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The present study is part of the ILO's follow-up to Commitment 3 of the Declaration and Programme of Action of the World Summit on Social Development in Copenhagen in 1995. Commitment 3 reiterates the importance of full, productive and freely chosen employment, as a basic condition for social progress among UN organizations. The ILO has a specific responsibility for monitoring the progress made by countries in the fulfilment of Commitment 3.
In addition to the preparation of Country Employment Policy Reviews (CEPRs) in the developing and transition countries the ILO also decided to review progress of some OECD countries towards full employment. Among the countries experiencing improvements in their labour markets in recent years, four smaller European countries (Austria, Denmark, the Netherlands and Ireland) were selected. Contrary to some of the bigger European countries, these four countries have been experiencing an impressive labour market recovery, or have maintained a low level of unemployment over the long term. For each of these countries, a national CEPR was prepared in consultation with the social partners and the governments.
The present CEPR shows the achievements of Denmark. Unemployment has declined to half its former level in recent years and employment rates both for men and women are the highest in Europe. Employment growth has also accelerated lately. A policy of wage moderation and labour market reform carried out jointly by the social partners and the government is one of the main reasons for the Danish success. Also an effective macro-economic policy explains progress on the labour markets. An active labour market and education and training policy which supported labour market mobility is a third factor explaining the Danish labour market revival.
But Denmark also faces some difficulties. While youth and long-term unemployment are on lower levels, they remain policy challenges. The ending of some of the early retirement provisions might lead to higher unemployment among older workers. There is also the emergence of bottlenecks in certain areas of the labour market while at the same time a large number of people are still in labour market schemes.
This report, together with those on Austria, Ireland and the Netherlands, form part of the project on Country Employment Policy Reviews in selected OECD countries. Two other publications are planned under this activity: Peter Auer "Employment revival in Europe: Labour market success in Austria, Denmark, Ireland and the Netherlands (ILO, Geneva, forthcoming) and Peter Auer (ed.) "Labour market institutions for decent work (ILO, Geneva, forthcoming).
Gek-Boo Ng
Chief
Employment and Labour Market Policies branch
Employment and Training Department
This report contains the Danish contribution to ILO's programme on Country Employment Policy Reviews.
The report covers the subjects prescribed for all the country reports. However, the structure of the presentation is adapted in order to fit the special features of the Danish case.
In preparing the report, I have been much inspired by the advice of the project coordinator Peter Auer of ILO and have also received support from other ILO staff members in the form of statistical material. Also comments from the Danish Ministry of Labour, the Danish social partners and the participants in an ILO-workshop in Geneva in October of 1998 have been very helpful. However, responsibility for the final result lies, as usual, with the author.
This chapter sets the stage for the subsequent analysis. It describes the performance of the Danish labour market both in the short and in the long run and outlines the structure of the following chapters.
Miracle #1: The fall in unemployment 1994-1998
In recent years, Denmark is more and more often referred to as a country where an employment "miracle" has taken place. When one takes a look at the official figures of the registered rate of unemployment, there is some justification to this view. Figure 1.1 shows the number of unemployed as a share of labour force from 1950 to 1999.(1) The figure depicts the strong fluctuations in the unemployment rate over the last five decades years. Since 1973 unemployment has been rising in the characteristic stepwise fashion which is also found in many other OECD-countries indicating hysteresis as being a prominent feature of current unemployment. Finally, one notes the remarkable fall in the unemployment rate over the last 3-4 years - from 12.3 percent in 1993 to 7.8 percent in 1997. Also in 1996, standardised unemployment in Denmark was lower than in the Netherlands, United Kingdom, Germany, Sweden and France. It is this dramatic recent development which has created the impression of an employment miracle in Denmark.
Other indicators supplement this picture of an impressive performance as far as the labour market is concerned. From 1993 to 1998, total employment has increased by 164,000 persons or 6.5 percent. Hereof, private sector employment accounts for 118,000 persons (a growth of 6.7 percent). The number of long-term unemployed has been halved(2), and the rate of youth unemployment is below 5 percent.
Figure 1.2 shows the strong growth in GDP, especially in 1994, and the growth in total employment catching un during the following years.
Added to the impression of an extraordinary success in creating a new start for employment and economic growth is the fact that the fall in open unemployment from 1994 to 1998 has taken place without the expected rise in inflation, cf. figure 1.3, which shows the growth in consumer prices and hourly wages in manufacturing from 1993 to 1999.
Finally, as shown in figure 1.4, the current upswing has led to a considerable improvement in the balance of the public budget, mainly due to the automatic effects on tax revenues from increase economic activity. On the other hand, the balance of payments has come under some pressure, due to the increased demand for imports following from the strong increase in internal demand.
While the development on the external balance and the public budgets follows the expected patterns of a macroeconomic upswing, the combination of a strong growth in employment, a halving of unemployment and stable inflation, seems to indicate that Denmark unlike most of the large European economies has overcome some of the trade-offs and conflicts usually associated with a long-lasting economic upswing. An important purpose of this report is to take a closer look at this development.
Miracle #2: The high employment rate in the long run
Furthermore - and to some observers maybe even more surprising than the current upswing - is the fact that the outstanding employment performance of the Danish economy is also of a longer term nature. If one compares the employment rations of different OECD countries, Denmark has for decades had one of the highest shares of employed persons in the adult population, cf. figure 1.5 showing the employment rate of Denmark compared to a number of other OECD countries and figure 1.6 showing the Danish employment rate and participation rate from 1950 to 1997. The main explanation for the growth in the Danish participation rate and the high employment rate compared to most other countries is of course the high and rising participation rate for women, which again must be seen in close relation with the Danish welfare state creating the child-care institutions allowing the women to work and at the same time providing a supply of jobs for working women.
The purpose of this study
The purpose of this study is to take a closer look at the "Danish model". Has it developed some unique features which enables it to overcome the traditional obstacles of economic growth and the often assumed barriers to high employment in a welfare state? And is it furthermore possible to transfer some of the positive experiences from Denmark to other countries? What can be learned from the Danish case?
In the attempt to understand the specific factors behind the trends in the Danish economy and on the Danish labour market in recent years, the study first takes an overview Danish model of the welfare state (chapter 2). It stresses the important role of the welfare state in the production of services and describes the systems for redistribution and taxation in Denmark. Some old and new problems of the Danish welfare state model are discussed.Chapter 3 is the main contribution to make the reader understand the functioning of the Danish employment system. It presents the most important traits of the labour market, unemployment and industrial relations.
On this background, the following two chapters take a closer look at the changes on the Danish labour market since 1993. The macro-economic development is discussed in chapter 4 with emphasis on the role played by the combination of an initial fiscal stimulus to the economy and a strong growth in private demand mainly caused by a boom in the housing market. Therefore the special feature of the upswing was not the role played by the demand side, but the few signs of inflation which has until now been seen in spite of the return to strong economic growth.
The main thrust in the analysis of the current upswing is put in the changes on the labour market and in labour market policy in recent years. In the first part of chapter 5, Danish labour market policy is presented both as far as content and processes are concerned. How is policy formed and what are the main elements? Chapter 5 then looks at the new active labour market policy of the 1990s with emphasis on the labour market reform of 1994. The content of the new policy is described focusing on both new instruments like job-rotation and new forms of design and implementation following from the strong decentralisation which was an integral part of the reform. The reform was followed by a comprehensive evaluation programme from which the main results of both micro- and macro evaluations are presented.
Finally, chapter 6 sums up the analysis of the report and presents some of the main lessons which may be useful also for other countries aiming at combining lower unemployment with stability in long-term economic development.
The data
Part of the data used are taken from the CEPR-project data base provided by the ILO. These are referred to by CEPR and table no. Other data are taken mainly from Danish sources and are documented in the text. In general it has been attempted to update tables and figures in order to include data from 1997. In some cases however, even when more recent data are available from Danish sources than the ones cited in the CEPR-project data base, the latter has nevertheless been used in order to ensure the comparability with the other three country studies.
The Danish welfare state is often presented as an example of the so-called "Scandinavian welfare state model" involving:
*the basic ideal of wanting to establish a distribution of resources which differs from the distribution created by the market;
*the "principle of universalism" implying that all citizens are eligible to the same basic level of social welfare, education, housing, health services etc.;
*the "principle of compensation" implying that handicapped members of society should be entitled to economic assistance making them able to live a normal life;
*the use of a general taxation system to finance the expenditures of the welfare state;
*the high degree of unionization of the labour market and the corporative character of the political system dominated by Social Democratic Parties.
