Introduction
Denmark has drawn attention world-over due to its largely successful but unique industrial model. From the 1990’s unemployment levels in the country have constantly been declining to date and still show long-term sustenance of the trend. The events leading to this trend have amazed many countries in the world that are continually seeking ways to solve the unemployment problem without much success. The dramatic employment trends have made people regard the experience in Denmark as an industrial or employment’ miracle’. It is this dramatic recent development that has created the impression of an employment miracle in Denmark. A lot of studies have been conducted to describe the reasons for such a success in the country. The Danish Model has achieved much in facilitating collective bargaining, ‘flexicurity,’ and minimal state intervention as discussed below;
Collective Bargaining Agreements between Employers and Employees
Collective bargaining in Denmark functions under a well-defined mechanism. At the uppermost level, the labor organizations and the Danish employers’ federation (DA) develop the outline for engagement. The DA sets the rules and guidelines for matters that are regulated by the law in most countries. At the top level, the institutions generally agree on issues to do with organizing, rights on firing, and trade disputes. The cooperation agreement used up till now was enacted in 1947 and has continually been revised to accommodate changing realities. With time, other contracts set at the national stage have been decentralized to the level of specific industries. The industry-level agreements create ample room for conducting more discussions at the company level, mostly on salaries and wages.
Apart from holding most pay discussions at the company level, negotiations can also occur at the industry-level stage. The industry-level discussions may be limited by they are also crucial in setting introductory pay rates that can apply to specific companies. The industry level mainly involves the manufacturing sector, the fiancé sector, and the retail sector. The negotiations cover almost 80 percent of the workforce in unions under the labor organization. For the remaining 20 percent that covers the food sector and the transport sector, industry-level deliberations principally outline the general terms as the specific terms are conducted at the local company level.
Negotiations involving the public sector entities are critical in determining the salary and wages of public sector employees. The terms of payment are negotiated by the unions and the three levels of government; the central government, regional government, and the local government. However, as of the late 1990s, a small part of the payment has been determined through local negotiation. Therefore, collective bargaining covers a significant component of trade disputes in Denmark. According to Fulton (2020), collective bargaining covers up to 74 percent of the private sector employees and 100 percent of the public sector employees, representing an average of 83 percent.
Collective agreements guarantee a flexible working environment for employees and the in terms of working conditions, working time, and remuneration. The company and employees can negotiate locally to add on or stray from the outlined requirements specified in the collective agreement. In addition, if the parties do not agree, the outcome of the deliberations can be adjudicated by an official arbiter employed by the government to help in dispute resolution.
Generally, the prolonged existence and success of the Danish Model are linked to several components:
- Employers working together with unions and their supportive collective bargaining at central, regional, and local levels are critical. Danish employer organizations are actively engaged in fine-tuning the collective bargaining system.
- The companies have been supporting the intended collective bargaining as a foundation of the Danish Model.
- Robust employer sustenance is buttressed by institutionalized cooperation at work, which supports national and industry collective bargaining.
Employees are also involved in enacting place of work engagements and changes. Negotiations on collective agreements are usually conducted within a very tight calendar. In the manufacturing sector, most of the talks involving unions are generally ones that start early. Fulton (2020) states that typically, the negotiations can last for up to two or three years. The latest collective bargaining agreements in the private sector were concluded in early 2017 and were to last for three years, leading to 2020. In the public sector, the collective bargaining agreements were contracted in 2018 and ran up to the end of March 2021. As a general rule, private sector agreements usually start in March, and the public sector agreements kick off in April.
Flexicurity of the Danish Labor Market
Countries worldwide have been fascinated by the distinctive Danish labor market model that is commonly referred to as flexicurity. ‘Flexicurity’ is coined through combining two ‘flexibility’ and ‘security. In the labor market, flexibility in a company is conventionally interpreted to mean reduced security among employees. It is mainly connected to the deregulation and reorganization of the labor market. Therefore, flexibility and security conventionally appear on two opposing sides to each other. It means that if employees are given more employment security, the companies have also reduced the employees’ flexibility, and the reverse is also true (Jensen, 2011). However, there seems to exist a different interplay between employment flexibility and industrial security for employees in Denmark.
