The Danish Model of “Flexicurity” –A Paradise with some Snakes

By Per Kongshøj Madsen

Flexible labour markets can exist alongside robust social security systems. Denmark is a telling example.

Employment protection legislation is les rigid than in other Scandinavian countries, but unemployment benefits are higher than in England, Australia and other Anglo-Saxon countries.

The unemployed must be seriously looking for work, but there is strong institutional support, not punishment, to encourage re-skilling and job search.

The term used is "flexicurity". Benefits are paid on the first day out of work, at 90% of the previous wage, for a maximum of 4 years. For low income earners, tis income and and other income related benefits go some way to replacing the kind of net earnings a job would pay. The income replacement varies between 63% to 96%, depending on the circumstances of the worker. There would not be much motivation to search for a job but for the activation rules which set out to ensure people are looking for work and to get them into education and training to improve their prospects.

A similar system operates in The Netherlands.

The Danish case Has achieved a drop in unemployment from over 10% to just 5.6% (2003), without a deficit on the external balance of payments (Australia is not a pretty picture in this regard). Some call this integration of labour market and social welfare policy the "golden triangle approach". That is, a generous welfare system, active labour market policy and a flexible labour market..

Denmark has a very high level of job mobility, and this would seem to indicate that, combined with a low level of employment protection legislation, workers would feel insecure. However, 45% of employees did not strongly agree with the statement "my job is secure", a much lower level than in other countries surveyed by the author.

The Danish model is a result of a log history of consultation between social partners (ie unions, government, employers) with the resulting trust and confidence this lack of antagonism and aggression entails.