However, the Nordic countries do to some degree differ from one another in the way, in which their welfare states are organized. Thus, three outstanding aspects of the Danish model are:
*the heavy reliance on direct income taxation in financing the public sector, while social contributions play a minor role;
*the tradition for having wages and work conditions determined by collective negotiations and few examples of legal regulations of the labour market; thus labour market policy traditionally is less interventionist than for instance in the Swedish model;
*a high degree of market conformity and a "liberalistic style" as far as economic policy, industrial policy, incomes policy etc. are concerned.
With respect to social, political, religious and cultural values, the Danish population is characterized by a high degree of homogeneity. Thus, in 1997, only 6.4 percent of the population were immigrants or descendants of immigrants, whereof about half were from less developed countries. In 2020 these shares are expected to rise to 13.1 and 7.9 percent respectively.(3) To this can be added a political system with proportional vote which leads to a large number of parties in the Danish Parliament and - following from that - a long history of minority and coalition governments having to implement their strategies through political compromises.
The rest of this chapter deals with the perspectives for the development of the Danish version of the "Scandinavian model". It also discusses the consequences of the closer integration of Denmark with the rest of the EU-countries both politically and economically. The main points to be stressed are the effects of tax harmonization and of increased international mobility of labour. But firstly, the next section deals with some "stylised facts" of the Danish welfare state.
In Denmark, the public sector accounts for approx. 31 percent of total employment. Public consumption constitutes about 40 percent of total public expenditure. This is caused by the fact that the Danish public sector is responsible for the production of the vast majority of services in the areas of social security, health and education. Thus in the Danish model, the welfare state takes care of these important areas by producing and delivering the services itself, instead of letting institutions in the private sector take the responsibility for producing for instance health services. By example, private hospitals are very rare in Denmark.
The other large expenditure on the public budget, apart from public consumption, are income transfers to households. They account for about one third of total public expenditures. The public sector is responsible for payments to old-age pensions, unemployment benefits, social security, housing allowances, child allowances etc. A characteristic feature is that these payments are made out of the general public budget and only in a few cases and to a limited extent financed by individual contributions. This is the case even for some areas like unemployment benefits where unemployment insurance is organised by private unemployment insurance funds. Also here contributions from the individual members only covers about 15 percent of total expenditure.
A consequence of the universalistic nature of the Danish model is furthermore, that the rights for the individual citizen as far as pensions, health care etc. are concerned, are not related to the individual's labour market history, but basically are rights for all Danish citizens and others with similar status living in Denmark.
The share of the population receiving transfer income has increased dramatically in the last 30 to 40 years. Thus in 1960, 189,000 persons or 6 percent of the adult population (aged 15-64) lived on some form of transfer income (unemployment benefits, social security, early retirement pensions etc.) or were activated in labour market programmes. In 1994 this figure had risen to 1,018,000 persons or about 29 percent of the adult population.(4) In the debates about the future of the Danish welfare state, this figure not surprisingly plays an important role. During the same period the share of the economically active population of the adult population has been remarkably stable (approx. 73 percent). Thus the growth in the number of persons on transfer income mainly reflects a change from informal support of the economically inactive (in the family) to support by the public sector. Forty years ago, the family was the economic base of those adults not having their own income. Today the economic base is the public sector. In many respects this change, which is closely related to the increased participation rate of women, is one of the most dramatic changes in the Danish society over the last decades.
Most of the activities of the Danish welfare state are financed by general taxation. In 1994 total tax revenue amounted to a little more than 50 percent of GDP. Of total tax revenues, approx 61 percent stems from direct taxation, mostly from personal income taxation. Indirect taxes account for about 32 percent of total revenue. Here the main source is the VAT. Contributions to social security amounts only to about 3 percent of the total income of the public sector. The same goes for corporate taxation. In recent years the so-called "green taxes" on energy consumption etc. had played on increasing role, but still cover only a limited share of total taxation (approx. 5 percent)
As a consequence of the high level of income taxation, average and marginal income tax rates are rather high. Thus average tax rates (including social security contributions) for typical incomes and family situations vary between approx. 37 and 53 percent (CEPR data bank). The marginal taxation rate for a typical production worker (according to OECD-figures) is approx. 55 percent (1994).(5)
With both high marginal income tax rates and high VAT-rate (25 percent), the resulting "tax wedge" is generally considered the strongest driving force behind both undeclared work and do-it-yourself activities. Even at a price in the "black economy" of about 50-60 percent of the "white" price, the resulting net income for the seller will be higher when not declaring the transaction. The total number of hours worked in the black sector is estimated to about 100,000 jobs in 1994. This can be compared to a total employment in Denmark of 2,585,000 persons in 1994. Measured as a share of GDP, the black economy is estimated by G. Viby Mogensen (1995) to 3.1 percent in 1994.
Also the combination of high marginal tax rates even for low-income groups and a high level of compensation in the unemployment benefit and social security system implies that the individual economic incentives to leave unemployment are often limited. Thus a recent study from the Danish Rockwool Foundation estimates that in 1996 10 percent of the employed members of unemployment insurance funds would have a higher income as unemployed that as employed. For unskilled workers the share is about 20 percent (Smith, 1998, Table 7.4). The same report also shows that between one-third and one-quarter of the unemployed do not expect an improved economic situation, if they get a job (Smith, 1998, Table 7.7).
Long before the discussion of the external pressures on the Danish welfare state, a critical debate had started focusing on a number of internal problems:
*the high tax burden leading to tax evasion, tax resistance and incentives for the black economy;
*the high and rising share of the adult population receiving public income transfers;
*the discouragement of individual "self help" in fields like job search, private saving and health care;
*disruption of social networks;
*demographic factors implying increasing costs of the welfare state due to the ageing of the population.
The reactions to this critique of the welfare state - formulated not only by conservatives but by members of most political parties - has been to somewhat reform and "roll back" the Danish model through tax and pension reforms, increasing user fees and introduction of some elements of "work for welfare" in the social sector.
As is well known the closer integration of Denmark in the EU has been a slow and long-lasting process. Basically the process of integration has been economic in its character. The opening of markets of goods, services, labour and capital to international competition and mobility has been a key feature. But as it is well known from the theories of international politics, there are close bonds between economic and political integration and integration in different areas of society.
One important consequence of increased mobility of capital is the need to choose between either floating or "forever fixed" foreign exchange rates. With capital freely floating across the borders of a country, the use of strategic devaluations from time to time to adjust for diverse developments in wages and prices becomes less feasible. The pressure from speculative capital movements driven by even the slightest rumour of exchange rates adjustments, will make political control of the exchange rate impossible. Faced by the two alternatives mentioned, Denmark has since the early 1980s chosen the option of the "forever fixed exchange rate", and thus skipped exchange rate policy from the arsenal of instruments of economic policy. This also implies giving up national monetary policy.
With the increased mobility of goods, services and factors of production, differences in taxation levels are more difficult to uphold. The demand for international tax harmonization puts tight restrictions on national fiscal policy.
Closer economic integration therefore leads to a situation, where national macro-economic policy is restricted to various forms of incomes policies, which can then be supplemented by sectoral policies like industrial policy, labour market policy and educational policy. A characteristic feature of economic policy over the last 15 years therefore has been an increased focus on changes in economic structures rather than on fine-tuning effective demand.
As mentioned, increased mobility of goods, services and factors of production leads to a pressure to harmonize tax rates across borders - a pressure which will increase with the mobility of the tax base.
Among the EU-countries, Denmark has a very high over-all tax pressure and - furthermore - a different distribution of the individual tax forms. Direct income taxes and indirect taxes play a very large role in Denmark, while direct contributions to social security and pensions are small. There is therefore a significant downward pressure on both indirect taxes and income tax rates - a pressure which has already led to lowering of some rates of indirect taxation (e.g. on wine, beer and perfume). Also a tax-reform implemented from 1995 and onwards implies lower marginal rates of income taxation and the introduction of a "gross income tax", which has some similarity to a social contribution paid on the basis of earned income.
This downward pressure on taxation has led, however, to a situation where most discussions about increasing the quantity or even the quality of the traditional services of the Danish welfare state has ceased. Restraint in public expenditure and demands for productivity improvements in public services are the words of the day. Thus, the fiscal stress is a major restriction on the future development of the Danish welfare state.
A fundamental feature of the Treaty of Rome was the free movement of labour in the European Community. It has taken many years to remove the formal obstacles to the mobility of labour and a totally free labour market within the EU is still not established.
