Flexicurity

Since as far back as 1899, the Danish government has provided generous benefits to its workers. But by the 1970s, high wages had made Denmark uncompetitive in foreign markets and led to balance-of-trade deficits and inflationary pressures. Yet austerity programs to cut wage demands and increase savings met strong public opposition, including repeated strikes and the frequent collapse of ruling coalition governments. High unemployment and harsh economic conditions followed, exacerbated by the 1970s energy crisis. Danish unemployment continued to rise, and Danish businesspeople complained of difficulties in remaining globally competitive until 1994, when the Danes first introduced their flexicurity model for the labor force.

Today, Denmark has one of the most competitive economies in Europe and one of the lowest unemployment rates in the world, while guarding and even improving its strong safety nets. In 2009, the European Council reported that “flexicurity is an important means to modernize and foster the adapability of labor markets.”

The Danish concept of flexicurity rests on three legs.

1. Flexibility in the labor market. Danish businesses are given great leeway in hiring and firing workers. Regulations for starting businesses are relaxed. In 2008, the conservative Forbes magazine ranked Denmark as the number one country in the world for business. The equally conservative Heritage Foundation ranked it ninth, just below the United States, with this comment: “The non-salary cost of employing a worker is low, and dismissing an employee is relatively easy and inexpensive.”

2. A strong social safety net. Though it's not hard for businesses to lay off or fire workers in Denmark, dismissed employees enjoy excellent benefits during periods of unemployment. They can be covered by unemployment benefits nearly equal to their previous salaries for two years or more. During this period, they receive thorough assistance in finding new work. After that, if they cannot find a job, they are offered one by the government. They must take it or lose their benefits. But such make-work jobs are rarely needed; most Danes find regular reemployment long before benefits run out.

3. Lifelong training. During periods of unemployment, Danish workers receive extensive training in new skills to make sure they are employable and to prepare them for technological changes in the economy.18

Thus flexicurity provides relief to employers from rigid labor rules and, at the same time, supplies income security, job-finding assistance, and useful education for employees. All of this does not come cheaply, however; the Danes pay among the highest taxes in the world, and of all rich countries, the percentage of GDP produced by the public sector is highest in Denmark. On the other hand, wages in Denmark are very high, with even the lowest-paid workers earning the equivalent of about twenty U.S. dollars per hour in 2010.19

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