Low wage work in Denmark

Presentation at Lower conference at SandbjergNiels Westergaard-Nielsen,

CCP

Characteristics of institutions in Denmark

• UI – replacement is the highest in the world– UI easily obtainable– Membership of Unemployment Insurance funds is

voluntary– Few youth are covered.

• Wage bargaining used to be highly centralized, but is now widely decentralized

• the membership rate of trade unions and the coverage rate are both high, but lower and declining among the youth

Further characteristics

• No minimum wage legislation, but an agreement between employers federation and unions. 13.8€ an hour + 15% vacation pay

• there is little job protection for blue collar workers and only a modest protection for white collar workers.

• indirect wage costs are low in Denmark, while direct taxation is high – lowest tax minimum 44% plus UI-contributions 3% for low wage earner

Benefits/Danish model

• Welfare goods are free: health, pension, early retirement, school

• Means tested benefits for– housing– child care

• The Danish Model: agreements between employers and trade unions are more important as regulatory mechanisms than legislature and Government interventions compared with many other countries– UI, labor market policies targeted at getting unemployed back to

work – expensive labor market policy– Increasing pressure on the unemployed to accept jobs– Disability pension Called flexicurity

Characteristcs

• Participation rate for women high

• Publicly provided and subsidized (2/3), child care from the age of 1 year. Now good coverage. Full time bias.

• Retirement age used to be high is now lower

Actual hours for men, working

Composition of social programs, those not working:

Unemployed or on leave Welfare PEW

Pension and health related

retirement Others1 Number

1997 30 7 15 24 24 880,149

2002 29 6 15 25 25 826,020

%

Who moves into non-employment

Transfers from active labour market participation to permanent transfer income

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

Year

Lo

w w

age

shar

e

low wage share

normal wage share

Immigrants

Number of 1st and 2nd generation of immigrants

100,000

200,000

300,000

400,000

500,000

1980 1983 1986 1989 1992 1995 1998 2001 2004

Immigrants and labor force participation

Participation

50

55

60

65

70

75

80

85

1997 1998 1999 2000 2001 2002 2003 2004

%

Persons with Danish background Immigrants Second generation immigrants

Unemployment among immigrants

Full time unemployed among the 1st and 2nd generation immigrants

5

10

15

20

25

30

35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

The 2002 wage distribution and low wage share

0 10 20 30 40 50 60 70 Euro

red line=low wage, blue line=GB

2002 wage distribution

Wage distribution

year 10% 50% 90% 90/50 50/10 obs.

ALL1980 13.0 18.5 28.1 1.517 1.429 1,813,315

1990 14.8 20.9 32.4 1.550 1.412 2,046,360

2002 15.1 21.9 34.9 1.595 1.455 2,206,092

MEN1980 14.8 20.7 31.2 1.507 1.396 974,651

1990 16.4 23.2 36.4 1.571 1.415 1,066,656

2002 16.3 24.2 39.7 1.639 1.488 1,127,755

WOMEN

1980 12.0 16.4 22.9 1.396 1.359 838,664

1990 13.9 19.0 26.3 1.385 1.363 979,704

2002 14.4 19.9 29.0 1.459 1.383 1,078,337

18-60 year

2002 euro

Worker turnover

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

firm_exitrate

entryrate

Turnover is not evenly distributedTenure

(in years)

Movers Stayers Prob. stay-

ing one add.

year

Prob. stay-

ing 5 more

years

Prob. stay-

ing 10 more

years

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

20+

215,638

85,371

50,866

32,284

30,090

13,924

10,274

7,216

5,849

11,934

5,312

3,194

2,816

2,888

2,385

1,962

1,601

1,094

982

836

10,253

292,641

169,124

102,096

73,264

60,748

52,413

44,692

35,145

32,988

35,854

26,475

22,083

18,671

19,189

16,880

14,748

11,786

8,599

7,612

6,666

66,655

0.58

0.66

0.67

0.69

0.67

0.79

0.81

0.83

0.85

0.75

0.83

0.87

0.87

0.87

0.88

0.88

0.88

0.89

0.89

0.89

0.35

0.35

0.42

0.47

0.50

0.51

0.51

0.51

0.51

0.51

0.52

0.53

0.53

0.53

0.54

0.56

0.58

0.59

0.57

0.54

0.18

0.18

0.21

0.24

0.26

0.27

0.27

0.27

0.27

0.28

0.29

0.31

0.31

0.30

0.29

0.29

0.28

0.29

0.28

0.25

Probability staying for 20 years, DK versus US

AGE GROUP DENMARK 1990 DENMARK 2000 U.S. 1978 (HALL, 1982)

20-24

25-29

30-34

35-39

40-44

45-49

50-54

71.3

34.6

26.9

29.3

28.4

14.1

10.6

58.5

29.6

24.5

25.2

25.9

11.0

7.3

36.6

44.9

39.3

35.9

25.2

8.7

4.3

Low wage

• Who are the low wage earners?