The Danish labor market is characterized by very high flexibility compared to other markets practicing liberal labor laws like the United States, Canada, the United Kingdom, and Ireland. At the same time, the country’s labor market is characterized by a robust social security system and active labor market programs. Other Nordic countries also provide their citizens with a compactly interwoven safety net for their citizens.
The Danish Model is unique because of the special connection between flexibility and social security and the support from the active labor market policy. In Denmark, a high level of social security is seen as a prerequisite for flexibility in the labor market. Therefore, the Danish Model symbolizes a potential trade-off between a highly flexible employment relation and sufficient social protection. In addition, the existing labor market programs protect workers from the would-be charges of a low level of employment security (Flexicurity, n.d). The Model, which is widely referred to as flexicurity, embodies an open alternative to the prevalent interpretation that it is necessary to cultivate a high level of discrete employment protection at the corporate level.
Due to the Model’s uniqueness, researchers have widely studied the concept leading to different interpretations and sub-models or, more accurately, numerous types of trade-offs concerning flexibility and security. Several studies state that the idea of flexicurity is principally focused on the delicate parts of the labor force. In contrast, other studies support different forms of flexicurity that can apply to every aspect of the labor market. Therefore research has borne different types of trade-offs for different parts of the labor force. Wilthagen and Tros (2004) state that these trade-offs ‘implicate individual workers, a group of workers or the whole workforce, corporate sector, or the entire nationwide governance structure. By and large, flexicurity is dependent upon the level where the trade-offs are made.
In general, the trade-off concerning working flexibility and security is linked to the proper organization of the labor market and the specific nation. Denmark guarantees workers security by ensuring that the staff is well cared for at high levels, including compensation for long periods if they come to be out of a job. Trade organizations, together with the employees, agree to take low levels of employment protection, including dismissal at short notice because compensation in case of job loss is also high.
The Danish flexicurity model has four fundamental elements. First, the labor market is characterized by a high level of job mobility. Employees can flexibly change jobs severally at their own will. Second, flexicurity is characterized by inadequate employment protection. Employers can, with ease, hire and fire employees devoid of significant costs depending on the market environment. Thirdly due to eminent dismissal by employers, the government provided appealing unemployment benefits. These include numerous universal welfare benefits as well as proper health insurance.
Therefore, workers are supported sufficiently. If they lose their job, there is an adequate safety net to protect them and their relations from suffering due to unemployment troubles. Fourth, the country has a working labor market policy that helps jobless people to become re-employable through several reskilling programs. In addition, the government has provided support and encouragement to people searching for job openings for which they can apply (Flexicurity, n.d). These four attributes ensure that the Danish labor market is very much flexible and, at the same time, has a high level of social security.
Despite the success of flexicurity from the late 1990s, in recent years, particularly after the 2008 global financial crisis (GFC), there have been concerns as to its continued effectiveness. The GFC primarily resulted from poor regulation where business entities took advantage of deficient law to engage in risky and unethical business conduct. Therefore, governments and regulatory bodies feel that there should be sufficient regulation and control to avoid the reoccurrence of the crisis. Authorities in Denmark are faced with this reality, including the need to control immigrants entering the country looking for better job opportunities (Flexicurity, n.d). The European Union is also coming out strongly to direct regulation.
Varieties of Capitalism and the Danish Industrial Model
The varieties of capitalism present two different market systems that countries can adopt; the Liberal Market Economy (LME) or the Coordinated Market Economy (CME). Under the LME, country economic activities are coordinated through markets and corporate entities. The organizations mainly operate by cutting costs and dealing with innovative products and technologies. The United States and the United Kingdom are leading examples of the LME system. On the other hand, economic undertakings under the CME are coordinated through non-market mechanisms (Bamber et al., 2016). The organizations operate informally or through corporate bargaining that produces high-grade products and innovative manufacturing practices. Japan, Germany, and many Scandinavian countries follow the CME system.
