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Labour market flexibility and social protection in European welfare states--contrasts and similarities (1).

Abstract

The concept of 'flexicurity' is gaining momentum both within research and policy debates. As a research concept it is focused on the interplay between various forms of labour market flexibility and social protection. As a political strategy, 'flexicurity' offers a third way combining the virtues of flexible labour markets and high welfare standards. Denmark is often taken as a successful example of such a combination. This paper describes the Danish version of 'flexicurity' as a starting point for a comparison between seven European welfare states in order to uncover contrasts and similarities with respect to the interplay between the labour market and social security.

Introduction

The relationship between flexibility on the labour market, social protection and social cohesion has--under the label of 'flexicurity'--played an increasing role in both the scientific and the political debate on the future trends of the European welfare states and employment policies. Thus, previous research has pointed to the existence of different national configurations of flexibility on the labour market and social protection (e.g. Wilthagen and Tros 2004; Auer and Cases 2003, chs 1 and 2).

Here the Danish employment system has been offered as an example of a unique 'flexicurity-model' combining a high degree of worker mobility between firms (external numerical flexibility), with a well-developed system of income support for the unemployed and a high level of social cohesion (Madsen 2003, 2004, 2005). In this sense, the Danish model presents itself as a hybrid between a Nordic welfare state and a liberal regime.

The task of this paper is to further develop this analytical tradition in a comparative study on the interrelation between the labour market and the welfare state in selected European countries, which represent different ideal types of welfare states. The aim is firstly to get a better understanding of the specific traits of the Danish model in a comparative perspective and secondly to further develop concepts and methodological tools for comparative analysis of different models of flexicurity.

The starting point for the empirical analysis is a brief description of the present situation with respect to flexibility of labour markets and the relation between employers and employees in Denmark. The analysis then proceeds with a systematic comparison with six other European national employment systems in order to study the different national configurations of 'flexicurity' including the way in which different trade-offs can be identified.

Danish Model of Flexicurity

The successful development of the Danish economy and labour market in recent years has stimulated ideas about the existence of a particular Danish model of the employment system characterised by:

* A flexible labour market with a high level of external numerical flexibility indicated by high levels of worker flows in and out of employment and unemployment; the high degree of numerical flexibility (the scope for adjusting the number of employees at the individual workplace through hiring and firing) is made possible by a low level of employment protection, allowing employers to freely adapt the workforce to changing economic conditions

* A generous system of economic support for the unemployed

* Active labour market policies aimed at upgrading the skills of those unemployed, who are unable to return directly from unemployment to a new job.

Originally these special traits were pointed to in a report from the Danish Ministry of Employment (Arbejdsministeriet 1999). They have later been the subject of a number of academic articles and papers and most recently emphasised by the OECD (2004a).

Furthermore, the analysis of the 'Danish model' has been linked to the growing international literature on 'fiexicurity', where Denmark is seen as a variant of this broader concept (see Wilthagen and Tros, 2004). From this perspective, the version of flexicurity found in Denmark

has as its nexus, a combination of a high numerical flexibility and a correspondingly high level of income security for the unemployed in the form of generous and long-lasting benefits. In addition, the Danish model includes an additional strong element of employment security stemming from active and resourceful labour market policy. Finally, in a comparative perspective, it should be noted that the Danish model is characterised by an encompassing flexicurity covering all employees, in contrast to models where flexicurity is limited or specific to subgroups on the labour market.

The Danish model is often portrayed in the form of a 'golden triangle' of flexicurity (figure 1). The arrows in the model indicate flows of persons between different positions within work, welfare and active labour market programs. The two arrows linking the flexible labour market and the generous welfare system indicate that between 20 and 25 per cent of the Danish workforce is affected by unemployment every year, but that the majority of the unemployed return to employment after only a short spell of unemployment. Active labour market programs assist those who do not quickly go back into employment, before they re-enter a job.

[FIGURE 1 OMITTED]

The dotted eclipse indicates the basic flexibility-security nexus combining a high level of numerical external flexibility (linked to a low level of employment protection) and a generous system of economic support (income security) for the unemployed. The main role of active labour market policy is to support the flows from unemployment back to employment by upgrading the skills of the unemployed. This reflects the element of employment security in the Danish model.

In recent years increased emphasis is being put on the motivation--or threat--effect of mandatory activation (Rosholm and Svarrer 2004). The unemployed, having an aversion towards taking part in active programs, cause this effect and therefore look more eagerly for work when the deadline for activation approaches.

Thus the Danish experience points to the economic feasibility of a 'hybrid employment system' combining on the one hand the traditional virtues of a liberal labour market with few restrictions on the employment contract with--on the other hand--a reasonable level of economic protection of the individual wage earner. The Danish model therefore fits the picture of a possible 'trade-off between a very flexible employment relationship and a social protection system combined with active labour market programs, which defends the individuals from the potential costs of a low level of employment security (see Auer and Casez 2003, ch. 1). In this respect the model represents a genuine alternative to the common idea of making the individual employers responsible for income and employment security by having a high level of individual employment protection for the employees at the company level.

