The Danish Flexicurity Model The Danish Wonder Drug against Economic

Troubles -- a win-win situation?

Jette Steen Knudsen

The Copenhagen Centre for Corporate Responsibility

The Copenhagen Centre for Corporate Responsibility

Independent think tank founded by the Danish government with a focus on the changing role of business in society and corporate responsibility (CR) initiatives. Independent board of directors

Secretariat for the Danish National Network of Business Leaders which advises the Minister of Employment

Target group: key decision-makers in business and government

www.copenhagencentre.org

The Copenhagen Centre

MissionGenerate knowledge, stimulate public debate and raise awareness about the changing social role of business in society

How we workApplied research: the Centre undertakes research and practical studies

Outreach activities: the Centre regularly convenes seminars and workshops, and continuously engages decision-makers and the media in dialogue and debate

Practical tools: develop practical advice for firms and government

Focus Areas1) Employment trends: the Danish understanding of CR• Globalization and outsourcing: impact on vulnerable groups• National Network of Business Leaders: new forms of social

employment due to 1) globalization; 2) juvenile crime

2) Risk management• SMEs and ethical supplier standards• Non-financial reporting• Corporate image and CR initiatives• Institutional investors and social initiatives

Implicit assumptions of the CR Agenda which

focuses on inclusive employment • Economic burden-sharing perceived as necessary

for maintaining social welfare

• Business included in problem-solving in order to solve problems from the ”bottom up” rather than ”top down” (business needs are a great motivating factor..)

New labour market initiatives during the 1990s

• The Danish National Network of Business Leaders (1996) + Regional Networks / “Inspirators” (2000)

• Tools employed: Different kinds of subsidized employment programmes (i.e. ”sheltered” jobs)

• The Network Award for Social Inclusion - initiatives that ”make a difference in every day life to employees, the company and to society”

Types of CR Initiatives

1) Integration of employees excluded from the labor market

(training, sheltered jobs, testing the ”capacity to work”)

2) Pre-emptive measures

(with the goals to reducing absence due to illness, improving physical and psychological working environment, sheltered jobs for employees etc.)

Study of CR initiatives:Netværksprisen set i Bakspejlet

• Integration of groups at the edge of the labour market: qualitative study from The Copenhagen Centre

• What works?• Possibility of getting a real job in the end• Company must have a real need for workers (business case)• Optimal framework conditions such as supplementary salary

scheme, training and education)• Mentors

Examples:

• Danish Crown• Specialisterne• TDC

Read more at www.copenhagencentre.orghttp://www.copenhagencentre.org/graphics/CopenhagenCentre/Publications/Papers/pilotundersoegelse_full_report.pdf

Crucial features of the Danish welfare model

• Universal service provision

• Financed through general taxation

• Requires high taxes and high employment levels

Successful model

• High employment levels, low unemployment

• High average income level

• Little poverty

• Government budget in surplus

Generous welfare support

Flexible labor market

Aktive labor market policies

(ALMP)

ALMP: Improved labor market qualifications

ALMP: motivating factor

Kilde: Thomas Bredgaard, Flemming Larsen og Per Kongshøj Madsen, 2005

Den danske flexicurity model:

the golden triangle

Background for flexicurity model

• Flexibility: Consensus that employer has the right to hire and fire

• ALMP: Labor market reform from 1993 - active labor market policies (training and education schemes have been part of social partner agreements since mid 1990s)

• Social security

Flexibility

1) high internal numerical flexibility (regulate working time, overtime, etc.)

2) high external numerical flexibility (regulate the number of hires and fired)

3) high functional flexibility (organization/work functions)

4) salary flexibility

Active labor market policy

• Improvement of qualifications• Separation of social security and active labor

market policy so that ALM-period does not count towards right to unemployment

• Individual action plans• Training after 12 months unemployment• Young people after 6 months - reduced

earnings during training.

Security

• Collective agreements b/w social partners

• Combination of work/personal life (i.e. maternity leave, education leave, etc)

• Public welfare - universal provision

Social Security – Income Compensation

0

50

100

150

200

250

Arbejdsløshedsdagpenge SygedagpengePensioner & Efterløn Udgifter i alt

Source: Own calculations & Danmarks Statistik

Two challenges

Ageing: desirable but problem for public finances

Globalization: desirable but need adjustment pressures

Options for adjusting to spending pressures related to ageing

• Higher taxes

• Cut spending

• Pre-save

• Delay retirement (and finish education faster)

Share of cohorts with a further education (source Jørgen Elmeskov, OECD)

Kilde: Education at a Glance 2004

0

10

20

30

40

50

60

CANJP

NKOR

USAFIN

SWE

FRA UK

OECD DKEU15

NLDDEU

Pct.

0

10

20

30

40

50

60

Pct.

45-54 25-34

Globalization

• Demand for low-skilled workers might drop but effect is not clear

• Some tax bases become more mobile• More emigration of high-skilled workers?• Pressure to improve integration of

immigrants (Denmark is relatively more attractive to low-skilled immigrants)