Global Aging Issues
The Danish Model of "Flexicurity"
Opinion
April 2007
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By Poul Nyrup Rasmussen, MEP
Former Prime Minister of Denmark
President of the Party of European Socialists
As the European Union looks for ways to modernize its welfare states in the face of globalization, rapid technological change and an ageing society, more and more people are talking about the Danish model of flexicurity. But what is this Danish model?
When I became Prime Minister of Denmark in 1993, unemployment had reached a 25-year high at 13 percent, coupled with low economic growth and high public debt. By the time I left power in 2001, employment was at the highest level in Europe at 76.6 percent, unemployment had fallen below 4 percent, long-term unemployment had been cut to a third of what it had been, and youth unemployment dropped to its lowest levels. Public finances had become sound, characterized by surpluses and lower public debt.
Despite having no natural resources and no single dominant company, Denmark is now among the most competitive economies in the world. Denmark today, along with other Nordic countries, proves that a successful open market economy is compatible with a high level of social welfare and protection for citizens.
The key to Denmark’s economic turnaround was a combination of supportive macroeconomic policy and progressive economic and welfare reforms. A new investment programme was launched in education, child care, active labour market policies, research and innovation. This programme produced a real rate of growth in 1994 – the first year for implementing reforms – of 5.5 percent.
Denmark today invests in its people - not in obsolete industries. With higher qualifications Danes can get better jobs on higher incomes. With better social protection, they are confident and prepared to innovate and contribute to economic change.
Danes change jobs more frequently than in any other European country. It is not hard to hire or fire. However, income protection between jobs is very high. Unemployment benefit can be as high as 90 percent of gross income for up to four years, on the condition that you accept job offers or enroll in a re-training programme.
Active labour market policies help the unemployed to find work and increase their skills through training in periods between jobs. Denmark spends more on active labour market policies than all other European countries – investing a large part of it in training and significant sums on employment incentives and the integration of disabled persons in work. The idea is to make the journey from the old job to the new job as short, as easy and as productive as possible.
Denmark spends the highest proportion of GDP on education of any EU member state. Participation in training is over 70 percent in all age groups of adults of working age.
The participation of women and older workers in the labour market is far higher than in the majority of other European countries. Parental leave is generous and there is an almost universal system of child care, making the choice between having kids and pursuing a career unnecessary. As a result, Denmark does not have the falling birth rates that alarm most European nations, making population ageing less of a challenge.
Strong social dialogue is the cornerstone of the Danish model: over 80 percent of the labour force is a member of a trade union. The social partners were consulted in advance of each labour market reform package and performed a central role in implementing the policies. The social partners became co-responsible for training programmes for the unemployed, making sure that they were adapted to labour market needs. As a result of this system of strong social partnership, falling unemployment did not lead to a rise in wage inflation.
This system of “flexicurity” is based on rights and duties. People have the right to education and social protection and a duty to work and contribute to society. It has resulted in Danes feeling more economically secure and more capable of adapting to the demands of economic change.
Denmark has high rates of personal taxation in order to finance its welfare state, notably this system of “flexicurity”. This shows that neo-liberals and conservatives are wrong to argue that European welfare states are too expensive. The U.S. spends almost 26 percent of GDP (including private spending) on social protection, which is equivalent to the total welfare spending of Italy. However, the U.S. has far higher levels of poverty and 40 million people without health insurance. Public provision ensures that no one is excluded from society and everyone benefits from the fruits of growth. The Danish example shows that Europe’s welfare states need better, not fewer social policies to achieve full employment and optimal social outcomes for people.
Can the Danish model be applied elsewhere? It certainly cannot be fitted into countries like a ready made kitchen. But there are basic principles in the Danish, and other Scandinavian, welfare states that I believe will be applied elsewhere.
Social welfare and security is entirely compatible with economic growth and competitiveness. Full, high quality employment is a fundamental pre-condition for sustainable welfare states; and you cannot achieve full, high quality employment without an effective welfare state. Access to lifelong learning for all – through higher investment in education and training – is fundamental in an ever-more globally competitive economy. Social protection and social partnership are vital in helping manage change.
As the Danish experience reveals, flexibility must go hand in hand with security, to enable citizens to face change successfully and with confidence in a globalized world.
Biography
Having been Prime Minister of Denmark (1993 – 2001) and leader of the Danish Social Democrat Party for over a decade, Poul Nyrup Rasmussen was elected President of the Party of European Socialists (PES) – bringing together Europe’s socialist, social democrat, progressive and labour parties in the European Union - in April 2004. He was elected Member of the European Parliament in the same year, having led the Danish Social Democrats to victory in the June 2004 European elections.