Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: +45 38 10 60 11 Fax:...

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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The Role of Unemployment Insurance in Modern Labour Markets - Unemployment

Insurance and Flexicurity

Tallinn, February 2007

Thomas Mølsted JørgensenNational Directorate of Labour

Denmark

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Main functions of Unemployment Insurance

• Income security for unemployed

• Flexibility on labour Market

• Macro economic stability

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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UI-benefits in various situations:

• Cyclical or seasonal unemployed

• Modern expansions of classical UI:– Short period between two jobs– Temporarily laid off– Newly graduated – UI-benefit at holidays (after unempl.)

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Unemployed with benefits - and then ?

Goals of Modern Labour Market Policy

Return to previous / same type of job

OR

Achieve competence to new job ?

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Ways of Financing UI-benefits:

• Members fee (flat rate or other)• employers contributions or • general tax

Affects:Income distribution Wage increase (?)Macro economic situation

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Acceptance of Flexibility depends on:

• Easy access to UI-benefit• High replacement rate• Low fee / employees contribution to

Unemployment Insurance • Long duration possible

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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But easy access to high benefits could result in:

• Less incentives to work • Wage-inflation• Abuse of benefit-system• Black economy• High expenditures

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Some solutions:

• Strict rules on availability

• Active Labour Market Policy:– Right and duty to accept offers– Job offers and activation as test of availability

• Monitoring job seeking

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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More contribution to solutions:

• Realistic sanctions • Threat of loosing membership • High replacement rate only with

low wage• Often adjustments of schemes to

avoid unintended use

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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The Danish Flexicurity Triangle

Flexible labour market

Unem-ployment benefits

Active LMP

1. Low employment protection

2. Income security3. Employment security

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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The components of The Triangle• The Labour Market

– Easy hire-and-fire – low/no job protection– High flexibility and many job openings– High job and worker-mobility – Rapid structural changes

• Unemployment Insurance– High replacement-rate (but with max.)– Long duration – Individual benefit – no means test

• Active Labour Market Policy– Emphasis on upgrading skills– Strict rules on availability– Right and duty to accept offers– Activation as test of availability

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Labour Market Situation

Employment rate, 20-64 years, 2004

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

PL MT IT HU SK EL ES BE LU FR DE LT LV CZ SI EE AT IE FI PT NL UK CY SE DK

Source: LFS, Indicator 2

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Unemployment trap 2003(Total Marginal effective tax rate on labour income)

0

10

20

30

40

50

60

70

80

90

100

LT EE CY IT HU MT CZ UK SK IE PL AT EL ES SI FI FR NL LV PT LU SE DE BE DK

%

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Active/passive LMP expenditure as % of GDP

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

UK EL IT IE PT AT ESEU15 SE FR NL FI

DE BE DK

% o

f GD

P

Active Passive

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen KTel: +45 38 10 60 11 Fax: +45 38 19 38 90 adir@adir.dk www.adir.dk

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Summing up UI in Modern Labour Market - Flexicurity

• Unemployment Insurance must work together with ALMP

• Employability enhancement is the overall goal, achieved by both flexibility and education/training for unemployed and employed

• Flexibility and security for the employees are not necessarily contradictions. Requires enforced availability for work

• Flexicurity arrangements can strengthen overall institutional competitiveness by promoting structural change

• Regular review and revision of schemes etc. is necessary

• Flexicurity is not a simple recipe – nor a universal medicine

• It works in Denmark – but it requires many resources.