Denmark’s flexicurity

October 4, 2006

Free Market Foundation

A peculiarly Danish blend of a flexible labour market, generous social security and an active labour-market policy known as “flexicurity,” has allowed Denmark to preside over an economic boom the past five years, says the Economist.

Under the system, workers pay high taxes, but trade job security for a guarantee should they be laid off of time-limited but generous unemployment pay that they can live on and a promise that they will get new jobs fast.

The model has proved successful throughout the economy:

Unemployment, at 4.5 per cent, is at its lowest in over 30 years.

Inflation is below the euro-area average and growth is faster.

The budget surplus hit 3.9 per cent of gross domestic product (GDP) in 2005.

But it’s Denmark’s exceptional performance on jobs that has attracted most attention:

Over the past three years the Danes have shaved the public payroll by almost 1 per cent while boosting private-sector employment by 3.7 per cent.

Latest estimates suggest that 34,000 private-sector jobs will be created this year.

However, while flexicurity is much admired abroad, it is not necessarily easy to copy, and does have its drawbacks, says the Economist:

For one thing, it is based on a century-old habit of dialogue between employers and unions that is not easily exportable to other countries seeking a quick fix.

Moreover, despite enviably low unemployment and labour shortages in industries from construction to health care, the Danes are having more difficulties nudging the long-term unemployed into work.

Source: Editorial, Flexicurity, Economist, September 7, 2006.

For text: http://www.economist.com/world/europe/displaystory.cfm?story_id=E1_SRRDTJR

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

FMF Policy Bulletin/ 26 September 2006