Literature suggests that advanced industrial republics will perform better than other nations if their institutions best fit either the LME or the CME. Blending the two systems is unlikely to spawn functionally that will boost their institutions. However, Denmark has contradicted the view because it has shown substantial growth just like other republics over the years through a mixed system characterized by (a) aggregate exposure of businesses to market forces and (b) devolved collective undertakings and decision making. Naturally, Denmark would be classified as a CME, given that nearly all workers are unionized and are protected by collective bargaining agreements arrived at by the companies. However, the classification is contradicted by the country’s vibrant relations capturing the labor market and non-market institutions. However, according to Bamber et al. (2016), the decentralized decision-making supported by the country’s political economy and increased flexibility in decision-making has, in turn, helped improve the country’s socio-economic performance.
There is an argument that Denmark probably represents a unique market system not linked to the LME or the CME. Campbell and Pedersen (2007) state that the varieties of capitalism approach, albeit sound, fails to recognize the principally distinctive export product profile of Denmark that does not include high-quality products (CME) nor low-cost and inventive products (LME). Thelen, (2012) states that the country primarily deals in wind turbines, furniture, up-market meat and milk products, and pharmaceuticals, particularly insulin.
The products listed do not require a lot in terms of asset specificity, state-of-the-art equipment, and highly skilled human resources, especially blue-collar labor, as characteristic of pure CMEs. Besides, none of these goods calls for wide-ranging marketing based on low costs, as is characteristic of pure LMEs. Maybe the Danish formal shape is mostly well fit to manufacture commodities that are not representative of either the CME system or LME system Bamber et al., 2016). Probably, there are other nations with the same sort of institutional profile that can succeed in producing commodities of this third variety.
Conclusion
The Danish Model has attracted worldwide admiration as countries understand how the Model has succeeded in the country. Research has established that the government has allowed and devolved collective bargaining agreements at the top level to the specific company level. Collective bargaining in Denmark functions under a well-defined mechanism. At the uppermost level, the labor organizations and the Danish employers’ federation (DA) develop the outline for engagement. The DA sets the rules and guidelines for matters that are regulated by the law in most countries.
Denmark has also set itself apart as an example of a developed nation that has low levels of unemployment and at the same time provides balanced flexibility and security to both the employees and workers. The Danish Model is unique because of the special connection between flexibility and social security and the support from the active labor market policy. The experience contradicts the usual understanding that high flexibility is linked to low guarantees and vice-versa.
Moreover, the country-specific export produce could also contribute to this industrial or employment’ miracle’. Denmark’s export product profile does not include high-quality products characteristic of CMEs nor low-cost and inventive products characteristic of LMEs. The products listed do not require a lot in terms of asset specificity, state-of-the-art equipment, and highly skilled human resources, especially blue-collar labor, which is characteristic of pure CMEs. Besides, none of these goods calls for wide-ranging marketing based on low costs expected of pure LMEs.
References
Bamber, C.J., Lansbury, R.D., Wailes, N. and Wright, C.F. (2016). International & comparative employment relations: National regulation, global changes. 6th ed. Routlegde.
Campbell, J.L. and Pedersen, O.V. (2007). The Varieties of Capitalism and Hybrid Success. Comparative Political Studies, 40(3).
Fulton, L. (2020) National Industrial Relations, an update. Labor Research Department and ETUI (online publication). Web.
Flexicurity, (n.d). The Danish Agency for Labour Market and Recruitment. Web.
Jensen, C.S. (2011). The flexibility of flexicurity: The Danish model reconsidered. Economic and Industrial Democracy, 32(4), 721–737.
Thelen, K. (2012). Varieties of capitalism: Trajectories of liberalization and the new politics of social solidarity. Annual Review of Political Science, 15:137–59.
Wilthagen, T. and Tros, F. (2004). The concept of “flexicurity”: A new approach to regulating employment and labor markets. Transfer, European Review of Labor Research, 10(2), 166-186.