The actual mobility of labour has however until recently been low. The present efforts to extend free mobility to all citizens of the EU - and not just labour - may change this situation. Increased mobility is expected for highly educated labour and for labour in the sectors with a tradition for a high mobility within individual nations like construction and transportation. Added to these expectations are the considerations related to the immigration pressure from the European countries in Eastern Europa and South of the Mediterranean.
The implementation of the Single European Market has lead to a fear on behalf of the Danish trade unions - and other trade unions in Northern Europa - that their members will meet increased competition from workers in Eastern and Southern Europe, where wages and conditions of work are inferior to the levels in Northern Europe. Social dumping has been the central concept of this debate. Special emphasis has been put on the differences in wage structure between Denmark and the other EU-countries, the point being that the dispersion in wage-levels is much smaller in Denmark. This could lead to severe employment difficulties for unskilled Danish workers. It could also mean a tendency for highly educated labour to migrate out of Denmark.
Another aspect of this evaluation of increased mobility is related to the concept of social migration. The underlying idea is that EU-citizens will tend to move around in the Community, not driven by forces of supply and demand on the labour market, but by the rules for becoming eligible to public services and transfer income. The more you increase the potential mobility of all EU-citizens, the more difficult it will be to have very different welfare-state systems coexisting in the Community.
Moreover, special pressure will be put on the welfare states, which are having the principle of universalism as their outstanding feature. Some sort of rationing will have to be established, e.g. by increasing user fees or by relating eligibility to individual contributions paid to pension systems and social security systems.
This is the second pressure on the Danish model - the pressure on the principle of universalism stemming from the increased mobility of persons across the European borders.
The Danish version of the Scandinavian model expresses a fundamental duality in the sense that it combines a large public sector responsible for the production of the majority of welfare services (like health and education) with a rather liberal attitude as far as the functioning of the market economy is concerned. The goal of a equal income distribution is then fulfilled at a later stage through an extensive system of income transfers.
Considering the vast scepticism concerning the model's sustain ability in an internationalised economy expressed from both national and international quarters over the last decades, the Danish model has shown a remarkable ability to survive and even flourish in later years. One possible set of explanations for this situation are related to some specific traits of the Danish employment system. Therefore the following chapter takes a closer look at the Danish employment system.
Measured by the size of its population Denmark is a small country. In 1997 the population was 5.25 mio. persons, an slow increase from 4.25 mio. in 1950 and 5.12 in 1980. Like in most other countries in Western Europe, the population is expected to be stable over the coming years. Recent forecasts estimate a slight increase to 5.5 mio. in 2025.
During the same period, the age composition of the population will change considerably. The share of persons above 59 years of age will grow from 21 percent of the population today to 26 percent in 2025 - or by 300,000 persons. The share of young persons below 19 years of age will be stable (22 percent), while the share of adults in working age will fall.(6) This observation - together with the rising share of adult persons living on transfer income - has of course caused concern for the increasing burden being put on the economically active part of the population. The main reactions has been a call for greater private saving to finance old age pensions in the future combined by attempts to increase the age of retiring from the labour market and to create more opportunities on the labour market for the hard-to-place, who are now being marginalized to become recipients of transfer income.
As already mentioned in chapter 2, immigrants constitute only a minor part of the population. In 1997, 6.4 percent of the population were immigrants or descendants of immigrants, whereof 3.3 percent were from less developed countries. In 2020 these shares are expected to rise to 13.1 and 7.9 percent respectively.(7)
Two aspects are important in describing the industrial structure in Denmark. One is the rapid transformation since the second world war from the primary to the secondary and tertiary sectors. Table 3.1 gives en impression of these changes, which reduced the share of population in the primary sector from 25.7 percent in 1950 to 5.0 percent in 1994. Behind these changes are of course also dramatic changes in the distribution of the population between rural and urban areas as the employment changed towards the private and public service sector, which increased from 7.9 percent in 1950 til 31.4 percent in 1994. In only four decades Denmark was transformed from an economy dominated by agriculture and industries related to agriculture to a service economy with a public sector responsible for almost one third of total employment. However, the historical importance of the agricultural sector is still reflected in the high share of industry taken up by firms related to agriculture and in the large share agricultural products in total exports.
Another important aspect of the Danish economic base is the dominance of small and medium sized enterprises in the private sector. In manufacturing only 30 percent of total employment in 1987 was in firms with more than 500 employees. This can be compared to Sweden of Germany where the similar share was 53 percent. Almost 60 percent of the workplaces in manufacturing industry in 1990 had less than 20 employees.(8) This size structure is important for understanding also some of the aspects of the Danish employment system and the interplay between the labour market and the public sector. We shall return to this point below.
A final point to note about recent developments in the economic structure are the changes in relation to the energy sector. At the beginning of the first oil-crisis Denmark was still heavily dependent on imported energy and thus suffered from the drastic increased in oil prices. Due to the rapid increase in the supply of oil and gas from the North Sea (and to a lesser extent the increase in "alternative" energy (wind-power etc.) Denmark is now a net exporter of energy. These windfall gains from oil and gas in the North Sea have had important positive effects on the balance of payments.
Based on data from the CEPR-project data bank, figure 3.1 depicts some basic information on the Danish labour force.
From 1980 till3 1996 total working-age population increased by 6.8 percent. Both employment and unemployment increased by approx. 5 percent, while the number of persons in inactivity grew by almost 14 percent. As discussed in chapter 2, this increase is part of a long term trend in the way in which the economically inactive persons are supported - moving from being supported by the family to being recipients of public transfer income.
In 1996 the share of women in total employment was 45 percent, the result of a steady increase in female participation rates in the postwar period. Only 9 percent of those employed were employers and self-employed. This group has shown a steady decrease in the last decades - mainly as a consequence of the decline in agriculture.
Employment and employment rates
The strong business cycle in total employment in Denmark is clearly shown in figure 3.2, which especially points to the sharp recovery since 1994 in the Danish economy. Also in 1997, total employment has continued to rise.
An important structural aspect of Danish employment is shown in figures 3.3 and 3.4, which describe the employment/population rates by gender and age.
Looking first at figure 3.3, it shows the very high employment ratio found on the Danish labour market. It is the highest found among the four countries in the present project and indeed among the highest in the whole OECD-ration. The ratio is high for both sexes and especially for women still shows an increasing trend.
The age distribution shown in figure 3.4 indicates first of all some clear generational effects. For the younger generations, the employment ratios of the two sexes are very close, whereas they differ more for the older generations. Also, the employment ratios of the older workers are strongly influenced by the unemployment pension which is open for most workers over the age of 60 (cf. below).
Detailed information based on Danish sources on activity rates are given in table 3.2 showing time-series for participation rates (occupational activity rates) measuring the share of the population in the respective age groups which are members of in the labour force.
Both series indicate some rather drastic changes in labour market participation over the last 35 years. For men average participation has been steadily declining, except for the youngest groups. The decline has been very strong for those above 65 years and for those aged 45-64 years. The main explanations for this development is the introduction in 1979 of an early retirement scheme for members of unemployment insurance funds over 60 years of age and - more generally - an increased number of persons on social welfare and social pensions.
For women the general trend is the opposite. For all age groups - except the oldest - there is an increase in work force participation. For age groups between 25 and 64 years, the participation rates doubles from 1960 til 1990. Then the trend levels out. For the age group of 25-44 years, the participation rate in 1995 for women is only 6 percentage points below the participation rate for men.
The main - and interrelated - explanations for the growth in the female participation rate are:
*the increased educational level of women;
*the growth in the public sector which both is an important employer of female labour and provides the services (child care etc.) which is a precondition for a large number of women on the labour market;
*the changing family patterns and social values that gives higher priority to equal opportunities - and obligations - for men and women.
Self-employment in Denmark
The traditional form of self-employment in Denmark - as in other countries - is the farmer, craftsman or owner of a small shop, who apart from himself employs his wife and maybe a few workers besides. Along with this traditional group of self-employed, one also finds the large and growing group of traditional professionals like doctors, lawyers, accountants and architects. They are often self-employed, but new forms of organisations are advancing like large - often international - accounting and consulting firms.
However new forms of self-employment are becoming more prominent also in other areas. Firstly a number of producers of business services (advertising, computer software etc.) are organised as self-employed more or less along the same lines as the traditional professionals. But secondly, also a growing number of self-employed are working under conditions very similar to wage-earners in the sense that their business relationship is with only one firm and their main supply of services is their personal labour. Finally, as a special case of self-employment one may add some of the activities in the informal economy, where there is no employer-relationship between the supplier and the user of the services exchanged.
