Enterprises can adjust their human resources according to their order books and employees are entitled to social benefits and upgrading or re-education if they become unemployed (COE, 17/11/2005)
Social cohesion and flexicurity – The example of Denmark,
Claus Hjort FREDERIKSEN, Minister for Employment 
All European countries are facing the same challenge: Externally, globalisation places new demands on enterprises, employees and the labour markets. Internally, the demographic development – with an increasing number of elderly people and fewer active workers – puts pressure on the welfare systems and the possibility of attracting human resources. We cannot and we shall not work against globalisation. We must be prepared to reap the advantages of globalisation. For globalisation works both ways. We have seen this in Denmark. We have lost jobs but at the same time we have gained just as many. If we prepare and plan efficiently throughout Europe, globalisation may prove to be not a potential threat but a possibility of generating the necessary growth and employment at European level. We must be prepared to face the competitive challenges of globalisation the best possible way while at the same time ensuring the security and wealth of our citizens. Our countries may be different but we share a number of fundamental social values that we must protect when we consider making necessary adjustments. We should inspire each other and learn from each other. Each year in Denmark, the number of new jobs equals the number of jobs that disappear. The enterprises keep up because approximately one third of the Danish labour force changes jobs every year. One significant reason for this is that we have a combination of a flexible labour market, a high degree of security and an active labour market policy. Enterprises can adjust their human resources according to their order books and employees are entitled to social benefits and upgrading or re-education if they become unemployed. Even though the Danish labour market is flexible, we are not blind to the other side of the coin. Given the high unemployment benefits we must constantly ensure that it pays to work and that the unemployed are available to the labour market. The following pages describe the Danish labour market in detail. Hopefully we can be inspired and learn from each other. Claus Hjort Frederiksen Introduction With 5.5 million inhabitants, Denmark is one of the smallest countries in the world, geographically as well as in terms of inhabitants. Denmark is a wealthy society with a very actively working population and a labour market which has quickly developed from an industrialised Western European society to a labour market which is more based on high technology, modern service – and knowledge. Today, it is difficult to imagine that until 1960, agriculture was the most important sector in Denmark. In terms of wealth, Denmark ranks sixth in the world measured by GDP per capita and has ranked among the top ten countries measured by wealth for many years. The unemployment rate is low in Denmark as compared with other EU countries, the employment rate is high, and economic growth is well above the EU average. We have large surpluses on our public finances and comfortable surpluses on our balance of payments. Many see Denmark as a financially fit country, and it is a fact that during the international recession in the period 2000-2003 any imbalances created in Denmark were quickly turned into new progress. Table 1. Selected financial highlights for Denmark 2005 2006 2007 Economic Survey Danske Bank Economic Survey Danske Bank Danske Bank GDP 2.4 2.9 2.4 2.5 2.0 Change in employment 17,000 20,000 16,000 17,000 9,000 Unemployment (1,000 persons) 158 158 147 144.8 141.3 Inflation 1.7 1.9 2.1 2.1 2.3 
Danish Minister for Employment
Source: Scandinavian Economy, November 2005, Economic Survey, August 2005
Measured by production costs incurred by enterprises, Denmark is an expensive country. Wages are fairly high and so are taxes.
Hence, while having the highest tax burden per inhabitant in the OECD, Denmark also has the lowest poverty level in relative terms, due to the high degree of redistribution of income. In absolute terms as well, poverty in Denmark is very low.
Public service and economic benefits are almost entirely financed through taxes – social security schemes financed by enterprises and similar organisations as can be seen in other countries are used only to a limited extent.
| Together with Sweden, Denmark ranks first among the OECD countries with a tax burden of approx. 50 per cent of GDP. Danish income taxes on paid work are the highest in the OECD. |
Social benefits for, among other groups, the unemployed are high in Denmark and the benefit period is long as compared to other OECD countries.
At the same time, many persons of working age receive housing benefit or child benefit, to which they themselves contribute over their taxes.
| Together with, among other countries the Netherlands, Denmark has some of the highest compensation degrees in the OECD in respect of social assistance as well as unemployment benefit. Especially in relation to low-wage groups, the benefit system allows for high compensation degrees. |
Denmark is not unique in this respect as in particular the other Nordic countries use similar - yet different - models particularly relating to the question of job protection. When we talk about developing modern welfare society in general terms, we often talk about the Scandinavian model.