The Danish Employment System in a Comparative Perspective

The interpretation of the Danish model as combining traits as a liberal labour market system with strong elements from a Scandinavian welfare state, first of all justifies a closer comparison with other countries that are traditionally seen as representative of either the Scandinavian models or liberal welfare states. To further broaden the perspective, the present paper also includes countries that represent either the continental model or the Southern European model of the welfare state. One should add that the author's previous studies of the Danish model have also taken a comparative approach, but mainly by presenting and comparing basic statistical information for several OECD-countries on employment protection, labour mobility and so on (see for instance Madsen 2003). In the present context, the aim is to go somewhat deeper into the comparison of a more limited selection of countries. Sweden and Finland are chosen as examples of the Scandinavian welfare state, while the UK represents the liberal model. France and Germany are taken as examples of the continental model, while Italy corresponds to the Southern European Model. It is outside the scope of the present paper to discuss in more detail the different welfare state typologies. Reference can be made to Arts and Gelissen (2002). The allocation of the six countries in the present study to four different groups of welfare state is robust across different studies, although the labels put on the ideal types will differ (cf. Arts and Gelissen 2002, table 2).

As is well known from the literature on flexicurity, there are many possible configurations of both flexibility and security that may all represent some version of flexicurity. Thus, Wilthagen and Tros (2004) make a distinction between four forms of flexibility (external numerical, internal numerical, functional and flexible pay). With respect to security they list the following forms: job security, income security, employment security and combination security. By combination security they refer to a worker being able to combine his or her job with other--notably private--responsibilities and commitments, other than paid work. This of course leads to 16 different combinations--or subcategories of 'flexicurity', although not all of them may be logically possible.

In the present context, the comparison is ethnocentric in the sense that it is focused on the four variables that characterise the encompassing combination of external numerical flexibility and income security (combined with some employment security) found in the Danish case: tenure, employment protection legislation, benefits to the unemployed and level of active labour market policy. Thus the study is not a general analysis of flexicurity in the seven countries, but a comparison of the ways in which the specific 'flexicurity triangle' in figure 1 spells itself out--or is non-existent--in seven European countries.

Table 1 provides the basic information about the core indicators of the flexicurity triangle for the seven countries.

Based on table 1, a number of initial observations can be made. The hybrid character of the Danish model is evident. When it comes to average tenure and the index for employment protection, Denmark is close to the United Kingdom. When measured by net replacement rates of unemployment benefits and by expenditure on active labour market policy, Denmark is much more similar to Sweden. Finland comes out somewhat differently in the sense that its average tenure and EPL index indicates a level of flexibility higher than Sweden, but lower than Denmark. The Finnish net replacement rate is about the same as the two other Scandinavian countries, while spending on active labour market policy is less.

The following section takes the analysis further by looking closer at the factors behind the basic indicators. The tables with detailed data are found in the Annex and numbered A1 to A5.

Average Tenure and Employment Protection

The available sources allow for a more detailed analysis of external numerical flexibility measured by the average tenure of the employees. A high level of average tenure is thus taken to be an indicator of a low level of numerical flexibility of the employees. Table A1 provides an overview of the data.

Basically, the disaggregated data in table A1 confirm the existence of the dividing line between Denmark and the United Kingdom on the one hand and Sweden on the other, when it comes to the extent of numerical flexibility. Actually, by some indicators, numerical flexibility seems even higher in Denmark than in the UK. Thus the share of employees with tenure less than 1 year is the highest in Denmark. Also the share of employees with a long tenure is lower in Denmark than in the UK. While the average tenure for Denmark and the UK is just above 8 years, the other five countries all have average tenure levels of more than 10 years, with Sweden and Italy scoring the highest.

When it comes to the tenure levels for men and women respectively, figure 2 shows that in all cases except Sweden the lowest tenure is found for women. By age groups, all countries have the highest tenure for older workers, but again with a level, which is significantly lower in Denmark and UK.

[FIGURE 2 OMITTED]

Turning to the distribution by sector, the cross-sector pattern is similar for all seven countries, but again with Denmark having the lowest tenure levels in most groups, followed by the UK. Especially one note that the tenure for public employees in most countries except Italy and Sweden is close to the average level for all wage earners--and lower than the tenure level in manufacturing. Thus, the perception of the public sector as having in general a relatively low numerical flexibility is not supported by the tenure data.

Finally, when it comes to the tenure data for different educational levels, one finds, as illustrated in figure 3, rather different patterns in the seven countries. In Denmark, Finland and Germany, tenure increases with the level of education, supporting the view that the employment of low skilled workers is more sensitive to the business cycle. But for Finland, France, Italy and Sweden the pattern is actually the opposite with tenure levels lower for higher education. In the UK no relationship is found. Again Denmark and Sweden do not follow the same pattern.

