Introduction
The labor market is constantly changing due to globalization processes and the active development of digital technologies in the labor sphere. The transformation of content, nature, and work processes contributes to the spread of non-standard forms of employment, which a decrease in social protection for employees can accompany. Employment is not only the basis of society’s existence, a factor in economic growth and macroeconomic stability, but also an essential condition for developing human potential and enhancing the population’s quality of life.
The flexicurity model, first implemented in Denmark in the 1990s, is a comprehensive approach to enhancing flexibility and security in the labor market (Flexicurity – Employment, Social Affairs & Inclusion, 2022). Since flexicurity is a relatively new concept in academia and policy circles, no single definition has been agreed upon. Flexicurity attempts to balance the demands of companies for a flexible workforce with those of employees for security—the assurance that they won’t experience lasting unemployment. The flexicurity model of the labor market has proven effective in countries with a socially oriented economy, striking a balance between flexibility and security.
Principles and Early Challenges
To begin with, defining how the flexicurity model operates in Denmark is crucial. Denmark has a high employment rate and a low unemployment rate. It belongs to countries with the highest value according to the Employee Satisfaction Index. Additionally, it is asserted that flexicurity has benefited less influential groups in the Danish labor market. According to the logic, companies are more likely to take the risk of recruiting members of these categories than they would be in states without flexicurity, since the cost of firing would be cheaper. Thus, Denmark’s relatively low youth unemployment rate has also been attributed to the concept of flexicurity.
Flexicurity’s fundamental component is companies’ freedom to hire and fire workers as they see fit without incurring extortionate termination fees. Also, employees can get up to two years of unemployment benefits after quitting their jobs if they join and pay membership fees to an unemployment insurance fund (Danish labour market, 2018). Additionally, the Danish government provides counseling services and retraining programs to assist jobless individuals in securing employment in the near future.
The “Danish” model is thus often referred to by the term “flexicurity.” Public transfers tended to be absorbed when the model was a pure flexicurity model, which rested only on the two legs of flexibility and security. The unemployment rate rose to 10%, and in the early 1990s, 30% of those aged 15 to 66 were on public assistance, up from around 10% in 1970. Thus, the social safety net protected salaries but did not help the jobless find work, impacting the state budget.
Active Labor Market Policies and Reforms
The third leg of the model, active labor market policy, which had a distinct focus on employment and job seeking, helped bring the model into balance and improve its performance. Before the changes, the welfare system largely stood between businesses that benefited from flexibility and employees who sought income stability. The passive participant bears all the drawbacks in such triangular relationships. Increased employment while preserving flexibility and financial security was feasible when implementing a more proactive approach to labor market reforms.
Danish labor market reforms have been exceptionally successful in periods of structural change. The Danish Flexicurity model’s foundation is rooted in a long-standing history of communication between employer groups and labor unions. Collectively negotiated agreements are the foundation for wages and working conditions, and the government rarely intervenes. For instance, Denmark does not have a minimum wage requirement. Instead, the comparatively high pay is determined through frequent negotiations between companies and labor organizations.
This model also contributes to ensuring a well-functioning labor market in Denmark. In 2019, EUR 12.7 billion was spent on active employment initiatives, with the costs allocated to activation, other employment schemes, and special measures and grants (Bovenberg & Wilthagen, 2019).
A very high compensation rate also distinguishes Denmark’s income security system for jobless persons. Unemployment insurance fund members are now eligible for unemployment benefits for two years, and low-income groups get high compensation rates (up to 90% of prior wages). Means-tested cash benefits, which are provided at a lesser rate than unemployment benefits, are available to jobless people who are not members of an unemployment insurance fund (Flexicurity, 2022).
Impact of Economic Crisis and Youth Unemployment
It’s also noteworthy to see how the 2007-2008 crisis particularly affected young people. The economic crisis has not had a long-term negative impact on the Danish labor market. Between 2007 and 2012, Denmark’s young unemployment rate quadrupled (from 7.5% to 14.1%), then started to fall. Despite the rapid rise in unemployment during the economic crisis, the Danish labor market did not exhibit any significant indicators of growing marginalization or segmentation. Youth unemployment in the EU-28 also rose significantly (from 15.9% in 2007 to 23.3% in 2012), although it fell after the crisis.
Denmark maintained its ranking as one of the EU nations with the lowest youth unemployment rates despite the dramatic decrease in employment (Bredgaard & Madsen, 2018). As a result, neither a rise in structural unemployment nor a widening of the labor market’s segments is indicated by the changes in long-term and young unemployment in Denmark during and after the crisis. Employment quickly increased when the economy recovered, as one should anticipate from a labor market with lax dismissal regulations.
Conclusion
To summarize, Denmark’s flexicurity policies have successfully struck a balance between flexibility and security. Flexicurity is more than just a set of political ideals and a plan of action. As demonstrated by the Danish instance, flexibility may also exist empirically as a particular “state of things” in the labor market. It is argued that the complementary nature of flexibility and security results in better labor market outcomes. The performance of the Danish labor market and how its flexicurity institutions handle the crisis are of widespread interest.
Reference List
Bredgaard, T. and Madsen, P. (2018) ‘Farewell flexicurity? Danish flexicurity and the crisis’, Transfer, 24(2), pp. 1-12. Web.
Bovenberg, A. and Wilthagen, A. (2019) ‘On the road to flexicurity: Danish proposals for a pathway towards better transition security and higher labour market mobility’, European Journal of Social Security, 10(4), pp. 325-347.
Danish labour market (2018). Web.
Flexicurity (2022). Web.
Flexicurity – employment, social affairs & inclusion (2022). Web.