In 1997, out of a total workforce of 2.9 mil. persons, there were approx. 239,900 self-employed and 19,500 spouses of self-employed working in the family business. As a proportion of total employment, self-employment has been steadily declining - from 12.7 percent in 1983 to 9% in 1997. This change is closely related to the continuos fall in agricultural employment mentioned in section 3.2.
Working time patterns
Data on part-time work are generally hard to compare. The data from the CEPR-project data bank (table 6) shows an average part-time employment ratio for 1996 of 16.5 percent (10.2 percent for men and 24.2 percent for men), when part-time is defined as working less than 30 hours per week. The share of part-time workers has decreased from 23.8 percent in 1983 as a combined result of a rising share of men and a falling share of women working part-time.
When based on the employees own classification of their working time, the labour force surveys for 1996 reports a part-time share of 21.5 percent (10.8 percent for men and 34.5 percent for women). The trends found since 1983 are the same as above (CEPR-project data bank, Table 7).
More detailed information on the distribution of normal weekly working hours for men and women in 1995 is shown in table 3.3. The data are taken from surveys conducted by Statistics Denmark in February and March of 1995. For both med and women, the largest share of the employed work 37-38 hours per week. However, one-third of the men work longer hours, while very few work part-time. For women a large minority (34 percent) work either long or short part-time. Also, a significant proportion (15 percent) normally work more than 38 hours.
For both men and women, there is a clear correlation between the distribution of normal working hours and occupational status. Self-employed and upper level salaried employees generally work the longest hours. However, (unskilled) manual workers tend to work somewhat longer hours than lower level salaried employees. The data in table 3.2 therefore indicates the importance of controlling for occupational status when comparing the distribution of working hours of men and women.
To compare various data sources on normal working hours, table 3.4 shows the distribution of normal working hours, but now taken from the quarterly labour force surveys (also conducted by Statistics Denmark). The published data does not include a distribution of normal weekly hours by both gender and occupational status.
As can be calculated from the first section of table 3.3, women now constitute almost half (45 percent) of the total workforce and 36 percent of the workforce working 37 hours or more.
This percentage distribution of the employed men and women by weekly working hours in the second section of table 3.3 shows the same general tendencies as in table 3.1. The typical working time is 37 hours, which is also the standard working time in almost all the collective agreements. However for men and women the tails of the distribution differ. A large minority of the women (41 percent) work less than 37 hours. For men a large group (39 percent) normally work longer hours than 37 hours.
Job mobility
One of the paradoxes of the Danish labour market is way in which it combines a high level of mobility between jobs with being imbedded in a welfare state of the Scandinavian type.
Looking first at job mobility, there are few regulations to the hiring and firing practices of firms. For blue-collar workers, the regulations are found in the collective agreements, while special legal regulations give some protection to white-collar workers, to persons on maternal leave etc. But in most cases, an employee can be dismissed with a notice of a few days or weeks. Thus, in OECD's Jobs Study (1994, table 6.5) Denmark is ranked as no. 4 on a sample of 16 OECD-countries when is comes measuring the degree of protection against dismissals (rank no. 16 indicating the highest level of protection). In the sample, Denmark is only surpassed by the UK, Ireland and Switzerland.
The high level of job mobility is also expressed in the available data for job-openings. About 40 percent of all jobs - or approx. 1 mio. jobs - are opened every year (Vejrup Hansen, 1994). There is some cyclical variation in this number, but the high level is maintained over the business cycles. Also the rate of job openings vary across sectors, being low (approx. 38 percent) in the public sector and higher in sectors like construction (50 percent) and agriculture (67 percent). Also across the different kind of jobs (measured by occupational categories) there is some variation in job openings.
Another indicator of the high mobility on the Danish labour market is found in a recent investigation by the OECD (1997)(9). Figure 3.5 shows the distribution of employees by tenure in a number of OECD-countries.
Measured by average tenure, Denmark is in the low end together with countries like UK and USA. If one looks solely at manufacturing industry, Denmark stands out even more with an average tenure lower than both UK and USA (Smith, 1998). This is in strong contrast to the other Nordic countries and a number of continental countries with high levels of protection against dismissals.
One should think that this high level of job-mobility would lead to a widespread feeling of job-insecurity among the employees. Paradoxically this is not the case. As seen from figure 3.6, the share of Danish workers not strongly agreeing with the statement "my job is secure", in 1996 was considerably lower than is all the other countries in the sample. Though this might also reflect the positive situation on the Danish labour market at the time of the survey, there are no clear indications that the Danish workers are reacting to the high level of flexibility with a strong feeling of insecurity.
There are at least two explanations to this fact. One is the predominance of SMEs in the Danish industrial structure implying that strong internal labour markets are less important than in other countries. It is easier to shift from one firm to another. The other explanation is the relatively generous unemployment benefits paid to unemployed workers from the first day of unemployment and for a considerable time period (cf. below).
A final indicator of the general flexibility of the Danish labour market is the low share of persons with temporary contracts. Thus in the 2. quarter of 1997, 89 percent of all employees had no time limit in their employment contracts. The remainder were trainees of various kinds (5 percent) or substitutes and "misc." (6 percent).(10)
This combination of a high level of job mobility with a safety net provided by rather generous unemployment benefits is one of the features of the Danish employment system which is relevant in understanding its specific characteristics in relation to employment generation.
Wages
Two aspects of wage development are treated in this section. Firstly, it takes a look at wage growth over the last 16 years with emphasis on the development after the upswing in 1994. Secondly, wage dispersion is taken into account.
Wage benchmark statistics are shown in figure 3.7. Firstly, figure 3.7 clearly shows the transition from a high inflation to a low inflation economy which Denmark shares with the rest of the EU. Furthermore, one notes that the declining growth rates for nominal average earnings are combined with rising growth in real average earnings. Another important observation from figure 4.7 is the fact that neither wage nor price inflation seem to have increased during 1995 and 1996 in spite of the economic upswing and the dramatic decline in open unemployment.
Concerning wage dispersion, recent information is not available. Based on OECD (1996), the impression is that the dispersion of the incomes of full-time employees is relatively narrow compared to other countries and has become more equal in Denmark from 1986 to 1991, while there has been a trend toward greater inequality in a number of other countries (including the UK and USA). Stability or a slight change towards a more equal earnings dispersion in Denmark is also the impression from the CEPR-project data bank (table 29).
The narrow dispersion and stability of relative earnings is often seen as an inherent feature of the Danish labour market explainable by (i) the fact that wage negotiations are often made in relative terms (that is relative to similar groups on the labour market) and (ii) that the level of unemployment benefits act as a floor to wages at the lower end of the wage dispersion. Furthermore the narrow dispersion in wages in Denmark is also sometimes explained by a narrow dispersion in the Danish skill-structure.
The unemployment benefit system
Income support for unemployed persons in Denmark is based on an institutional framework, which divides the unemployed into two groups. The majority (85 percent) are members of an unemployment insurance fund, which is a private organisation normally with close links to a trade union. To qualify for unemployment benefits a member must have had ordinary (unsubsidised) employment for more than 52 weeks within 3 years. Benefits are equal to 90 percent of previous wage-income with a maximum of 136.000 DKK a year. The resulting average compensation rate for all unemployed is 65 percent.
While the unemployment insurance funds are formally private organisations, the major part of their expenses (in 1996 approx. 80 percent) is paid by the state. Unemployment benefits are not means tested. The responsibility for activating the insured unemployed lies with the regional Labour Market Boards, which are funded by the Ministry of Labour.
Those unemployed who are not eligible for unemployment benefits are the responsibility of the local municipalities. Based on means testing, they may receive social security at a level which for persons with children will be about 80 percent of maximum unemployment benefits. Activating the group of non-insured unemployed is also the responsibility of the municipalities.
Both for insured and non-insured unemployed there are special rules for the young (< 25 years) and for the older age-groups. Typically young unemployed receive lower benefits or social security and are activated after a shorter period of unemployment.
Also, as discussed further below, there are close links between the functioning of the unemployment benefit system and active labour market policy.
GDP and employment growth
Not surprisingly the growth in real GDP and in employment are closely correlated as also indicated by chart 5 of the CEPR-project data bank. The first years of the present upswing (1993-94) seem to be an exception in the sense that employment growth lagged behind GDP-growth, but then caught up in 1995-96. A closer look at the composition of employment growth shows an increase in both private and public employment. In general there are no indications of "jobless growth" in the Danish case.