[FIGURE 3 OMITTED]

One obvious explanation for the different levels of overall numerical flexibility is differences between national regimes with respect to the protection of the individual employee against dismissal. Easy access to firing the individual employee should make numerical flexibility a more attractive strategy for the employer than for instance functional flexibility or changing working hours (internal numerical flexibility).

As indicated by the aggregate data in table 1, the overall protection of the individual employee seems to be the lowest in the UK, followed closely by Denmark. On the opposite end of the scale, one finds Sweden followed by France and Germany. The data presented are from the latest OECD survey of employment protection legislation (OECD 2004a, ch. 2). The OECD study covers the protection of regular employment, temporary employment and employees in case of collective dismissals. This study takes a detailed approach in assigning quantitative indicators to various aspects of employment protection and then aggregating the outcome to a few general indices. Since the focus in the present context is on numerical flexibility related to the individual employment contract, the other elements in the study are not included here. In order to get a better understanding of the causes of the different index-levels assigned to the seven countries in question, table A2 presents the underlying data for the assessment of the protection of the individual employee against dismissal.

The basic indicators in table A2 cover three main areas of employment protection for regular employment:

1. Regular procedural inconveniences: Procedures for dismissals with respect to notification (oral statement, written statement and involvement of third parties) and delay

2. Notice and severance pay for no-fault individual dismissals: Conditions under which dismissals can be justified or unjustified (considerations with respect to lack of work, individual worker qualifications, social considerations, obligation to attempt retraining)

3. Difficulty of dismissal: Relation between notice period or severance pay and the tenure of the employee.

The levels of the three indicators for the seven countries are shown in figure 4.

[FIGURE 4 OMITTED]

Within the first and the third categories, the similarity between Denmark and the United Kingdom--and the difference in comparison to Sweden--is the most striking. In both Denmark and the UK an employer can dismiss an individual worker with short notice using a written statement and without the involvement of a third party. Trial periods are long and compensation for unfair dismissal is about one-quarter of the Swedish level. Only when it comes to notice and severance pay, is the picture more mixed, with Sweden having less restrictive regulation than Denmark in two out of the six chosen indicators. While the positions of Germany and France may not be surprising, it is remarkable to find Italy next to Denmark and the UK.

It is striking that the overall employment protection for the individual employee is clearly at a lower level in Denmark and the United Kingdom than in Sweden. In the former countries, the employment contract is seen essentially as an individual economic agreement between an employer and an employee, which can be terminated at will by both sides, without the involvement of third parties. Therefore the concept of unfair dismissal plays a limited role in those countries, although limitations may exist, for instance due to bans on ethnic and other forms of discrimination. Other limitations may refer to pregnant women. But on the whole the employment contract takes few social or other considerations with respect to the employee.

While this may be in line with the traditional perception of a liberal labour market, it is more surprising to find such a regime within the framework of the Danish society, which is normally seen as belonging to the family of Scandinavian welfare states. One clue to understanding this apparent anomaly is to look closer at the income security provided in the seven countries compared here. This is the subject of the following section.

Income security

Based on the above description of the Danish labour market as providing a rather insecure environment for the individual wage earner, one could suspect that Danish employees would regard their working life as unsafe and risky. The paradox is that the vast majority of studies of working-life satisfaction (and life-satisfaction in general) come to the conclusion that Danes are among the populations expressing the highest level of job-satisfaction and sense of stability in their working-life. With respect to life satisfaction in general, the Danes are simply the happiest Europeans that one can find. In a survey conducted by the European Foundation for the Improvement of Living and Working Conditions, 69 per cent of Danes stated that they were very satisfied with their life, while 28 per cent were fairly satisfied. Among the old EU-Members States, The Netherlands comes in second with 48 per cent being 'very satisfied' (European Foundation 2004, p. 37).

Thus, in a survey conducted in 1996, the proportion of Danish workers not strongly agreeing with the statement 'my job is secure' was about 45 per cent, and therefore considerably lower than for all the other countries in the sample. This feeling of job security was found among all subgroups of workers (OECD 1997, Table 5.2). Although this may also reflect the positive situation on the Danish labour market at the time of the survey, there are no clear indications that Danish workers are reacting to the high level of numerical flexibility with a strong feeling of insecurity. Similar results have been found in the study by Auer and Casez (2003, figure 1.1). The data from 1994 published in Gallie and Paugam (2000, p. 292) also showed that the economic well being of Danish unemployed was the highest among the European countries in the sample and that the difference in economic well being between employed and unemployed was the lowest.

One plausible explanation for the sense of security and economic well being among the Danish working population is the generous safety-net, which is provided during both short and long spells of unemployment.