Danish surveys show that the disadvantage of a high security level is that it may be difficult to ensure that certain groups still have an incentive to work.
Stability, qualifications and cohesion
Denmark is characterised as a country based on stability and social security – and not without reason. The size and history of the country provides the basis for cohesion, and the welfare system with comparatively high benefits contributes to a sense of security, despite poor job protection in collective agreements etc. Hence, the labour force is willing to take chances and change jobs.
Stability, security and many other factors most likely make a difference when, together with two other Nordic countries, Denmark is ranked among the top four competitive countries in the world. Denmark is often characterised as an attractive country based on certain factors that are decisive when enterprises decide where to invest.
Recently, the World Economic Forum identified – in the following order – Finland, the USA, Sweden and Denmark as the most competitive countries. The analysis comprises factors such as pay and taxes but also the functioning of the public sector and whether the country is stable and the labour market flexible.
Denmark's high ranking despite high wages and taxes is a result of, among other things, a flexible labour market, the availability of our labour force and the upgrading and re-education of our labour force during unemployment. However, the survey from the World Economic Forum also points out that the burden of taxation is important and, consequently, the Danish government has a clear objective of lowering the tax burden.
Such surveys prove to Europe that we can still create many new jobs. Even if it means losing many other jobs to the ever increasing globalisation in which the manufacturing sector in particular outsources its production to a higher extent than before.
So, there is no unambiguous explanation of why some countries are "appealing" or why some factors benefit both the general economic situation, increasing social inclusion and, hence, a better welfare society. Seen in a globalisation context it becomes evident: China's appeal to enterprises and industry is strong, but so is that of a number of Eastern European countries when an enterprise wants to set up a new production with an increasing technological content.
The point is however, in Denmark we can maintain our appeal in that we are able to attract new enterprises and create new jobs.
| Globalisation – A Danish analysis shows that |
In Denmark, we carry a tradition of an active labour market policy based on rights and duties. The right to receive unemployment benefit and the duty to accept offers of upgrading of qualifications or re-education to ensure that jobs and unemployed workers are matched quickly.
The Danish labour market – in general terms
The Danish labour market is well-functioning. Denmark has the world's highest participation rate – 84.2 for men and 76.1 for women, cf. Figure 1.
Figure 1. Participation rate in selected countries, 2004 
Source: OECD
Despite high wages and taxes and, consequently, high production costs, the employment level is high (third in the OECD) and the unemployment level is low. Hence, the unemployment rate is somewhat lower than the EU-15 average, cf. Figure 2.
Figure 2. EU-harmonised unemployment rates in selected countries, 1983-2004 
Source: Eurostat
In Denmark, this development means that in some sub-labour markets there is a potential risk that the enterprises cannot attract qualified human resources.
All the more reason to renew our focus on a targeted employment policy and the fact that all unemployed persons must be available to the labour market. However, it also leaves room for more people on the labour market – immigrants, disabled persons or others with poor attachment to the labour market.
Despite the fact that the Danish labour market is doing well, we in Denmark are concerned with the problem that many young people drop out of school with the result that they never complete the education that is required for them to gain a permanent and secure foothold on the labour market. This parti-cularly holds true of young immigrants of whom few complete an education, making it even more difficult to raise participation and employment rates among immigrants. It is important to make an additional effort to ensure that immigrants, whose unemployment rate far exceeds that of Danes, complete a qualifying education and become part of the labour market.
Denmark – from a modelling point of view
Some people have compared Denmark to a bumblebee: It cannot fly – and yet it does. This is important to us in Denmark, as we have to protect the basis for possibilities – or else we will fall.
What is important for Denmark is the interaction between several sub-models.
Inevitably, economic growth and favourable framework conditions for enterprises are basic requirements for raising the employment rate. And hence, to a higher degree making it possible for weak groups to become part of the labour market. In this way, growth and sound economy make social inclusion possible in a wider sense.
Looking more specifically at the Danish labour market model, the term "flexicurity" is often used as a special Danish phenomenon. However, elaborating on flexicurity also involves elaborating on other elements of Danish society which interact with and depend upon flexicurity, cf. Figure 3 below.
Figure 3. The Danish model in a wider sense 
As an example, many of the fundamental framework conditions are required in order to enable other factors of importance to the economic development and the labour market to penetrate.