• Characteristics

1996 2002

Overall 7.6 8.5

Gender

Men 5.5 6.4

Women 10.0 10.7

Age

18-25 28.6 35.0

26-35 5.3 6.8

36-45 3.0 4.0

46-55 2.8 3.6

56-60 3.1 4.2

Industry

Manufacturing 4.5 4.6

Meat industry 3.0 3.7

Bakery 26.6 32.8

Construction 6.3 8.4

Service 8.3 9.1

Retail 22.0 23.3

Supermarket 24.2 26.2

Department store29.4 27.5

Hotels with restaurants 24.6 24.6

Hotels without restaurants 21.9 19.2

Health 8.3 9.7

Hospitals 5.0 4.2

Low wage by age

Development of low wage share by age groups

0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Year

Lo

w w

age

shar

e

18-24

25-49

50+

Total

Low wage by gender

Share of low wage by gender

0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Men

Women

Low wage by education

Development of low wage share by education

0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

0.160

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Year

Lo

w w

age

shar

e

Secondary school

Upper secondary school

Tertiary

Total

Dynamics of low wagedifferent definitions

Low wage mobility comparison

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

1995 1996 1997 1998 1999 2000 2001 2002

Year

Sh

are

1 year - exclusion

1 year - non exclusion

2 years - exclusion

2 years - non exclusion

Where do the low wage workers go?

Survivor curve for low wage workers

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

0.800

0.900

1.000

1995 1996 1997 1998 1999 2000 2001 2002

Year

Sh

are

missings

perm. transfer income share

temp. transfer income share

normal wage share

low wage share

Low wage jobs

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Pe

rce

nta

ge

of

low

wa

ge

wo

rke

rs

Total Meat processing ConfectionaryHotels Hospital Food retailElectrical goods retail TWA

Students working

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Hotels & Restaurants Retail

Unemployment

100,000

150,000

200,000

250,000

300,000

350,000

400,000

1980 1983 1986 1989 1992 1995 1998 2001

Un

em

plo

ye

d

0%

2%

4%

6%

8%

10%

12%

14%

Un

em

plo

ym

en

t ra

te

Uemployed

Uemployment rate

Labor force participation

År M&W Men Women 1983 79.6 86.4 72.8 1984 81 87.8 74.1 1985 82 88.5 75.5 1986 83.1 88.9 77.1 1987 82.7 87.7 77.5 1988 83.8 90 77.5 1989 83.6 89.7 77.3 1990 84.1 89.6 78.6 1991 83.8 88.5 78.9 1992 83.6 88 79.1 1993 82.7 86.9 78.4 1994 79.3 84.5 74.1 1995 80.1 86.5 73.6 1996 80.1 86.2 74 1997 80.5 86.3 74.7 1998 80.1 84.6 75.5 1999 81.1 85.6 76.5 2000 80.6 84.8 76.3 2001 80.3 84.5 75.9 2002 81.1 85.5 76.6 2003 80.6 85.4 75.7

Internal labor markets?

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

topquart_xrate

topquart_entryrate

bottomquart_entryrate

bottomquart_xrate

Social environment

• Social Contributions and taxes– Tax rates are 8% up to 5000€, then 44%-63% + UI-

premium but not other social contributions– 25% VAT + ”green” taxes

• Pension, means tested• Maternity leave, • Free health care, • Subsidized child institutions• Family allowances

Conditions for the high female participation

• Subsidized child care– 6 of 10 children 1-6 are in public daycare

• Many started as part timers

• Now little part time, 8% for 25/55 years of age

• Females get now same level educations as men and above.

• But still somewhat lower wages 7/8%

Job environment

• UI• Collective bargaining

– The Danish Model: trade unions and federations of employers negotiate wages, working time, pension, vacations etc.

– The Government takes care of employment policy and UI and of getting people back to work through training and job programs

• Changes in the bargaing system: Late 80’s+ 1993+ more and more decentralized wage bargaining. We find a larger and larger firm element

• The agreed on minimum wage: 13.8€, but some are paid less.

UI-benefits

• 90% of previous wage• Maximum around 1800€ per month

– Creates an incentive problem for low wage earners

• 2 days waiting time• 1st year without conditions• 2nd-4th year the unemployed has to attend

courses, job training or other activity• A lot of short spells due to temporary lay offs.

20%+ experience some unemployment during the year.

UI-benefits

• Members receive UI-benefit• But pay membership fee, • in return they get a state subsidised

”insurance”.• About 80 % of all are members of UI-

system and 85% are members of Union• The two systems are considered to be the

same – increases the membership of unions

Job protection

• No legislation for hourly paid = manual workers

• Hourly workers may through their collective contract have a 2 weeks notice, or somewhat longer

• Salaried employees within administration have by law period of notice of up to 6 month for long tenure

• In general easy to lay off workers

Changes in wage bargaining

• Wage bargaining used to be centralized

• Now much less so

• 1987 lower level, and after 1993:– many contracts do not mention a wage at all– More and more wages are negotiated

between employer and employee directly

Labor market policies

0

100000

200000

300000

400000

500000

600000

700000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Unemployment

Active

Passive