Numerous studies have looked into the interplay between social security (including support to the unemployed) and income distribution in different welfare regimes (see for instance Gallie and Paugam 2000). It is also well known that international comparisons in this area are difficult due to differences in the specific institutional set-up at the national level. For example the benefits paid to an unemployed person will in general differ with respect to previous income, but may also be influenced by the family situation and the interplay with other forms of social assistance and with the tax system. Also duration of the eligibility period will differ. Therefore summary indicators of for instance replacement rates, may give a misleading impression of the actual situation.

The aim of this section is therefore to dig a bit deeper into the design, level and targeting of income security of the seven countries studied in the present context. The descriptions of rules and regulations are mainly based on a recent comparative study (Werner and Winkler 2004), supplemented for Italy and Finland by information from OECD's background country chapters for the indicators on benefits and wages. The quantitative information is taken from the most recent issue of the OECD's indicators on benefits and wages (OECD 2004a).

But first a brief overview of the benefit systems is necessary.

Denmark: Concerning the design of the unemployment insurance systems, the Danish system is based on private, but mainly state-funded, unemployment insurance funds with close ties to the trade unions. Benefits are calculated at 90 per cent of the earned income during the previous 12 weeks with a maximum of around 400 Euro per week. There is no waiting period. The maximum duration of benefits is four years, and the recipient must take part in training programs, which are typically offered after one year of unemployment. For unemployed persons not eligible for unemployment benefits, cash benefits are available, but on a means-tested basis. The duration of such benefits is not limited. The level of cash benefits will vary with the family situation. All benefits are taxed. Taking part in labour market training will not make the unemployed eligible for an extension of the benefit period.

Italy: The Italian benefit system is complex having three different schemes for unemployment benefits. Ordinary employment benefits are 40 per cent of gross earnings with a maximum of about 800 Euro per month. They are paid for a maximum of 6 months after a 7-day waiting period. There is no universal income support in Italy. This implies that income support for the long-term unemployed is at a very low level.

Finland: The system is composed of a basic benefit for all unemployed and a supplementary earnings-related benefit for insured unemployed. A child supplement is also paid, making the overall calculation of benefits somewhat complex. Benefits are paid for almost two years (100 weeks) after a 7-day waiting period. Also, there is a means tested social assistance scheme acting as a final safety net.

France: Here unemployment benefits are paid after a 7-day waiting period and calculated at 75 per cent of previous income, but with a maximum. The benefits decrease with the duration of unemployment. The maximum duration of benefits depends on duration of previous employment and on age. It may therefore vary between 4 months and 60 months, the latter for workers over 55 years of age and with long work experience. Flat-rate and means-tested social assistance is paid to persons having exhausted their right to unemployment benefits and to other groups not able to support themselves.

Germany: As in the French system, the level and duration of normal unemployment benefits are paid in relation to previous unemployment and to age. The level of benefits varies between 60 and 67 per cent of net wage. The minimum duration is 6 months (after 12 months of employment). The maximum duration of 32 is for workers over 57 years of age who have been employed for more than 64 months. For those unemployed who have exhausted their normal benefits, a means tested allowance is paid amounting to between 53 and 57 per cent of net wage. One should add that the system is now under reform.

Sweden: In Sweden the benefit system is also based on a number of unemployment insurance funds with government subsidies. The income related unemployment benefit amounts to 80 per cent of previous wages with a maximum of around 350 Euro per week. There is a five-day waiting period. The maximum duration is 60 weeks for persons under 57 years of age. Persons who are not members of an unemployment insurance fund receive a basic unemployment benefit of around 150 Euro per week. All benefits are taxed and training will also qualify for further benefits.

UK: Here unemployment benefits are part of the mandatory social security system for all employees. Employers and employees pay contributions. The system makes a distinction between contributions-based unemployment benefits and income-based benefits, where the former call for a minimum number of contributions. The contribution-based benefits amount to about 90 Euros per week for adults, while the income-based benefits are means-tested and depend on family situation. There is a three-day waiting period. The maximum duration of contribution based benefits is 182 days, while income-based benefits have unlimited duration. The former is taxable and the latter is not.

Based on this brief comparison, a first impression is that all countries have some sort of income-related unemployment benefits, but with a maximum. Also, except for Italy, there is some sort of means-tested social assistance for those unemployed, who lose their right to normal unemployment benefits.

There are also some outstanding differences between the different countries:

* Both the Danish and the Swedish systems provide relatively high levels of compensation, although with a maximum

* The duration of benefits is long in Denmark and short in the UK; for Sweden the potential duration is influenced by the fact that training may qualify for further benefits.

* In all countries except for Denmark, there is a waiting period before benefits may be collected.

* Most countries, again with Denmark as an exception, have differentiated systems, where normal unemployment benefits are calculated on the basis of both duration of previous benefits and the age of the unemployed.