This section takes a closer look at the Danish unemployment figures. It also discusses the extent to which these figures are influenced by the take-up of active labour market policies. It therefore has to briefly introduce some of the programmes of labour market policy, which are further discussed in the following chapter.
3.4.1 Standard unemployment rates
The differences between the labour market statistics based on register data and on labour force surveys is central when one wants to interpret the Danish unemployment statistics. This section first present the unemployment statistics based in register data and then takes a look at the results from the labour force surveys.
Registered unemployment
The figure on unemployment normally cited in the Danish media and used as target for economic policy is the number of registered unemployed (often presented as a share of the workforce). This figure measures the number of persons having registered themselves as unemployed with the Labour Offices and declared that they are actively looking for work. The majority of these registered unemployed (approx. 85 percent) will be members of an unemployment insurance fund and registration is a precondition for receiving unemployment benefits. The remainder are unemployed recipients of social security who will also be encouraged to register at the Labour Office, but some under reporting may occur for this group. Unemployed activated in labour market programmes or participating in one of the three schemes for paid leave are not included in the number of registered unemployed (cf. below).
The rate of unemployment
Figure 3.8 (identical to figure 1.1) shows this traditional measure of total unemployment (unemployed as percentage of labour force) for the period from 1950 to 1997. The figure depicts the strong fluctuations in the unemployment rate over the last fifty years. Since 1973 unemployment has been rising in the characteristic stepwise fashion which is also found in many other OECD-countries indicating hysteresis as being a prominent feature of current unemployment. Finally, one notes the remarkable fall in the unemployment rate over the last 3-4 years - from 12.3 percent in 1993 to 7.8 percent in 1997.
The degree of unemployment
The unemployment register enables Statistics Denmark to calculate not only the average number of registered unemployed during a given period (for example one year) but also to calculate the total number of persons affected by unemployment during a period and the duration of their individual unemployment. The relation between the average number of unemployed and the total number of persons affected by unemployment is of course a measure of the average share of the period, in which a person is unemployed. This share is called the degree of unemployment. As shown below, the degree of unemployment can be calculated as an average figure. One may also study the distribution of the unemployed from small to large degrees of unemployment.
Figure 3.9 shows the development of the number of persons affected by unemployment, the average number of unemployed and the degree of unemployment from 1982 to 1997. The latter figure is measured on the right axis. All three curves tend to move in parallel indicating that for instance a rise in the average number of unemployed can be attributed both to a rising number of persons being affected by unemployment and a increase in the average share of the year, in which each affected person is unemployed. Typically however, the relative change is larger in the degree of unemployment. One exception is found from 1996 to 1997, where the fall in average unemployment is solely caused by a falling number of persons having been affected by unemployment.
Flows in and out of unemployment
As seen from figure 3.9, around 750,000 persons - or more than a quarter of the workforce -are affected by unemployment every year. For the majority this is due to lack of work, but the contact with the unemployment insurance system may also be caused by holiday benefits (for persons not eligible for normal employer paid holiday benefits) or supplementary benefits (for part-time unemployed).
On average each unemployed is in the unemployment register for between 30 and 40 percent of the year. There is however a wide dispersion around this figure. For any given year one may calculate the number of persons having different degrees of unemployment. As shown in figure 3.10, a large number of those affected by unemployment (around 300,000 persons every year) experience only one or more short spells of unemployment. On the other end of the scale one finds the long-term unemployed which are unemployed for more than 80 percent of the year. This group numbered approx. 160,000 in 1994 but has diminished in recent years. In this relation, one can also note, at during the upswing from 1994 and onwards, there was actually an increase in the number of persons affected by short unemployment spells, while there is tendency for the number of persons with longer spells to diminish.
One important observation should be made when interpreting figure 3.10. The degree of unemployment is defined within one given calender year. Thus a person becoming unemployed on July 1 and leaving unemployment on June 30 of the following year, will have a degree of unemployment of 0.5 in each of the two years. Furthermore, the unemployment spells measured in this statistics are affected by participation in active labour market programmes. Therefore the statistics cited in figure 3.10 could underestimate long-term unemployment interpreted as a marginal position on the labour market for a longer time period. By example, a recent analysis published by the Federation of Danish Employers (DA) estimated that the number of long-term unemployed amounted to almost 135,000 persons in the 2. quarter of 1997, when one looked at the number of unemployed in that quarter who had not had a normal job for more than 30 percent of the last three years. Measured in this manner, the long-term unemployed as a share of total unemployment in the 2. quarter of 1997 was 43 percent.(12)
A recent study published by the Ministry of Finance (1997, chapter 4) presents more information on the extensive flows in and out of unemployment on the Danish labour market. Table 3.4 gives a survey on some main results. Between the two first quarters of 1997, the unemployment figure fell by 35,000 persons. However this was the net result of 139,000 persons moving in or out of unemployment from the first to the second quarter of 1997. This observation support the view that the Danish labour market is characterized by a very high mobility which of course also includes persons moving between various positions on the labour market without being affected by unemployment.
Standardised rates of unemployment
As mentioned above, administrative data are not collected for the purpose of research or international comparisons. Therefore, data from administrative registers have to be modified or special labour market surveys must be conducted. Since 1975 regular labour market surveys have taken place in Denmark. From 1984 the surveys have been made in cooperation with Eurostat. Also OECD and other international organisations use these data for international comparisons. The current surveys are based on a sample of 15,600 persons aged 15-66 years. From 1994 results have been published on a quarterly basis.
In figure 3.11, the number of unemployed from the Danish unemployment register are compared to the survey data from Eurostat published in Employment in Europe.
The number of unemployed reported in the labour force surveys is somewhat lower than in the unemployment register. The average difference over the period shown is 65,000 persons or 22 percent of the register data. The difference increased in 1994-95, but is now back to the relatively low level of the early 1990s.
The main explanation for the difference between the two sources of data is probably that in the surveys the persons without work are asked, whether they have actively been looking for work within the last four weeks and can start a job within two weeks. A number of the persons in the unemployment register may reply negatively to these two questions for a number of reasons. Some of them may be waiting to participate in a training course or a leave period. The increase in the difference between the two series in 1994-95 may thus be explained by the introduction of schemes for paid leave on a large scale. Others may be discouraged workers no longer actively looking for work, but are still claiming benefits. Whatever the source of the difference, it from time to time - not surprisingly - gives rise to a lively public debate about the interpretation of the Danish unemployment figures.
Long-term unemployment
As described above, one measure of long-term unemployment often used in Denmark is the number of unemployed with a degree of unemployment of 80 percent or more in a given year. Another measure of unemployment often used in international comparisons is information on the number of persons that has been unemployed for more than one year. While in 1996 the number of persons unemployed for more than 80 percent of the year amounted to 85,000, the number of persons unemployed for more than 1 year was estimated at 52,000 persons in the labour force surveys. Both figures have shown a steady decline since 1994.
3.4.2 Underemployment
In the previous section, the question of the validity of the unemployment register as a measure of actual job seekers has already been touched upon in relation to the comparison between the unemployment figures from administrative registers and from labour force surveys. Here the question of validity was discussed in relation to whether the registered unemployed are actively looking for work.
On the other hand, there could be persons outside the unemployment register who are actual or potential job seekers but not currently registered as unemployed because they are:
*in an programme of active labour market policy or on leave;
*on early retirement or receiving a disability pension;
*working short time but looking for more work;
*not members of an unemployment fund or eligible for unemployment benefits or social security;
A number of persons in these groups may be labelled underemployed in the sense that they represent a potential increase in employment, while other are permanently positioned outside of the labour force. The exact dividing line between the underemployed and those outside the labour force is of course difficult to draw. On the other hand information on the changing sizes of the groups mentioned above is often necessary when interpreting the changes in the size of open unemployment based on register data or labour force surveys. This section aims at throwing some light on the issue of underemployment from a Danish perspective.
Active labour market programmes
Since a person taking part in a labour market programme or a leave schemes is not included in the unemployment register, changes in the number of these participants may influence open unemployment. Since 1994 Statistics Denmark has published the so-called AMFORA-statistics which contains information similar to the unemployment register, but for the persons the various labour market programmes. The AMFORA-statistic is also collected in an individual basis, enabling researchers to follow an individual's movements between unemployment and activation. Therefore these data are valuable for a number of evaluation purposes. Table 3.5 shows for 1996 the average number of persons in activation and also the average degree of participation (equivalent to the degree of unemployment discussed above).
