Still the Poster Boy? – Danish Flexicurity and the Great Recession

Centre for Labour Market Research, Aalborg University, Denmark (CARMA)

Still the Poster Boy? – Danish Flexicurity and the Great

Recession

Per Kongshøj MadsenCentre for Labour Market Research (CARMA)

Aalborg University, Denmarkwww.carma.aau.dk

Images of LisbonUniversity of Southern Denmark

September 15-16, 2011

Per Kongshøj Madsen

• Economist• Professor and Director of

CARMA, Aalborg University• Member of the European

Employment Observatory (www.eu-employment-observatory.net)

CARMA

• An interdisciplinary research centre at the Department of Political Science, Aalborg University

• A staff of around 20• Research topics: wage formation, industrial

relations, life-long learning and (comparative) labour market policy

• Flexicurity-research

Overview

• A blend of flexibility and security: flexicurity

• Flexicurity the Danish way• Flexicurity and the European Union • Flexicurity in crisis?

– In Denmark?– In the EU?

The basics of flexicurity

• The starting point: Flexibility and security are not contradictions, but can be mutually supportive

• Originally a Dutch concept from the 1990s (with academic content added by professor Ton Wilthagen, Tilburg University)

• Against both common sense and mainstream economic theory

• Steeply rising popularity

Rapidly rising media interest

References to flexicurity in Danish media 2001-2008

And international research

Source: Number of new references to”flexicurity” on google.scholar.com

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

200

400

600

800

1000

1200

Why flexicurity?

• Flexicurity arrangements can be important components in achieving a high level of “institutional competitiveness” => Link to Lisbon Strategy and EU2020

• The two icons of flexicurity: – The Wilthagen matrix – The Danish “golden triangle”

The Wilthagen Matrix

Jobsecurity(keeping your job)

Income security(unemployment benefits)

Employment security(getting a new job)

Combination security(work-life balance)

Numerical flexibility (hire and fire)

Functional flexibility(between tasks)

Working time flexibility

Wage flexibility

Source: T. Wilthagen & Tros (2004)

Examples of flexicurity policies

Putting countries in boxes

Jobsecurity Income security

Employment security

Combination security

Numerical flexibility (hire and fire)

Denmark(for decades)

Denmark(since1990s)

Functional flexibility(between tasks)

SwedenGermany

Working time flexibility

Wage flexibility

Source: Eurostat

The Poster Boy

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

2

4

6

8

10

12

Danmark EU-15

Pro

cent

Unemployment rates 1990-2010

The (former) Danish Prime Minister

By international standards, we have a very flexible labour market. …This is, however, only possible because we have a high level of social security. Our level of unemployment benefit is high by international comparisons, and for those who have no unemployment insurance, we have cash benefits, also at a rather high level. Anders Fogh Rasmussen’s speach at the congress of the Liberal Party, Sunday November 21, 2004 in Herning

The (former) Danish Prime Minister

Flexicurity!

We had an EU-summit the other day. There I had the opportunity to tell a bit about it. That discussion was of course in English. I combined the two words and said that we have ”flexibility” and ”security”, and then I called the Danish model ”flexicurity”. That is good, because in French is is called "flexicurité".

Anders Fogh Rasmussen’s speach at the congress of the Liberal Party, Sunday November 21, 2004 in Herning

Job tenure

The Commission: Job Mobility in the European Union, 2008

Protection of ordinary employees 2008

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

EP

L-in

dica

tor

Source:Venn, D. (2009), "Legislation, Collective Bargaining andEnforcement: Updating the OECD Employment ProtectionIndicators", OECD Social, Employment and Migration Working Papers, No. 89, OECD publishing,

Unemployment benefits

Source: OECD (2007) – Average of four family types and two levels of income over 60 months

Net replacement rates (NRR) 2005

0102030405060708090

Italy

Greec

eSpain

Franc

e

Portuga

l

Austria

Belgium

German

y UK

Luxe

mbour

g

Sweden

Netherla

nds

Norway

Finlan

d

Irelan

d

Denmar

k

NR

R

Expenditure for Labour Market Policy 2008

Source: Eurostat

EE RO LT CZ SI BG LV CY MT UK GR HU SK LU PL IT SE PT EU27 AT DE FR IE FI NL DK ES BE0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Drift Aktiv AMP Passiv AMP

Percent of BNP

The Danish Golden Triangle

Flexible labour market

Unemploy-ment insurance

Active LMP

The basic Flexicuritynexus

Threat effect of LMP

Qualification effects of LMP

• Low job security• High job-to-job mobility• Rapid structural change

Income security

Employment security

Educational policy AND MORE!.

30 %

20 % 10 %

How did the Danes get there?

• The 1899-agreement: The freedom of the employer to hire and dismiss workers

• An industrial structure dominated by SME’s • State-supported unemployment insurance funds

since 1907 – and a major reform in 1970 increased gross compensation rate to 90 percent for low-income groups

• Strong corporatist structures and implicit social contract balancing interests of capital and labour

• The absence of Social Democratic majority governments has preserved strong liberalistic traits in the Danish welfare state

Learning flexicurity?