Such differences will of course create difficulties in establishing simple comparisons between countries. This should be kept in mind, when looking at tables A3 and A4, where a quantitative comparison is made, using data provided by the OECD and taking the earnings-level of the average production worker (APW) as the benchmark. Figure 5 sums up the most important data for the net replacement rates for short-term unemployment (for two income levels) and for long-term unemployment (average over 60 month for both income levels). All data in figure 5 are for an average of the four family types found in tables A3 and A4.

[FIGURE 5 OMITTED]

The main impression from the data in figure 5 is that the countries fall into two groups with five countries having rather similar--and high--levels of net replacement rates, while the UK and Italy have much lower benefits. With respect to the coverage of the long-term unemployed, Italy is an outlier, as already mentioned above.

The difference between the UK and Italy on the one hand, and the rest of the countries on the other, is especially manifest for short-term unemployment, which is the most relevant case when assessing income security in relation to numerical flexibility. Here the net replacement rates for the UK are less than 50 per cent for the APW-level and around 60 per cent for a low-income worker. For the other countries, except Italy, the net replacement rates are in the range of 69 to 84 per cent for the APW-income-level and between 74 and 91 per cent for a low-income earner.

Focusing on the economic effects of short-term unemployment in Denmark and Sweden, the picture is more mixed. For the average production worker (APW) the Danish setup is less favourable due to the relatively low fixed maximum on unemployment benefits. On the other hand, the Danish level of compensation is generally higher than the Swedish for low-income workers, with net compensation rates close to 100 per cent for families with children.

The most interesting observation from figure 5 is that Denmark and Sweden are certainly no exception to the European countries when it comes to having economic safety nets for the unemployed, both in the short and in the longer run. While Denmark does have the most generous compensation for both low-income earners and long-term unemployed, the differences compared to France, Germany and Finland are small. Taken on face value, the data thus indicate that there must be other barriers to less restrictive regimes of employment protection in these countries than just the absence of basic income security for their workers. One such barrier could be that especially in contrast to the systems in Germany and France, the Danish system stands out as having both a long duration of normal unemployment benefits and showing much less differentiation, when it comes to the calculation of benefits for different groups. This combination of duration and non-discrimination could be an explanation for the widespread feeling of income security in Denmark and for the willingness of the Danish social partners to accept the low level of employment protection.

Active Labour Market Policy and Employment Security

In the interpretation of the 'flexicurity triangle' given in section 2, the nexus between numerical flexibility and income security was seen as central to the Danish model. Moreover, and even more in the last decade, active labour market policy has entered the scene. Two important functions are attributed to active measures. First, they shall enhance the employability of those unemployed who have not been able to return directly to employment after a short spell of unemployment. Second, they have the function of checking the availability for work of the unemployed to act as an incentive for job search--the so-called threat or motivation effect of active measures. Especially through improving the qualifications of the unemployed and thus their prospects for getting reemployed, one can see active labour market programs as adding an element of employment security to the model.

Figure 5 gives some basic data about active and passive labour market policy in the seven countries.

Figure 6 illustrates the costs of the high level of universal income security found in the Danish system, where benefit payments amount to more than 3 per cent of GDP at a rate of unemployment less than 5 per cent. This again underscores the point that the indicators of net replacement rates shown in figure 5 do not adequately reflect the degree to which the different systems are comprehensive in their nature.

[FIGURE 6 OMITTED]

Furthermore, Italy and the UK show much lower levels of spending on active measures than the remaining countries (with Finland being the laggard among them). Thus, apart from youth measures, spending in the UK on active programs is almost negligible. Denmark and Sweden are more similar, but one may note the high level of spending on labour market training in the Danish case (as documented in table A5). These training measures are both for the employed and for the unemployed and clearly indicate the relatively strong role of employment protection in the Danish version of flexicurity.

Conclusion: The Label 'Hybrid' for Denmark is Appropriate

The purpose of this paper was to dig somewhat deeper into the question of whether the characterisation of Denmark as being a hybrid between a liberal and a Scandinavian type of welfare state is appropriate, when is comes to the interplay between flexibility on the labour market and economic support for the unemployed. The conclusion is clear. The available indicators for numerical flexibility and employment protection legislation reveal a close similarity between Denmark and the UK, with Denmark in some cases being even the most liberal. On the other hand, when one looks at the support provided to the unemployed, the Danish welfare state provides a safety net, which matches the Swedish system, and in some cases is even more generous.

With reference to the growing literature on the Varieties of Capitalism, Denmark therefore provides an interesting case of a variety, which does not fit well with the idea of regimes clustering either around the liberal market economy (LME) or the coordinated market economy (CME) (Hall and Soskice 2001). From the VOC-perspective, Denmark would be seen as having an unstable configuration of institutions and being on the move in the direction of one of the two clusters. When looking at the historical background for the Danish model of flexicurity, the main notion is that of a model developed through a long time period and underpinned by stable institutions and class compromises. The further analysis hereof is the focus of the following section of the paper.

When one includes the wider comparison with the other five countries in the sample two observations stand out.