Characteristically, the high rate of participation in Denmark is connected with the fact that we offer comprehensive day care in the form of nurseries and kindergartens. And it is fundamental to the framework conditions and growth of the enterprises that we offer targeted and competitive education – a precondition for high rates of participation and employment. In Denmark, these factors contribute to increasing the supply of labour and maintaining a high employment level.
Special labour market characteristics
| Based on international surveys, The Confederation of Danish Employers (DA) recently concluded that: |
The Danish flexicurity model
Flexicurity is a combination of the words flexibility and security and covers a mixture of a flexible labour market model and a welfare state model with a high level of security. As a third element, the Danish flexicurity model also covers labour market policy.
In Denmark, flexicurity is a special setup based on a broad consensus in a number of areas in society, combining the interests of partners, government and citizens.
Figure 4. The Danish flexicurity model 
Flexibility: Denmark has poor job protection. It is easy to "hire and fire" employees. Periods of notice are generally very short as compared to a number of other European countries. This alone means poor security but also high flexibility.
Hence, other things being equal, enterprises have an incentive to hire more employees, in turn generating a high employment rate and a low unemployment rate. Due to close relations between the partners, flexibility can to a certain extent include other areas (working hours, pay).
As compared to other countries, the social partners in Denmark have reached a consensus in critical areas, to a higher extent being partners than parties. The partners communicate at all levels, centrally as well as decentrally, including at enterprise level. They often take concerted action on questions concerning labour market policy because they often find themselves in the same boat when it comes to the question of upgrading the labour force.
Unlike the parliamentary system, the social partners often try to balance expectations and positions or get in step on certain issues.
| Denmark has one of the highest rates of unionisation in the OECD. Furthermore, the partners agree on and plan a wide range of issues in connection with the collective agreements, i.e. without government intervention or overall regulation. Such issues include e.g. wages, working hours, holiday and pension as well as agreements on maternity/paternity leave. The social partners also influence the implementation of the employment effort. |
Security: The unemployment security level is high. Compensation degrees are very high in, among other systems, the unemployment benefit system and, hence, the welfare system "compensates" for the high labour market flexibility. It also reflects the Danish allocation and taxation policy:
· There is a very high degree of redistribution between income groups, primarily via tax-financed transfer payments.
· There is considerable redistribution between generations. Young and elderly people receive comparatively high welfare benefits, primarily financed by high personal income taxes for actively working people. Over a lifetime, an average Dane receives the same amount as he or she pays.
· The redistribution and tax policy model can be characterised as a kind of collective insurance scheme for all the welfare systems taken as one. Premiums are paid according to income and everyone has equal/free access to a number of benefits and public services such as e.g. state pension, education, hospital treatment etc.
Upgrading of qualifications and offers. Through an active labour market policy, the unemployed are offered an opportunity to upgrade their qualifications. This effort is also based on the ”right and duty” concept. All unemployed must be available to active offers and specific jobs.
This model is efficient because there is consensus regarding the necessity of the individual elements. All players – government, partners, enterprises, citizens – benefit from this model and in principle, tasks, rights and duties are necessary to make the model work.
Example: The model supports market trends:
| During recessions, enterprises can quickly adapt their number of employees to finances and production. Hence, the government must ensure income security for dismissed persons, who face requirements of adjustment and upgrading of qualifications. When the market trends turn, the employees are available. Low security also gives the enterprises an incentive to quickly adjust the number of employees upwards. At the same time, these possibilities generate expectations of hiring as many employees as possible. This means that both government and citizens benefit. Furthermore, cohesion is strengthened in several ways (weak groups, elderly unemployed, immigrants etc.). Over time, the citizens' are expected to expand their relations to the labour market regardless of market trends. |
This model, and the fact that it seems to be working in Denmark, is one of the reasons why the development in Denmark from a general labour market perspective is satisfactory, with a high employment rate, a low unemployment rate and quick adaptability. Hence, unemployment seems to be permanently lower than in a number of other countries, regardless of changing market trends. And Danish economy quickly recovers after a period of unfavourable market trends which internationally may have had unfortunate consequences.
In Denmark, we believe that the three fundamental elements of the flexicurity model have a positive effect on adaptability and adjustment speed, enabling Denmark to better utilise the possibility of generating positive developments in the labour market.
