Henning Gade: The Flexible Labour Market in Denmark

The Flexible Labour Market in Denmark Embassy of Finland 11 April 2011

Henning GadeConfederation of Danish Employers

Confederation of Danish Employers

• The main organisation for labour market policy in

Denmark

• 13 member organisations f.x. in areas as industry,

building and construction, service, retail, newpapers -

banks and agriculture are not members

• 30.000 enterprises are members

• Main tasks: political influence in the Parliament, in EU,

and coordination of negotiation of collective bargaining

Facts about Denmark

• 70 per cent of the Danish companies have less than 20 employees– many small companies and few large companies

• Big public sector - 1/3 of all employees are employed in the public sector –> high taxes

• Public garanty of child care – high employment of women

• „Educational aid from public funds“ (SU) for all student – education for all is highly prioritied

• Flat leadership structure in Danish companies

High mobility

• High mobility– 800.000 of 2.8 mill. change jobs each year

• Many job offers– 300.000 new jobs each year– 300.000 disappears each year

Employment Security

0

2

4

6

8

10

DK AT NL SE DE FI BE IE UK IT FR ES PT GR

0

2

4

6

8

10

Scale from 1-10 – the higher the number the more secure, 2001

NOTE: Figures in brackets are unemployment rates in 2006.SOURCE: CEPS (2004) and Eurostat.

(3,9) (4,8) (3,9) (7,0) (8,4) (7,7) (8,2) (4,4) (5,3) (6,8) (9,4) (8,6) (7,7) (8,9)

Job Satisfaction

Per cent, 1999

50

60

70

80

90

100

DK NL AT BE SE FIN EIR DE UK FR ES PT IT GR

50

60

70

80

90

100

SOURCE: European Foundation for the Improvement for Living and Working Conditions (2004).

4

6

8

10

12

US DK UK EI NL NO ES CH Fl PT PL DE GR FR SE BE IT

4

6

8

10

12

Job Tenure in OECD

Average number of years in same job

SOURCE: CEPS (2004), A New European Agenda for Labour Mobility

OECD

Life long learning

Share of population participating in education and training, aged 25-64, per cent, 2006

QUELLE: Eurostat

0

5

10

15

20

25

30

35

HU

N

PO

R

SK

PO

L

LT

CZ

E

ITA

ES

T

LAT

GER

IRE

FR

A

BEL

LUX

EU

-27

ES

P

AU

T SI

NL

NO

R

FIN UK

DK

SW

E

0

5

10

15

20

25

30

35

Danish flexicurity model

Flexible labour market

Active LMPHigh compensation for unemployed

Qualification effect of LMP

Motivation effect of LMP

” Danish flexicurity model”

Elements of the Danish flexicurity Model

The Model favours job creation instead of job protection by focusing on :

• A flexible labour market with easy access to both hiring and firing

• A high level of social security with priority for those with the greatest risk of unemployment’

• An active labour market policy – with focus on jobs• Understanding of mutual interest between the social

partners and the government • Well functioning rules for tripartite negotiating • Common striving for consensus rather than conflict

Collective Agreements 2010

• Basic principles established more than 100 years ago – September Compromise from 1899

• Peace Obligation – Employer Prerogative – Right to be member of a trade union – Right to Strike

• Collective agreements are the primary regulation

• Disputes are handled by the two sides of industry

Collective agreements and legislation

• Legislation is built on and in respect of provisions

in Collective Agreements

• The Social Partners have the prerogative when

implementing EU-Directives

Collective agreement

DA LO

The General agreement

The Coorporation agreement

”The Norm”

Employers’ associations

Collective agreements

Trade unions

EmployeesLocal agreements

Firms

Flexibility in Wage Setting

Per cent of employees where wages are negotiated:

NOTE: DA/LO areaSOURCE: DA

1989 2007

34

62

16

62

Locally

22 4

Centrally Locally, but minimum wage centrally negotiated

Flexible Working Hours

The 37 hours of work per week is calculated as an average over:

Share of employed per cent

1998 2008

No flexibility 7 1

3 weeks – 5 months 24 4

6 months to 11 months 13 12

1 year or more 56 83

Workers’ rights placed in funds

• Labour market pensions

– 1989 -> now 12.8 per cent (1/3 employee, 2/3

employer)

• Competence funds

• Maternity leave fund

- not in companies

Wage flexibility

• Wage negotiations are in the companies – without

the right to strike

• The Collective Agreement can include a minimum

wage

• No minimum wage decided by law

Job protection is also present in Denmark

Denmark

“Blue collar worker” Collective agreement

“White collar worker” Law

Social obstacles upon dismissal?