First, there seems to be some interrelation between the level of employment protection and numerical flexibility on the labour market.

Secondly, it is striking that the level of income security as indicated by the net replacement rates of most of the countries in the sample except for Italy and the UK are at a similar level--and not far from the Danish rates of income compensation. This could lead to the conclusion that those countries, including both France and Germany, already have established an important precondition for flexicurity--and only have to lower their level of employment protection in order to achieve results similar to the Danish ones.

Such ideas about a simple transfer of Danish experiences puts too much emphasis on the crude indicator of net replacements rates and should also take into account the comprehensive--and therefore costly--nature of the Danish system. The Danish model has important preconditions in the social-political history of Denmark, which are not easily transferable. Firstly, one can identify a high level of worker mobility (external numerical flexibility) as a structural characteristic of the Danish labour market. An important explanation for this situation is the liberal regime of employment protection found in the Danish labour market dating back to compromises struck between capital and labour in the early 20th century.

Second, the high level of numerical flexibility is made acceptable for the trade unions and more broadly within the framework of the traditional value system of a Scandinavian type welfare state by the development of a state supported unemployment insurance system supplemented by cash benefits for the uninsured unemployed. These two elements constitute the basic Danish flexibility-security nexus, which in its current version has been present since the late 1960s.

Third during the 1990s, a more ambitious active labour market policy added both stronger motivation and qualification effects to stimulate the flows of workers between employment and unemployment. Through these means the element of employment security was amplified.

Therefore, one must stress that the Danish model of 'flexicurity' is the outcome of a long historical process involving a series of negotiations and compromises between the social partners, the evolution of the welfare state and--in recent years--a gradual development of a more active profile of labour market policy. The model is thus a prime example of the specific Danish version of the negotiated economy.

Therefore it should be taken as a source of inspiration for new ideas about alternative configurations of flexible labour markets and economic security for the individual--not as a simple scheme, which is ready for immediate export.

If one should point to a specific lesson which may inspire policy makers from other national backgrounds, it could be the awareness of the positive effects of a low level of individual employment protection on the dynamism of the labour market. If a liberal regime of employment protection is combined with institutions that support income (and employment) security, one can obtain the combination of a competitive employment system and social welfare. The challenge is to achieve the level of coordination between the social partners, which allows for employment protection to be reduced, while security mechanisms are being created.

References

Arbejdsministeriet (1999), Arbejdsmarkedsreformerne--en status. Kobenhavn: Arbejdsministeriet.

Arts, A. and Gelissen, J. (2002), 'Three worlds of welfare-capitalism or more? A state-of-the-art report', Journal of European Social Policy, vol. 12, no. 2, pp. 137-158.

Auer, P. and Cases, Sandra (ads) (2003), Employment stability in an age of flexibility. Evidence from industrialized countrie, International Labour Organization, Geneva.

European Foundation (2004), Perceptions of Living Conditions in an Enlarged Europe. European Foundation, Luxumbourg.

Gallie, D. and Paugam, S. (2000), Welfare regimes and the Experience of Unemployment in Europe, Oxford University Press, Oxford.

Hall, Peter A. and Soskice, David (2001), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Cambridge University Press, Cambridge.

Madsen, Per Kongshoj (2003), 'Flexicurity through labour market policies and institutions in Denmark', in Employment stability in an age of flexibility. Evidence from industrialized countries, (eds) Peter Auer and Sandrine Cases, International Labour Organization, Geneva, pp. 59-105.

Madsen, Per Kongshoj (2004), 'The Danish model of 'flexicurity': experiences and lessons', TRANSFER. European Review of Labour and Research, vol. 10, no. 2, pp. 187-207.

Madsen, Per Kongshoj (2005), 'The Danish road to flexicurity: Where are we. And how did we get there?', in Employment policy from different angles, (eds) Thomas Bredgaard and Flemming Larsen, DJOF Publishing, Copenhagen, ch. 14.

OECD (1997), Employment Outlook, OECD, Paris.

OECD (2004a), Employment Outlook, OECD, Paris.

OECD (2004b), Benefits and wages. OECD Indicators, OECD, Paris.

Rosholm, Michael and Svarer, Michael (2004), 'Estimating the Threat Effect of Active Labour Market Programmes', IZA Discussion Paper no. 1300.

Werner, Heinz and Winkler, Werner (2004), 'Unemployment Compensation Systems--A Cross-Country Comparison', IABtopics, no. 56, Institute for Employment Research of the Federal Employment Services, Germany (www.iab.de).

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Endnotes

(1) An earlier version of this paper was presented at the Transitions and Risk: New Directions in Social Policy Conference, Centre for Public Policy, University of Melbourne, 23-25 February, 2005. The author wishes to thank the participants in the workshop and two anonymous referees for their constructive comments to earlier versions of the paper.