As shown in table 3.5, almost 350,000 persons participated in one or more labour market programmes in 1997. The average number of participants (full time equivalents) was 123,500 persons which can be compared to an average open unemployment of 220,200 persons in the same year. The average degree of participation was 0.36 (or approx. 4 months). The highest degree of participation is found for subsidised employment and leave schemes, while the average time spent in educational activities (other than educational leave) was about 30 percent of a year.
Early retirement and disability pensions
The AMFORA statistic also contains information on the number of persons in unemployment pensions (for insured person aged 60-67) and the now abandoned early retirement schemes for insured persons aged 50-59 years. The average number of persons in those two schemes was 170,700 in 1997.
The total number of persons receiving disability pensions was 267,000 in 1997. In Friis (1994) it was estimated that approx. 100,000 receive their disability pension due to social indications.
Part-time work and discouraged workers
The flexibility of the Danish labour market is also expressed in the wide range in working hours found for women and to some extent also for men. Part-time work is normally regulated by the same collective agreements as other working arrangements and there are few indications of part-time work being involuntary.
The question of discouraged workers has already been touched upon in relation to the interpretation of the difference between the registered rate of unemployment and the rate found from the labour force surveys. In the latter, the unemployed indicating that they are unable to take a job within two weeks are asked for an explanation. Of the 60,000 persons receiving unemployment benefits or social security for unemployed in the 2. quarter of 1997 while not being able to take up work within two weeks, only 8,000 responded that they had given up looking for work. The rest referred to health problems, plans for education or family concerns when explaining why they were not willing to work for the time being.
Assessment
Summing up, one finds a number of groups which - while not being in the unemployment register - can be considered as underemployed in the sense that they are not actually in ordinary employment, but potentially could be. Based on the AMFORA-statistics, table 3.6 sums up some of the information discussed above for the second quarter of 1997.
A striking observation from table 3.6 is the large discrepancy between the registered unemployment rate of 7.5 percent and the "broad"range of unemployment of 17.5 percent found when adding persons on leave schemes, active programmes and early retirement. This sometimes leads to a heated debate of whether the current low rate of open unemployment in Denmark is mainly caused by "hiding" unemployed in leave schemes etc. Figure 3.12 sheds some light on this issues. The main impression is that both open unemployment and "broad unemployment rate"has fallen since 1994, though the fall during 1994 was main caused by persons moving out of open unemployment and into leave schemes etc. However since 1995 there has been a significant fall in both unemployment concepts which is also consistent with significant rise in both private and public employment during the same period.
One should finally note that table 3.6 does not include a number of persons receiving social benefits, early retirement pensions and sickness related benefits.
3.4.3 Summing up on underemployment
This section has dealt with different measures of unemployment and underemployment in Denmark. The main results can be summarised as:
*There is some discrepancy between the estimates of unemployment found in register data and in labour market surveys.
*A large number of persons are in active labour market programmes, leave schemes etc. Thus a broader concept of unemployment including these groups would more than double the figure of unemployment.
*The fall in open unemployment in Denmark since 1994 reflects a real improvement in the employment conditions and not solely an increase in the number of persons in various labour market measures.
Finally one should emphasize that the difference between passive unemployment or active labour market programme is not only a question of "hiding" the unemployed outside the unemployment register. Through activation, a large number of the unemployed will be able to leave the range of the unemployed altogether and enter into ordinary employment or education. Therefore underemployment is not just an extended form of unemployment but may be a precondition for employment later on.
What are then the most important trends on the Danish labour market? This section gives a survey based on recent reports.
Labour force and employment by age and gender
The ideas about the perspectives for the Danish population and labour force have changed dramatically in recent years. Only a few years ago, both were forecasted to diminish from the late 1990s and into the first decades of the next century. In the more recent forecasts, however, total population is expected to rise from 5.2 mio. in 1996 to 5.5 mio. in 2025 (Arbejdsministeriet, 1996). The main reason for this change is an expected increase in fertility and growing immigration based on new evidence from the early 1990s.
Consequently, the labour force will grow until 2005 and then become almost constant.(14) At the same time the age composition of the labour force will change. The number of older persons (above 50 years) will increase by 40 percent, while the share of middle aged will decline. During the forecasting period the difference in the activity rates of men and women is expected to narrow even further from the present gap of 7 percentage points to 3 percentage points.
The growth in the labour force will however also be influenced by the number of persons in early retirement programmes and leave schemes. Such programmes have been very popular in recent years. As a result, the workforce taken as a share of total population is expected to fall from 55 percent today to approx. 53 percent in 2025 thus increasing somewhat the economic burden on the active population. If the popularity of the early retirement schemes is unchanged compared to the present situation, this pressure may increase even further.
Sectoral developments in the medium term
The medium-term forecasts for sectoral employment follow the well-known historical patterns, cf. table 3.7. Private and public services will continue to be the driving forces in job creation due to the high income elasticity of services and the presumably lower productivity growth in services compared to other sectors. As shown below the long-term sectoral demand for labour will depend very much on the overall pattern of economic growth.
The future demand for qualifications
The question of future demand for different skills can be discussed at two levels. First one may point to the general consequences for employment of technological change and new kinds of management and work organisation. One such effects is the ongoing shift in the composition of labour demand generating risks of mismatch problems and - probably - a trend towards a diminishing demand for low-skilled labour. Furthermore the kind of qualifications demanded are moving away from job specific and narrow formal skills towards broader, informal and personal qualifications like flexibility, language knowledge, ability to cooperate etc. These changes are seen as general and fundamental tendencies which - though difficult to quantify - are relevant to all sectors of the economy and also closely related to the basic nature of the new information technologies.
At a more specific level, the forecasters attempt to identify the differences in labour demand following from different growth patterns of the economy. These forecasts are focused more on formal educational qualifications. Table 3.8 presents an example of such a forecasting exercise based on a combination of macro-economic forecasts and a desegregate model describing the demand and supply of persons with different educational background.
Two points can be made from table 3.8. Firstly, although the base scenario assumes only a slight increase in unemployment, the relation between the unemployment rates of the different groups will change, reflecting the trend towards an increase in the general level of skills demanded. Therefore, the unskilled are expected to face a worsening unemployment situation over the next 15 years.
Secondly, the development in both general unemployment and the unemployment of the individual groups will in the long run depend on the structural changes of the economy. In the service scenario, the public service sector is expected to grow much more rapidly that in the base scenario. This lowers average unemployment to about 3 percent, but only halves the unemployment of the unskilled. On the other hand, severe shortages are found for groups with further education due to the increased need for doctors, teachers, nurses etc. Therefore not only the general level of unemployment, but also the mix and level of skills demanded depends heavily on the assumptions about the future composition of demand for goods and services.
The main features of the Danish union structure was established already by the end of the 1800s. The union structure was organized around the traditional crafts and vocational education is still the dominant principle for union organization in Denmark today.
The fundamental unit in the Danish labour movement is the local trade unions. The workers are organized in more than 2,000 local trade unions and they constitute the basis of the central organizations of workers and employees. The local unions and their representatives at the firm - the shop stewards - are also the main actors in the collective wage bargaining at firm level.
As mentioned above, the organizational principle of Danish unions has been the trade or craft. Danish unskilled workers have their own unions and they are organized separately for men and women. During the 1960s, the growing number of salaried employees created independent unions and they are again organized along educational lines. These unions have established their own confederations partly outside the Danish Federation of Trade Unions (LO). The Danish union organization differs strongly from most other European countries, in which industry determines union affiliation. The specific Danish organizational form has caused conflicts within the labour movement between the skilled and unskilled workers - and later between workers and salaried employees.
During recent years unions have tried to accommodate their organizational structure to the technological and educational changes taking place in the Danish labour market. More workers are now employed in service jobs, are women and have got theoretical educations. Altogether a composition of the labour force which fits very badly to the traditional union structure dominated by male workers and crafts. Instead of a union structure organized around trades or skills, an organizational structure along industry lines is about to be established. So far this reorganization of the unions has intensified the struggle between the skilled and unskilled workers rather then solved the structural problems of the unions.
On the national level the Danish labour movement is organized around a number of federations or central organizations of trade unions (cf. table 3.9). The most important of these organizations is the Danish Federation of Trade Unions (LO) which represents the majority of skilled and unskilled workers, but also includes the lower groups of white-collar employees in a growing numbers.
Several federations have been set up for the salaried and professional workers and today they organize the majority of white-collar employees - mainly those employed in the public sector.
