a year without a job, people must enter retraining in another field. They have no choice. If they refuse to seek work, benefits are cut.
The third leg of "flexicurity" is Denmark's commitment to provide workers with the retraining they need to upgrade skills or to find new employment. Companies can enroll workers in short-term retraining programs, with the government picking up the tab for the course and workers' salaries. The government will also pay part of the initial salaries of unemployed people if an employer will take them on and agree to retrain them. Better training has helped keep Denmark globally competitive.
Such benefits don't come cheaply: Taxes equaled 49.6 percent of the Danish economy in 2004, compared with 43.7 percent in France, 34.6 percent in Germany, and 25.4 percent in America. But the price tag for "flexicurity" demonstrates Denmark's commitment to a social safety net and constant upgrading of its workers' skills. In 2003, Denmark spent 4.4 percent of its GDP on income maintenance and training. Germany spent 3.5 percent, France 2.95 percent and America just 0.5 percent.
Transplanting "flexicurity" is not easy. Former German chancellor Gerhard Schröder aped Denmark's reforms by cutting the duration of unemployment benefits. But those who administer the new German program are not nearly as tough as Danish labor counselors and, as a result, costs went up, not down. Danes say their model won't work if elements are cherry-picked. The lesson is that flexibility without meaningful security will be resisted.
The globalization-induced pressure for both greater business flexibility and an enhanced worker safety net is being felt in the United States, where long-term unemployment is rising and wages are stagnating. But Denmark is an unlikely model for the United States in a post-Reagan era that celebrates small government and market-based solutions to economic problems. So, the Danish experience may prove more illustrative than prescriptive for America.
Nevertheless, the Danish experience demonstrates that a more adaptable labor force supported by ample unemployment benefits and mandatory retraining is a boon for workers, companies and countries in an increasingly competitive international economy. Faced with the same globalization- driven market forces and social stresses, both non-Scandinavian Europe and the United States would do well to consider their own variants of "flexicurity."
Bruce Stokes, the international economics columnist for the National Journal, is also a journalism fellow with the German Marshall Fund of the United States, which supported research for this article. Reprinted with permission from YaleGlobal Online (yaleglobal.yale.edu).
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