Per Kongshoj Madsen, Centre for Labour Market Research, Department of Economics, Politics and Public Administration, University of Aalborg, Denmark
Table 1: Basic Data for the 'Flexicurity Triangle' for Seven
Countries

 EPL
 (employment ALPM (active
 protection; labour market
 regular NRR (net program
 Average employment replacement expenditure:
 tenure index) rates) share of GDP)

Year 2000 2003 2002 2000
Unit Years Index (0-6) Per cent Per cent
Denmark 8.3 1.5 78 1.59
Finland 10.1 2.2 77 1
France 11.1 2.5 72 1.32
Germany 10.5 2.7 77 1.22
Italy 12.2 1.8 5 0.6
Sweden 11.5 2.9 77 1.37
United Kingdom 8.2 1.1 65 0.36

Sources: For average tenure: Auer and Casez (2003), table 2.1;
for employment protection: OECD (2004a), table 2.A2.1; for net
replacement rates: OECD (2004b), table 3.3b; for ALMP: OECD
(2004a), table H.

Annex
Table A1: Average Tenure by Duration, Sex, Age, Sector and
Education, 2000.

 Unit of
 measurement Denmark Finland France

Tenure under 1 year Per cent of 23 21.6 15.8
 labour force

Tenure 10 years Per cent of 31.1 42.1 44.8
and over labour force

All Years 8.3 10.1 11.1

Sex:
Men Years 8.8 10.1 11.4
Women Years 7.5 10.1 10.8

Age:
Age 15-24 years Years 1.6 1.3 1.5
Age 25-44 years Years 6.2 7.7 8.9
Age 45 years or more Years 13.6 15.9 17.3

Sector:
Agriculture Years 12.4 14.7 13.8
Manufacturing Years 8.8 11.1 12.2
Construction Years 7.9 7.4 9.8
Trade etc. Years 7 8.9 9.7
Financial sector Years 8.2 9.1 9.8
Public sector Years 8.3 10.6 11.9

Educational level:
Low Years 7.6 13.4 12.4
Medium Years 8.7 9.7 11.2
High Years 9 9.7 10

 Unit of
 measurement Germany Italy

Tenure under 1 year Per cent of 14.8 11.1
 labour force

Tenure 10 years Per cent of 39.7 50.7
and over labour force

All Years 10.5 12.2

Sex:
Men Years 11.3 12.7
Women Years 9.5 11.3

Age:
Age 15-24 years Years 2.3 2.5
Age 25-44 years Years 8.5 9.6
Age 45 years or more Years 16 19.3

Sector:
Agriculture Years 12.9 13.6
Manufacturing Years 11.8 11.8
Construction Years 9 10.2
Trade etc. Years 9.2 11.7
Financial sector Years 9.1 11
Public sector Years 11.1 13.6

Educational level:
Low Years 9.2 12.8
Medium Years 9.8 11
High Years 10.8 12.4

 Unit of United
 measurement Sweden Kingdom

Tenure under 1 year Per cent of 15.7 19.3
 labour force

Tenure 10 years Per cent of 46.7 33.3
and over labour force

All Years 11.5 8.2

Sex:
Men Years 11.3 8.9
Women Years 11.5 7.4

Age:
Age 15-24 years Years 1.9 2
Age 25-44 years Years 8.6 7.4
Age 45 years or more Years 16.8 12

Sector:
Agriculture Years 15.9 11.6
Manufacturing Years 12.3 9.2
Construction Years 11.9 9
Trade etc. Years 9.6 7
Financial sector Years 8.5 7.1
Public sector Years 12.7 8.9

Educational level:
Low Years 14.8 8.2
Medium Years 11.3 8
High Years 10.9 8.2

Source: Auer and Casez (2003), table 2.1 and 2.3

Table A2: Indicators for Strictness of Employment Protection for
Regular Employment, 2003

 Unit Denmark Finland France

Values of the indicators:
Procedures Scale 0 to 3 1 1.75 1.5
Delay to start of notice Days 1 11 14
Definition of unfair Scale 0 to 3 0 2 2
 dismissal
Trial period before Months 10.5 4 1.5
 eligibility arises
Unfair dismissal Months 9 14 16
 compensation at
 20 years of
Extent of reinstatement Scale 0 to 3 1 0 0
Notice period after Months 1.8 0.5 1
 9 months
Notice period after Months 3 1 2
 4 years
Notice period after Months 4.25 6 2
 20 years
Severance pay after Months 0 0 0
 9 months
Severance pay after Months 0 0 0.6
 4 years
Severance pay after Months 1.5 0 4
 20 years

Summary scores by main
area:
Regular procedural Index 0 to 6 1 2.8 2.5
 inconveniences
Notice and severance pay Index 0 to 6 1.9 1.0 1.9
 for individual dismissal
Difficulty of dismissal Index 0 to 6 1.5 2.8 3
Overall strictness of Index 0 to 6 1.5 2.2 2.5
 protection against
 dismissals