However, the model has its flaws. It is comparatively expensive, a fact often pointed out in international evaluations. And it is true that the expenses for welfare services, labour market policy etc. are considerable.
However, for a number of reasons, the costs of the flexicurity model cannot be specified explicitly. First of all, in its policies, Denmark emphasizes high social security, meaning that people can actually live on their transfer income without losing their financial incentive to work. Hence, the high expenses for e.g. unemployment benefit, are based on a question of welfare and equality, not just flexicurity.
Secondly, the high costs of security benefits and the active labour market policy can be seen as an investment in labour market qualifications much like investments in education/research etc. Consequently, it is difficult to measure the return on these costs. There is no point in investing in favourable framework conditions for enterprises if we do not at the same time invest in education etc. for the people working there.
In Denmark, flexicurity has other aspects. Dialogue on the labour market policy, which is to be adjusted regularly, is called for and priority must be given to ensuring efficiency and quality in the labour market policy through appropriate offers.
In light of the development in the Danish labour market it is very important to ensure that the unemployed are available, and it may be difficult to maintain the balance of income security for unemployed persons when certain groups in society only have limited incentive to work, i.e. when benefits are high and the security period is long. These are some of the ongoing welfare dilemmas discussed in Denmark.
Globalisation and long-term challenges
As all other European countries, Denmark has reflected on the long-term effects of globalisation, the new international division of labour, the production and knowledge society, demographic development and an increasing dependency ratio.
These changes influence both labour market developments – in some sectors we will have to adapt to knowledge jobs instead of manufacturing jobs – and society as such.
In short, the question for Denmark with our high welfare costs is how to ensure and develop our welfare society. Globalisation must be used proactively to turn the Danish labour market possibilities into reality.
The Danish labour market has a favourable starting position. Denmark has an employment rate that is already higher than the joint EU objective of 70 per cent, and the same is true for the objectives of participation of women and elderly persons in the labour market.
In Denmark, we focus on potential problems for specific groups following e.g. relocation of production facilities. Examples include unskilled and elderly employees, who may face the highest risk of losing their jobs in the industrial sector and find it difficult to get a new job. Analyses show that the number of jobs we create equals the number of jobs that disappear, some of which have been outsourced. And it seems that the number of jobs created and disappeared does not seem to be increasing considerably. Overall, one employee in three shifts to another job each year, and each year, one in ten jobs disappears for the benefit of a new job.
However, globalisation has become visible in connection with the ongoing development of the labour market.
Example: The Danish steel rolling mill in Frederiksværk
| In the summer of 2002, the steel rolling mill in Frederiksværk was declared insolvent, resulting in approx. 1,000 employees losing their jobs. Many of these employees were over the age of 50. In Denmark, certain initiatives (education, guidance etc.) can be targeted at persons during their period of notice, i.e. before they become unemployed. Intensive efforts were initiated for many of these persons with offers etc. As a result, today, three years later, only 18 persons are unemployed. Only four have been unemployed since 2002. |
Hence, what we see today in respect of globalisation is to a certain extent the "job development" that we have been witnessing for decades, although at a slightly higher speed. In Denmark, we have seen large enterprises closing with dramatic consequences for the affected local communities. However, experience tells us that with a targeted effort, we can find jobs for the vast majority of these people.
Furthermore, globalisation means seeing competences in a new light as knowledge and adaptability are vital qualifications to ensure the competitiveness of an enterprise. In Denmark, we work with strategies on education and competences, from strengthening primary and lower secondary schools to improving research efforts.
Hence, we are committed to getting better at what we already do comparatively well, which is also connected with significant fundamental elements of the society model.
| In its Employment Outlook, the OECD, like a number of international economists, states that the problem of globalisation is not necessarily solved by minimising costs. Security benefits and upgrading of qualifications offered to persons involved in mass dismissals are recommended as a method for quickly redirecting unemployed persons to new sectors/jobs. American researchers recommend that the strengths of the welfare society are used to actively develop labour markets and reap the benefits of globalisation. |
The Danish government has set up an impartial Welfare Commission, which has prepared a report on the long-term consequences of the population development and the challenges we face in connection with solving the problems. The Welfare Commission has been given the task to suggest specific solutions and render its opinion in all welfare areas.
