NCPA - National Center for Policy Analysis


September 20, 2006

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

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

The model has proved successful throughout the economy:

  • Unemployment, at 4.5 percent, is at its lowest in over 30 years.
  • Inflation is below the euro-area average and growth is faster.
  • The budget surplus hit 3.9 percent of gross domestic product (GDP) in 2005.

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

  • Over the past three years the Danes have shaved the public payroll by almost 1 percent while boosting private-sector employment by 3.7 percent.
  • Latest estimates suggest that 34,000 private-sector jobs will be created this year.

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

  • For one thing, it is based on a century-old habit of dialogue between employers and unions that is not easily exportable to other countries seeking a quick fix.
  • Moreover, despite enviably low unemployment and labor shortages in industries from construction to health care, the Danes are having more difficulties nudging the long-term unemployed into work.

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

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