The Confederation of Employers Association (DA) is the main organization of the employers in Denmark and the counterpart to LO in collective negotiations conducted at the central level. This organization represents a smaller proportion of the employers in the Danish labour market than the proportion of workers represented by LO (cf. table 3.10). Thus of the employees in the private sector, only about half are working for an employer who is a member of an employers' association. On the other hand, DA is a more centralized organization and agreements settled between DA and LO are normally standard for agreements on wage and working conditions in the rest of the private labour market.
Development in union membership
Denmark has one of the highest level of trade union membership among the OECD-countries. Through the 1980s the proportion of Danish employees who are members of unions was been about 85 per cent. The level of union density culminated in the mid 1980s. Since then a minor fall has taken place in the level of union organization but not in the total amount of organized employees. In 1997 the share of organised wage earners was approx. 82 percent. The fall in the union density must be explained mainly by difficulties in organizing newly-entered white-collar employees - and it is particularly among younger employees in the private services that the reluctancy towards unionization has been growing.
The pattern of union organization has changed radically in the Danish labour market during the last two decades. Traditionally the level of unionization has been high among male workers in manufacturing and construction industries. Here the level of union membership has been stable and about 90 per cent during the last two decades. The growth in union membership has occurred among salaried employees. During the 1980s, the growth in unionization has been strong especially among female workers and employees in the public sector. Today we find nearly the same level of unionization for men and women and among blue-collar and white-collar workers.
Several explanations can be given of the high Danish level of unionization. On the one hand, the close connection in the Danish labour market between the trade unions and the unemployment security system seems to encourage workers to become unionized in periods with high unemployment. In Denmark, Sweden and Finland - all countries with a high unionization - unemployment insurance is voluntary and organized in connection to the unions. Contrary to e.g. Norway with a public organized and compulsory unemployment insurance system. Here the unions have severe problems in organizing the workers and the unionization level is lower than in the other Scandinavian countries.
Another important dimension in explaining the high level of union membership seems to be the Danish labour court system. According to this system labour disputes have to be solved through the collective organizations and based on the collective agreements settled for the organized part of the labour market. To be included into the collective agreement and to get labour disputes solved by the labour court the individual employee has to be member of a union.
The collective bargaining system
The organization of industrial relations and the collective bargaining system in Denmark were established at the turn of the century and within a decade of the foundation of the collective action organizations. In 1899 a major labour conflict was solved by the collective action organizations entering a comprehensive agreement that included: 1) mutual recognition of the employers' and workers' right to set up organizations, 2) acceptance of the employers´ right to hire and fire workers; and finally, 3) a system of rules for regulation of labour conflicts (strikes and lock-outs).
The "Main Agreement" from 1899 has been negotiated and revised several times - but not radically changed. Together with a set of rules for negotiation of industrial conflicts set up in 1910s, the "Main Agreement" has formed the basis of industrial relations in the Danish labour market. According to these rules for regulating of industrial relations the collective action organizations have to respect the peace obligation written into the "Main Agreement" and industrial conflicts are not tolerated in the contracting period of an agreement - typically for two years. Running out an agreement will always be accompanied by strike and lock-out notices and these will be implemented unless a new agreement has been made.
The Danish labour market is characterized as one of being well organized and with a strongly centralized organizational pattern. Negotiation of wages and work conditions takes place in principle without intervention from the government or Parliament. But in reality, very often the government or Parliament has set up the over-all conditions for the wage bargaining and for the level of wage growth through tripartite negotiations with the collective action organizations or through direct political intervention determining the content of the collective agreement.
In the first decades after entering into the "Main Agreement" in 1899 the state was not at all involved in the collective negotiation in the Danish labour market. Rules for state intervention in regulation of labour conflicts were introduced by law in 1934. In the same year a conciliation board was established as a public mediator in labour conflicts. Today it is possible for the official conciliator on his own initiative to intervene in the collective bargaining before outbreak of a labour conflict. It happens if the collective actors had not by themselves come to an agreement. In case of strong disagreement between the collective actors the official conciliator makes a draft settlement. Often this draft settlement has been used by the Parliament to prevent a labour conflict and to intervene in the collective bargaining process.
From the mid 1930s the government and the Parliament have intervened frequently in the collective bargaining, when the collective action organizations have not been able to come to an agreement. This intervention has been made by enacting the draft settlement through legislation - typically when it has been rejected by one of the collective action organizations. Since 1945 seven out of 23 collective agreements have been "decided" by the Parliament. Furthermore, in the same period several minor collective agreements covering a specific group of workers have been settle by political intervention. Especially the 1970s and the beginning of the 1980s were characterized by state intervention in the collective agreements in the Danish labour market - this was the case in 1975, 1977, 1979, 1981 and 1985. Also, the last major round of general negotiations in the Spring of 1998 was concluded by government intervention after a large-scale conflict lasting for more than a week.
Changes in the wage negotiation pattern
Until the mid 1960s the collective negotiation of wages and work conditions in Denmark took place on a mainly decentralized level. Among the workers the local trade unions were the negotiators and had the authority to conclude the agreement. The role of the central organizations was only coordination of the collective negotiations and consultative functions.
During the 1960s this negotiation pattern changed. A closer steering of the collective negotiations was demanded for many reasons. Firstly, centralization was a precondition for the politicians accomplishing their goals of a coordinated incomes policy. Secondly, without centralized wage bargaining and tight steering of the wage growth it would have been impossible for the central organization to implement the strongly emphasized solidary wage policy. Thirdly, and finally, it is much easier to handle centralized wage bargaining and to get rid of the free-rider problems with unions not agree upon the general income policy. In the still more diversified union organization it became difficult for the top leaders of LO to control the wage formation.
In the 1960s the period for centralized negotiations started out with two bargaining rounds decided through political intervention. In particularly the legislation concerning the wage agreement in 1963 included a strong element of income policy. In this period the need for an efficient income policy was recognized by the collective action organization, and their active participation was required for a successful income regulation in the labour market.
In the 1980s the decentralized negotiation pattern reappeared. The need for central and political steering of the wage formation was no longer necessary because of the high unemployment and strongly falling inflation. The risk of handing over the control of the wage formation to the collective action organization and the market forces was limited, given the reduced bargaining position of the unions. On the other hand, decentralization of the collective bargaining was also supported by the unions. During the previous decades, the wage formation has been controlled very closely by the politicians. More decentralized negotiations were considered as an instrument to get rid of this control and to reestablish the authority of the collective action organizations in determining the wage formation.
The increasing decentralization of the collective bargaining also emerges in the procedures for individual wage negotiations of workers. In the collective agreement for 1991 the wage system for unskilled workers was changed. Previously their wages have been negotiated by the unions and fixed for the whole agreement period. Instead the collective agreement now fixed a minimum wage level and the major part of the wages are negotiated on the firm level in a performance-linked system. Furthermore the 1991-agreement introduces different forms of flexible working time and extends the decentralized wage negotiations by including parts of the public sector.
In Denmark there is a long tradition for public labour market education and training - a situation which must be understood in relation to the predominance of small and medium size firms and the high level of job-mobility already discussed above. In such an environment the individual firms will have fewer incentives to and lack resources for extensive training of the employees apart from training in very job-specific qualifications. From this "market failure" follows the need for a public system for labour market training and education in order to upgrade both the vocational and personal skills of the workforce. In contrast to some other countries, the Danish system is therefore targeted towards the work force in general (though mainly blue-collar workers) and not just at the unemployed. Actually unemployed constitute only about a quarter of those taking part in public labour market education and training.
Consistent with the Danish tradition for close involvement of the social partners in labour market policy formation, also labour market education and training is supervised by a national council with representatives from the social partner. This structure is also found at the local level where each centre for labour market training has a board with representatives from local trade unions, employers organizations and public authorities.
The Danish system was reformed in 1997.(16) The structure of the courses offered was changed somewhat and the financing of the local centres became almost entirely based on the actual number of trainees taking courses.
The total number of persons taking part in labour market training courses in 1994 was almost 200,000, whereof about half were unskilled or semi-skilled workers. About two thirds of the participants were men. The average duration of a course was approx. 2 weeks.(17)
If one takes the broader concept of public adult training and education which apart from the labour market training involves other forms of vocational education, a total of almost 800,000 persons took part in such training in 1996.(18)
Summing up the information presented in this chapter, the main characteristics of the Danish employment system can be summarized in the following points:
At the economic level, the system is characterized by:
*a dominance of small and medium sized firms ;
*a high level of job-mobility and a low tenure of the average employee;
At the organizational level, the Danish industrial relations system has:
*a high rate of organization especially at the employees side;
*a dominant role of collective agreements in deciding wages and work conditions;
*a positive support from the state in setting up mediating institutions to guarantee the smooth functioning of the IRS-system (for instance in settling industrial disputes).