Consequently, Denmark has resumed the discussion of the welfare society. Not in order to weaken the welfare society but to discuss and possibly carry out initiatives which improve the sustainability of society in the long term, with more dependant elderly persons and fewer persons to finance this dependency.
According to the Welfare Commission, its analyses show that a heavy increase in the effective labour supply (with the appropriate qualifications) or a comparatively marked increase in taxes is required to finance the welfare society in 2025. At the beginning of December 2005, the Welfare Commission will present its suggestions and recommendations, after which the Danish government will start a dialogue concerning the need to find long-term solutions.
Figure 5. Challenges to the Danish labour market. 
Source: The Welfare Commission
In Denmark it is difficult to keep discussions of the various welfare themes apart because they are very much related. Hence, the overall discussion in Denmark concerns the following issues:
· How do we increase the power of cohesion in society, how do we ensure that weak groups get a foothold in the labour market, and how do we ensure better integration of immigrants in the labour market?
· Where is the challenge in the continued development of the labour market, when globalisation has both positive and negative consequences?
· How can we safeguard and strengthen the welfare society in the long term given the marked demographic changes?
Although differing in priority, this discussion is on the agenda of many European countries. As Denmark sees it, the solution to long-term problems is not a limitation of the welfare society. Experience from recent years shows that Danish economy is thriving and that the labour market develops very positively, indeed. At the same time, Denmark, along with a number of other countries, is recommended in terms of economy, competitiveness, labour market development etc.
Hence, one element of the Danish discussion is that in terms of demography and integration, globalisation and long-term challenges must not lead to social competition between countries. Saving is not a way to meet these challenges. Instead we should use the strengths of our society model to solve the problems in future. So far, this has proven to be quite an efficient way to do it.
- Speech by the Danish Minister for Employment, Mr. Claus Hjort Frederiksen, at the Forum 2005 on Thursday 17 November 2005
Good morning ladies and gentlemen, and
thank you, Mr. Secretary General for your invitation to speak at the opening of this Forum for 2005.
I am very pleased to have this opportunity to take part in a conference, which sets focus on a vital issue: How can we ensure flexibility in the labour market as well as social security and social cohesion in Europe?
This issue has also aroused a lot of interest for us in Denmark.
All the European countries are facing the same challenge: From the outside, globalisation is placing new demands on enterprises’ competitiveness, staff competences and flexibility, as well as on labour market flexibility. Internally, demographic developments – with a greater number of elderly people and fewer of working age – are putting pressure on welfare systems and the availability of labour.
Europe has to deal with these challenges; and deal with them in a way which does not compromise social security and social cohesion.
***
How are we tackling the challenges of globalisation and an aging population in Denmark?
Right now, things are looking good for Denmark:
· Economic growth is well above the EU average
· We have a balance of trade surplus and are rapidly repaying our debt
· We have high employment and low unemployment
· And we have a well-developed public sector with surpluses on public budgets
A number of international surveys also point to Denmark as one of the world’s most competitive countries.
From my chair in the Ministry of Employment the reasons for Denmark’s success are:
1) Sound and stable macro-economic policy
2) A flexible labour market
3) A decentralised labour market where the social partners take a great deal of the responsibility for the economy, both centrally and decentrally.
***
In Europe, the European employment strategy has aimed at preparing countries for globalisation; but with almost 20 million unemployed we should ask ourselves whether this European strategy has failed? The answer is both yes and no.
The strategy has the right idea. To be frank, I would like to have seen more European leaders take action and implement the structural adjustments which we have all have known for a long time are necessary.
One country where the leaders have taken action is the Netherlands. For years the Netherlands had a rather restrictive system: Employers had to ask for permission for lay-offs, either from the local public employment office or from the local legal system. As a result enterprises tried to make things more flexible by employing people on short contracts. These employees typically had a lower level of social security and less job security than ordinary employees.
In 1999 the Netherlands decided to correct this imbalance between an inflexible labour market for core labour and job insecurity for those on short contracts.
Protection against redundancy for ordinary employees was changed, the system permitting short contracts was phased out, and employees on temporary contracts were provided more protection.
Fortunately, there is a general movement in countries. Not just in the Netherlands, but in other countries as well. A movement away from job protection and towards job creation.
The philosophy that work should merely be shared in order to reduce unemployment is now passé. Instead, it is now about increasing the supply of jobs. France, for example recently relaxed their rules on a 35-hour working week.