 Unit German Italy

Values of the indicators:
Procedures Scale 0 to 3 2.5 1.5
Delay to start of notice Days 15 1
Definition of unfair Scale 0 to 3 2 0
 dismissal
Trial period before Months 6 0.8
 eligibility arises
Unfair dismissal Months 18 15
 compensation at
 20 years of
Extent of reinstatement Scale 0 to 3 1.5 2
Notice period after Months 1 0.3
 9 months
Notice period after Months 1 1.1
 4 years
Notice period after Months 7 2.2
 20 years
Severance pay after Months 0 0
 9 months
Severance pay after Months 0 0
 4 years
Severance pay after Months 0 0
 20 years

Summary scores by main
area:
Regular procedural Index 0 to 6 3.5 1.5
 inconveniences
Notice and severance pay Index 0 to 6 1.3 0.6
 for individual dismissal
Difficulty of dismissal Index 0 to 6 3.3 3.3
Overall strictness of Index 0 to 6 2.7 1.8
 protection against
 dismissals

 Unit Sweden UK

Values of the indicators:
Procedures Scale 0 to 3 2 1
Delay to start of notice Days 14 2
Definition of unfair Scale 0 to 3 2 0
 dismissal
Trial period before Months 3 12
 eligibility arises
Unfair dismissal Months 32 8
 compensation at
 20 years of
Extent of reinstatement Scale 0 to 3 1 1
Notice period after Months 1 0.24
 9 months
Notice period after Months 3 0.9
 4 years
Notice period after Months 6 2.8
 20 years
Severance pay after Months 0 0
 9 months
Severance pay after Months 0 0.5
 4 years
Severance pay after Months 0 2.4
 20 years

Summary scores by main
area:
Regular procedural Index 0 to 6 3 1
 inconveniences
Notice and severance pay Index 0 to 6 1.6 1.1
 for individual dismissal
Difficulty of dismissal Index 0 to 6 4 1.3
Overall strictness of Index 0 to 6 2.9 1.1
 protection against
 dismissals

Table A3: Net Replacement Rates for Two Income Levels and Four
Family Types the First Month of benefit receipt, 2002

 APW-level

 Married Couple with Lone
 couple, one 2 children, parent, 2
Per cent Single earner one earner children Average

Denmark 59 66 76 75 69
Finland 64 70 82 83 75
France 71 67 76 76 73
Germany 61 54 78 83 69
Italy 52 56 60 60 57
Sweden 81 81 83 90 84
UK 45 45 46 46 46

 2/3 of APW-level

 Married Couple with Lone
 couple, one 2 children, parent, 2
Per cent Single earner one earner children Average

Denmark 84 90 96 95 91
Finland 78 82 88 90 85
France 80 78 90 91 85
Germany 63 61 83 90 74
Italy 50 50 56 54 53
Sweden 82 82 90 92 87
UK 63 63 48 47 55

Table A4: Average Net Replacement Rates Four Family Types Over
60 Months of Unemployment. Average for 2/3 of APW-level
and AWP-level and Including Social Assistance, 2002

 Married Couple with Lone
 couple, 2 children, parent, 2
 Single one earner one earner children Average

Denmark 69 78 81 84 78
 Finland 64 78 89 77 77
 France 62 69 78 78 72
Germany 72 75 77 85 77
 Italy 5 5 6 6 5
Sweden 67 83 89 67 77
 UK 54 67 75 65 65

Note: APW-level indicates the income of the 'average production
worker' OECD (2004b), table 3.3b

Public Expenditure on Labour Market Programs,
2000

Per cent of GDP Denmark Finland France Germany

PES and administration 0.12 0.11 0.18 0.23

Labour market training 0.86 0.3 0.25 0.34

Youth measures 0.1 0.18 0.42 0.07

Subsidised employment 0.17 0.32 0.38 0.31

Measures for the disabled 0.34 0.09 0.09 0.27

Total active measures 1.59 1 1.32 1.22

Unemployment compensation 1.37 1.65 1.37 1.88

Early retirement for labour 1.67 0.48 0.27 0.01
market reasons

Total passive measures 3.04 2.13 1.64 1.89

Total expenditures on labour 4.63 3.13 2.96 3.11
market policy

Per cent of GDP Italy Sweden UK

PES and administration na. 0.3 0.13

Labour market training 0.05 0.29 0.04

Youth measures 0.23 0.02 0.15

Subsidised employment 0.32 0.26 0.02

Measures for the disabled na. 0.50 0.02

Total active measures 0.6 1.37 0.36

Unemployment compensation 0.52 1.31 0.44

Early retirement for labour 0.11 0.06 0
market reasons

Total passive measures 0.63 1.37 0.44

Total expenditures on labour 1.23 2.74 0.8
market policy

Source: OECD (2004a), table H.
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Author:Madsen, Per Kongshoj
Publication:Australian Bulletin of Labour
Geographic Code:4E
Date:Jun 1, 2006
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