• The slogan: “Don’t protect jobs – protect mobility!”

• The promise of win-win-outcomes• Many options for flexicurity

arrangements – more than just copying the Danish version

• Direct policy transfer is rarely possible – one size will not fit all

European Council ended up believing in it!

In this context, the European Council asks Member States to direct special attention to the key challenge of "flexicurity" (balancing flexibility and security): Europe has to exploit the positive interdependencies between competitive-ness, employment and social security….

The Commission, jointly with Member States and social partners, will explore the development of a set of common principles on flexicurity.

Presidency conclusions, European Council, Brussels, 23-24 March 2006

The Commission’s view on flexicurity

Source: Communication from the Commission, June 2007

• Flexible and reliable contractual arrangements (labour laws, collective agreements and work organisation)

• Comprehensive lifelong learning (LLL) strategies• Effective active labour market policies• Modern social security systems that provide

adequate income support, encourage employment and facilitate labour market mobility.

Stop press!

Source: Eurostat

In the summer of 2008

Source: Eurostat

Decline in employment

Employment elasticities

Change in Employment (%) divided by change in GDP (%)

Flexicurity (DK) under stress

Who is in trouble?

• Flexicurity in Denmark or for flexicurity as a European strategy?

• Challenges for the Danish version of flexicurity:– Globalization?– Can the Danish welfare state afford

flexicurity?– Support from social partners?– Political support?

Shelter from the storm?

• But also indicators of sustainability– Still a relatively low rate of long-term

unemployment– Basic security arrangements seem to be still

functioning– Not excessive structural deficits on public

budgets– General political consensus concerning the

fundamentals of the Danish labour market model

Long-term unemployment

Paying the bills

Source: Eurobarometer: Monitoring the social impacts of the crisis, Wave 4, June 2010 (data collection: May 2010)

Government budgets 2008-2010

Source: Eurostat: Statistics in Focus, 45/2011

Political support…..

“Still, I have faith in flexicurity. It will serve us well in both the best and the worst of times.”

“Flexicurity allows us to adjust to the changes in the market, and it secures the livelihood of the unemployed.”Danish Minister of Finance Claus Hjort

Frederiksen at London School of Economics, March 16, 2009

The Crisis and EU-Flexicurity

• Rising unemployment makes it harder to argue the virtues of lower job protection (EPL)

• The crisis is hard on public budgets and reduces the resources for security arrangements (income support etc.)

• ”Model countries” have not proven to be resistent to the crisis

Flexicurity policies and the crisis

Job security Employment security

Income security Combination security (care and work)

Numerical flexibility (hiring and firing)

Temporary placement in other firm

Worker pools Use of benefits as wage subsidy or educational support

Mortgage support

Working-time flexibility

Shorter working hours,

Work-time accounts

Joint employership Part-time UB, Reduced working

hours

Leave schemes

Functional flexibility (between job functions)

Job rotation Internships in other firms, retraining

Retraining for new job

Accreditation of prior learning

Wage flexibility (variable pay)

Adjustment of wages

Supplement wage in new job

Extra UB as compensation

Increased family allowance

Source: Adapted from presentation by Ton Wilthagen at the conference on "Implementing flexicurity in times of crisis", Prague, March 25, 2009

New Skills for New Jobs

Commission Communication November 2010

Mobication?

Flexible labour market

Flexible education

Public support

Thank you for your attention

References:

Madsen, P.K. (forthcoming): ”Flexicurity i modvind – En analyse af den danske flexicurity-model under den økonomiske krise”, Tidsskrift for Arbejdsliv 2011/4, December 2011

(English version is in the pipeline)

Thank you for your attention

More references:Andersen, T.M. (2011): A flexicurity labour market in the great recession – the case of Denmark, Preliminary and incomplete first draft, School of Economics and Management, Aarhus University, January 2011. Bredgaard, Thomas ; Larsen, Flemming ; Madsen, Per Kongshøj (2007): The challenges of identifying flexicurity in action - A case study on Denmark. in: Flexicurity and beyond : finding a new agenda for the European social model. Henning Jørgensen & Per Kongshøj Madsen (eds.). Copenhagen : DJØF Publishing, 2007, pp. 365-391ILO (2009): Protecting people, promoting jobs. A survey of country employment and social protection policy responses to the global economic crisis.An ILO report to the G20 Leaders’ Summit,Pittsburgh, 24-25 September 2009, GenevaLeschke, J; Watt, A. (2010): “How do institutions affect the labour market adjustment to the economic crisis in different EU countries?”, Working Paper 2010.04, Bruxelles: ETUIMadsen, Per Kongshøj (2006): “How can in possibly fly? The paradox of a dynamic labour market in a Scandinavian welfare state”, in John A. Campbell, John A. Hall and Ove K. Pedersen (eds.): National Identity and the varieties of Capitalism: THE DANISH EXPERIENCE, McGill-Queen’s University Press, Montreal, pp. 321-355OECD (2010): “Labour markets and the crisis”, Economics Department Working Papers No. 756, Paris: OECD.