***
As the Danish Minister for Employment I am naturally proud of our economic and employment progress over recent years. But this does not mean that everyone should do the same as Denmark.
You can never copy another country’s labour market system. There are cultural differences, historical traditions, and many other aspects to consider. For employment policy cannot stand alone; it cannot work in a vacuum. No, employment policy works in interplay with other policies and it depends on society as a whole.
In order for employment policy to provide more jobs, enterprises must have a good framework. There is no point in allowing enterprises to pay for a flexible labour market and then imposing disabling taxes on them in other contexts. This impedes growth and job creation. Neither is there any point in encouraging women to follow a career, if there are no good daycare facilities for children.
Danish wealth and welfare are built on a conscious effort to establish an appropriate framework for enterprises and families, while at the same time constantly adapting the labour-market structure.
***
Countries can inspire and learn from each other, and this is essential for Europe. An example of where the EU is working in this way is through the common employment strategy, where the core of the Lisbon target is to promote flexibility combined with job security.
But the Lisbon Strategy should be regarded globally and not just regionally within the EU. We are putting a lot of energy into drawing up legislation that ensures equal competitive conditions between EU countries. But sometimes this puts a burden on EU countries, which makes it hard to compete internationally.
Please don’t misunderstand me. I don’t mean that we should relax protection of labour. But each time we introduce new legislation, we must ensure that it stands up to the Lisbon test: does the legislation create barriers to growth and employment? We must not with the one hand use the Lisbon Strategy to secure growth and employment, while at the same time creating barriers with the other hand.
When EU politicians consider new regulations they should ask themselves: are these rules necessary? Do they improve EU competitiveness?
Even though we neither can nor should copy each other, as inspiration I would like to tell you about what we are doing in Denmark, and about the so-called Danish flexicurity.
What is flexicurity?
Some claim that Denmark lacks raw materials. If only we had a little more of the oil in the North Sea! But this is not true; on the contrary. Denmark has the best raw materials in the world – its workforce. Our workers are flexible, and not afraid to change jobs. In fact they change jobs more than 800,000 times every year. This means that one-third of the workforce change job every year. This is unique and a huge advantage for enterprises.
Much of the explanation for this lies in the Danish social safety net and the flexible rules for hiring and firing personnel. This is known as flexicurity, perhaps not by the man in the street but at least by researchers.
Danish flexicurity is often described as a combination of social security and a high degree of flexibility. This does not cover everything. Danish flexicurity can probably be better described as an equal-sided triangle - a golden triangle as we like to call it.
In the first corner of the triangle is the flexible labour market. Danish employers can more or less hire and fire at will, without long periods of notice and without restrictions.
In the second corner is the high degree of security. The unemployed in Denmark are entitled to unemployment benefits which, in an international context are very generous. And for those without unemployment insurance, social benefits are reasonably high.
And in the third corner is an active employment policy which ensures that the unemployed are available for work. This policy also ensures that the unemployed are retrained and their qualifications are upgraded so that they are better able to match the jobs which are available.
***
Many ask how this system with such generous benefits and flexible rules can actually work. My reply is that it is like the bumble bee.
Science says that it is impossible for the bumble bee to fly, but the bumble bee doesn’t know this. It flaunts the laws of physics and flies anyway.
The same applies to the organisation of the Danish labour market over the past hundred years. Theoretically it shouldn’t work. High benefits reduce the incentive to work, and flexible redundancy rules allow enterprises to utilise this tool with impunity.
But, paradoxically it works! Where many European countries have been hard hit by the ups and downs of the economic cycle, Denmark has flown through the storms of economic downturns maintaining relatively high employment and low unemployment.
But why does it work in Denmark? Why does the bumble bee stay in the air?
The crucial thing is the interplay between the flexible labour market, the high degree of security, and the active employment policy. For example, benefits must not be so generous that it no longer pays to work – the corner with high security would then pull the triangle out of shape. And if the active labour market policy is too loose, fewer of the unemployed are available for work and again the triangle would lose its shape.
Look at an expensive stereo system. It will only sound good if the treble, bass and balance are adjusted correctly in relation to each other. The same applies to Danish flexicurity. The corners of the triangle must be adjusted to maintain the shape and avoid distortion.
***
In Denmark, this flexibility applies right down to individual enterprise level. It is connected to the organisation of the Danish labour market.