None

… but Light Protection against Dismissal

• No general prohibition against arbitrary dismissal (Law or collective agreement)

• ”Hire and fire” is generally accepted

Dismissals in Denmark – principles

• Employers are entitled to fire a worker, and also to decide who and how to fire

• No regular principle of re-hiring

• Period of dismissal and compensation only according to law or collective agreement

• Dismissals must generally be well reasoned for (compensation only if agreed in advance)

Protection against Dismissal in Denmark

• ”White collar” employees – Law

Limits for notice after length of employment

- 3 months notice after 5 months of employment in the enterprise

- 4 months after 2 Years and 9 months- 5 months after 5 years and 8 months- 6 months after 8 years and 7 months

Protection against Dismissal

• Blue collar workers – notice periods are stated in collective agreements

- Differences between branches

The daily cash benefit system and flexicurity

• Compensation of up to 90 per cent for low-income

groups

• Low compensation for high-income groups

compared to the rest of Europe

• Benefit periode of 2 years

Net replacement rate of unemployment

CountryUnemployed a full year, with

varying former income levels for insured single

Former income, per cent of APW 75 100 150 200

Denmark 79 61 46 37

Sweden 81 70 50 40

Finland 62 59 49 45

Austria 57 56 56 45

Germany 59 58 58 49

Netherland 73 72 67 53

United Kingdom 25 20 14 10

Canada 55 56 42 33

NOTE: APW is income for average production worker. The replacement rate is net of taxesSOURCE: Hansen (2002)

Youth initiative

• Introduced in 1996

• For young persons under 25 years old without a

qualifying education receiving unemployment benefit

• Obligation to participate in an education of at least 1½

years

• Benefit corresponds to 50 per cent of unemployment

benefit

• Effect: Youth unemployment fell dramatically

Expenditure on Labour Market Policy

Per cent of GDP, 2004

KILDE: OECD, Employment Outlook, 2006

Welfare State Challenges

• Pressure from voters for more public service – childcare, hospitals, care for old people

• The work force is decreasing – demographic – and a smaller work force must pay for a larger group of pension receivers

• Not enough budget discipline on state and municipal level the recent years

• Too many in the work force are outside the labor market – early retirement, disability pension, low employment rate for migrants

• The public sector is not effective enough – lack of leadership, little completion with the private sector, not enough market orientation, old work force

• The education system has problems – to much drop-out, quality problems in the primary school and also generally

• The productivity is too low and the wage level is too high

Solutions

• The politicians must choose the right level of public service –prioritize or decide incentives to minimize the pressure on public service

• More effective public sector – better leadership, incentives in the wage systems, more private competition

• The early retirement system (efterløn) and the system for disability benefits and Flexjob must be reformed – we have to remain longer in the labor market and the pressure to work must be stronger

• Better educated labor force – more quality in the educational system from top to bottom

• Reduce drop-out rates and make incentives for the municipalities to take care of the drop-outs

• Pro-active migrant policy for highly skilled from EU and third countries – Green card, jobcard, strategy for attracting highly skilled, strategy for receiving and integrating migrants

• Higher productivity in the industry• Lower wage increases in the coming years

Advantages

• Accept of a flexibel labour market model from unions• Common aggrement between the social partners that

the state should regulate as little as possible on the labour market

• Generel accept of the global approach – few streiks by outsourcing

• Good cooporation between the social partners on firm and central level

• Big Danish enterprises have managed the crisis better as enterprises in other EU countries – dismissal

• The wage finding in Denmark is decentralized to enterprise level - great fklexibility

Problems

• The unions have problem to accept necessary changes in the model in crise situations

• The periode of receiving unemployment benefits is to long and should have more incentives to get people back to work

• The active labour market policy is expensive and could be more effective

Outlook for Denmark

SOURCE: The Danish Economic Council (Report from October 2010)

2009 2009 2010 2011 2012

Level in million kr.

Change in percent

GDP 1,662 -4.7 2.2 1.1 1.8

Exports 785 -10.2 3.5 2.3 3.1

Public investments 34 12.4 11.2 10.0 -10.0

Business investments 191 -14.0 -3.7 2.7 9.3

Private consumption 818 -4.6 2.8 1.7 2.2

Level in 1.000 people

Change in 1.000 people

Private employment 1,993 -110 -65 -5 3

Public employment 830 17 15 -12 0

Total workforce 2,921 -46 -33 1 0

unemployment 98 46 18 18 -3