Finally, at the state level, there is little direct legal intervention in functioning of the labour market, for instance in the form of regulations of employment protection (dismissals) and working time. Instead institutions are established to support the employment system in the form of:
*a rather generous and mainly state financed unemployment benefit system (organized around private unemployment insurance funds) creating an income guarantee of up to 90 percent of previous income (for the low income groups);
*a public system of labour market education and training aimed at upgrading the skill level of the work force in general (and especially the blue-collar workers).
To this can be added a system of labour exchange and activation programmes, also based on a high degree of involvement from the social partners (cf. chapter 5 below).
An important final point to note is the way in which the various elements of the Danish model match one another. The weak protection against dismissals is mirrored by the generous unemployment benefit system. The dominance of small and medium sized firms is reflected in the well-developed public system for labour market training and adult education. The high level of organization has its counterpart in the close involvement of the social partners in all aspects and level of labour market regulation and policy. The combined effect of these elements has been an employment system which creates a high level of flexibility (measured by job-mobility and average tenure) with a high degree of social and economic protection of the individual wage-earner.
This combination of flexibility and protection of the individual is maybe the most outstanding feature of the Danish employment system.
Table 3.1: Employment by sector, 1950-1994.
| Sector | 1950 | 1980 | 1994 |
| Primary | 25.7 | 7.7 | 5.0 |
| Secondary | 34.5 | 29.1 | 27.5 |
| Private services | 32.0 | 34.9 | 36.1 |
| Public services | 7.9 | 28.3 | 31.4 |
| Total | 100.1 | 100.0 | 100.0 |
| Source: Denmark Statistik: 50-årsoversigten, 1995. | |||
Table 3.2: Occupational activity rates among men and women, selected age groups, 1960-95, percentage.
| 1960 | 1970 | 1979 | 1990 | 1995 | |
| Men: | |||||
| 15-24 years | 75 | 70 | 73 | 70 | 74 |
| 25-44 years | 98 | 96 | 96 | 91 | 90 |
| 45-64 years | 95 | 91 | 84 | 82 | 79 |
| 65-74 years | 52 | 33 | 23 | 23 | 21 |
| 15-74 years | 88 | 82 | 80 | 78 | 77 |
| Women: | |||||
| 15-24 years | 63 | 56 | 65 | 69 | 67 |
| 25-44 years | 37 | 56 | 83 | 88 | 84 |
| 45-64 years | 34 | 43 | 53 | 67 | 66 |
| 65-74 years | 10 | 7 | 8 | 7 | 6 |
| 15-74 years | 38 | 49 | 61 | 69 | 67 |
| Source: Statistics Denmark: Living Conditions in Denmark, 1997, Table 7.3 and 7.4 | |||||
Table 3.3: Employed men and women, by number of normal working hours per week, 1995, percentage.
| Up to 30 hours |
31-36 hours |
37-38 hours |
39 hours or more |
Unstated | Total | |
| Men: | ||||||
| Self-employed | 4 | 1 | 6 | 73 | 16 | 100 |
| Salaried employees, upper level | 1 | 1 | 41 | 57 | 0 | 100 |
| Salaried employees. intermediate level | 1 | 1 | 65 | 32 | 1 | 100 |
| Salaried employees, lower level | 8 | 2 | 74 | 16 | 0 | 100 |
| Skilled manual workers | 2 | 1 | 87 | 10 | 0 | 100 |
| Unskilled manual workers | 1 | 3 | 78 | 16 | 2 | 100 |
| Total | 2 | 1 | 63 | 31 | 2 | 100 |
| Women: | ||||||
| Self-employed | 31 | 6 | 6 | 57 | 0 | 100 |
| Assistant spouses | 57 | 5 | 5 | 17 | 16 | 100 |
| Salaried employees, upper level | 9 | 7 | 48 | 36 | 0 | 100 |
| Salaried employees. intermediate level | 19 | 4 | 65 | 11 | 1 | 100 |
| Salaried employees, lower level | 26 | 15 | 53 | 6 | 0 | 100 |
| Manual workers (skilled and unskilled) | 25 | 12 | 48 | 14 | 1 | 100 |
| Total | 23 | 11 | 51 | 14 | 1 | 100 |
| Source: Statistics Denmark: Living Conditions in Denmark, 1997, Table 7.14 and 7.15 | ||||||
Table 3.4 A: Employed men and women by normal weekly working hours, 2. quarter of 1998.
| Less than 15 hours |
15-36 hours |
37 hours |
38-48 hours |
49 hours and more |
Unstated | Total | Average working hours | |
| Hours | ||||||||
| Men | 94 | 100 | 817 | 242 | 193 | 8 | 1455 | 38.2 |
| Women | 122 | 390 | 568 | 111 | 31 | 9 | 1231 | 32.1 |
| Total | 216 | 491 | 1384 | 353 | 224 | 17 | 2686 | 35.4 |
| * | ||||||||
| Men | 6 | 7 | 56 | 17 | 13 | 1 | 100 | * |
| Women | 10 | 32 | 46 | 9 | 3 | 1 | 101 | * |
| Total | 8 | 18 | 52 | 13 | 8 | 1 | 100 | * |
| Source: Statistiske Efterretninger, Arbejdsmarked 1998:29, Table 3 and own calculations | ||||||||
Table 3.4B: Labour market flows in and out of unemployment from 1. to 2. quarter of 1997.
| To unemployment | From unemployment | |
| Employment | 58,000 | 32,000 |
| Active labour market programmes | 12,000 | 6,000 |
| Leave | 4,000 | 5,000 |
| Social assistance and disability | 11,000 | 9,000 |
| Early retirement programmes | 2,000 | * |
| Total | 87,000 | 52,000 |
| Source: Ministry of Finance, 1997, figure 4.1 | ||
Table 3.5: The total and average number of participants and the average degree of participation in active labour market programmes and leave schemes in Denmark, 1997 (rounded figures).
| Total number of participants | Average degree of participation | Average number of participants | |
| Ordinary job training | 40,700 | 0.41 | 16,800 |
| Special job training | 44,400 | 0.31 | 14,000 |
| Pool-jobs (public service jobs) | 11,800 | 0.56 | 6,600 |
| Self-employment | 15,800 | 0.71 | 11,200 |
| Voluntary work | 1,000 | 0.28 | 300 |
| SUBSIDISED EMPLOYMENT | 107,900 | 0.45 | 49,000 |
| Education, ordinary | 57,400 | 0.31 | 17,700 |
| Education, special | 21,800 | 0.28 | 6,000 |
| EDUCATION, TOTAL(excl. educational leave) | 78,500 | 0.30 | 23,800 |
| OTHER ACTIVATION | 19,400 | 0.21 | 4,000 |
| Sabbatical leave | 1,600 | 0.36 | 600 |
| Child minding leave | 56,800 | 0.39 | 22,200 |
| Educational leave | 83,800 | 0.29 | 23,900 |
| LEAVE SCHEMES | 140,200 | 0.33 | 46,700 |
| ACTIVE LABOUR MARKET PROGRAMMES AND LEAVE SCHEMES | 346,000 | 0.36 | 123,500 |
| Source: Statistics Denmark:Statistiske Efterretninger: Arbejdsmarked, 1998:14. Note: Since the same person may participate in more than one programme during the same year the subtotals of the number of participants may be less than the sum of the components. | |||
Table 3.6: The number of participants in various labour market programmes, leave schemes and early retirement, full time equivalents, 1997.
| Number (rounded figures) | Share of labour force Percent | |
| Subsidised employment | 49,000 | 1.7 |
| Leave schemes | 46,700 | 1.6 |
| Education and training for unemployed | 23,800 | 0.8 |
| Other activation | 4,000 | 0.1 |
| Early retirement (members of unemployment insurance funds) | 170,700 | 5.8 |
| Registered unemployment | 220,200 | 7.5 |
| Total | 514,500 | 17.5 |
| Source: Statistics Denmark: Statistiske Efterretning: Arbejdsmarked, 1998:14 | ||
Table 3.7: Forecast of sectoral distribution of employment 1995-2005.
| 1995 | 2005< | |||