An important characteristic is the strong and representative labour market organisations. On paper, three out of four wage earners are covered by a collective agreement, and these collective agreements set the standard for the rest of the labour market.
The social partners take much of the responsibility for tackling issues which, in other countries are left to legislation. Therefore there is no statutory minimum wage in Denmark; no general legislation to protect from redundancy; and salaries are set in decentralised negotiations at individual enterprises.
One example is that in recent years industry has established a number of agreements on longer working hours than the normal 37 hours. In this way the Danish system displays flexibility to adapt to the competition challenging the individual enterprise. It is no coincidence that these agreements have been set up in sectors facing particularly fierce competition.
The greatest success for the collective-agreement system in recent years is that through the 1990s the partners agreed on supplementary pension schemes in addition to the statutory state pension. Now Denmark has a pension system which can cope with demographic changes in the population because all wage-earners are saving a pension from when they are very young.
The historical roots, combined with broad political acceptance make the system work; despite the innate conflict in the system between liberal redundancy rules on the one hand and a strong social safety net on the other.
Why is flexicurity important?
But why are we discussing flexicurity? What does it answer?
As I mentioned in my introduction, Europe is facing certain challenges: From the outside, globalisation is placing new demands on enterprises’ competitiveness, staff competences, and labour market flexibility. And internally, an aging population is putting pressure on the public purse.
In order to equip Denmark for the future – and to create new jobs to replace those moving away, Denmark is concentrating on several areas.
Firstly research and innovation. We have set up a high-technology research fund of more than two billion Euros. But this doesn’t mean that Danish workers are to sit and peer into microscopes. It is recognized that knowledge is the way forward to create new workplaces. We cannot and should not try to compete on pay, but rather on knowledge.
The Research Fund’s resources are to be spent on developing enterprises which live on knowledge. And these enterprises will themselves attract other jobs – they all need their walls painted and food in the canteen, gutters need cleaning and burglar alarms must be installed.
Secondly, Denmark is focusing on a well-educated population. We will soon have launched reforms throughout the spectrum of the education system. Primary schools, secondary and upper-secondary schools, and universities. At the moment we are discussing reforms of adult and supplementary education with the social partners. This will ensure that the population, both the employed and unemployed, is constantly able to match the demands from enterprises.
Thirdly, Denmark is concentrating on maintaining the flexible labour market. We always have our eye on the optimal interplay between the three corners of the triangle. It is essential that enterprises can find the labour they need.
And then we must exploit the unique opportunity afforded by the good economic cycle to get more people into work. This applies to immigrants, the elderly and others with weak attachment to the labour market. And the Danish government is encouraging enterprises to take their share of the responsibility.
***
In order to be best equipped to cope with the challenges we are facing, the Danish government has set up a Welfare Commission and a Globalisation Council.
The welfare commission is due to report already in December with proposals for how Denmark can tackle the internal challenges of an aging population. And the globalisation council will report its recommendations in the spring on how we can prepare for the external challenge of globalisation.
And there are indications that we are on the right track for a sustainable solution. An important report by the Belgian economist Sapir shows that countries with flexible labour markets such as the Nordic countries, the Netherlands, the UK and Ireland, have been far better at managing the adjustments demanded by globalisation. Better than countries with very restrictive redundancy rules and passive labour market policies such as those in southern Europe.
The report also shows that the lack of national commitment to reform the labour market is a problem for the common EU policies. This is because the high unemployment in parts of Europe raises doubts regarding the single market and opening the EU to the rest of the world.
The answer is reforms which can carry the necessary adjustment so that countries in Europe are able to reap the fruits of globalisation. Well-functioning labour markets are mother’s milk for this adjustment. A better balance between the level of benefits, assistance for job-seekers, retraining and a financial carrot to go and get a job strengthen the ability of European countries to create new products and new jobs.
This allows Europe to reap the most from the international division of labour.
Conclusion
In conclusion, I am not here to sell the Danish flexicurity model. I just want to explain how Denmark is trying to tackle the challenges of globalisation and the aging population.
We are focusing on research and innovation, a flexible labour market, and a well-educated workforce.
Above all, Denmark knows that it is possible to preserve social cohesion and still be competitive on the global market. It is not a question of either social security or competitiveness; it is more the interplay between them both.
Thank you for your attention. I wish you all a rewarding and inspiring conference!