Transcript Flexible hiring/firing rules Unemployment Insurance Active labour

Workfare and Flexicurity –
The Danish Case
Torben M. Andersen
Aarhus University
CEPR, CESifo and IZA
Danish Characteristics
• Low unemployment
rate
Unemployment rate
12
10
%
• High labour force
participation
8
6
4
• Low working hours
2
0
OECD
Denmark
20
06
M
20 01
06
M
20 04
06
M
20 07
06
M
20 10
07
M
20 01
07
M
20 04
07
M
20 07
07
M
20 10
08
M
20 01
08
M
20 04
08
M
20 07
08
M
20 10
09
M
20 01
09
M
20 04
09
M
20 07
09
M
20 10
10
M
01
%
Unemployment and the crisis
Registrered unemployment
6
5
4
3
2
Structural
unemployment
1
0
Flexicurity
• Flexible hiring and firing rules for
employers combined with social
security for employees: flexicurity
• Conducive for job-creation and
restructuring etc.
• Collective risk sharing for workers
Employment protection - index
4
3.5
epl index
3
2.5
2
1.5
1
0.5
0
Strong perceived job security
Perceived likelihood of respondens being able to find a job
(after being laid off)
70
60
%
50
40
30
20
10
0
Some facts about the Danish
case:
• Flexicurity was also in place in the high
unemployment period in the 1970s and 1980s
• A series of supply side reforms in the 1990s made
the model work better
• Unemployment benefits are only generous for low
income groups
• Incentive structure is maintained via active labour
market policy
The three pillars of the
Flexicurity-model
• Insurance vs.
incentives
Flexible hiring/firing rules
• The model presumes
that unemployment is a
temporary state
• Balance between the
three pillars is essential
Unemployment
Insurance
Active labour
market policy
Labour market reforms in the
mid 1990s
• Shorter duration of
the benefit period
• Stricter eligibility
conditions
• Activation
(workfare)
Short term insurance
maintained, but
incentives
strengthened
Flexible hiring/firing rules
Unemployment
Insurance
Active labour
market policy
Incentives and distributional
constraints
• Lower benefits: distributional constraint
• Activation: unchanged benefits but
strengthened incentives
• Rights and duties
• Better incentives for binding distributional
constraint?
Effects of activation
• Ex ante
– Threat/motivation
effect: higher
opportunity costs of
claiming uib = more
job search, lower
reservation
demands
– Sorting (claiming
benefits, but not
interested in jobs)
• Locking-in effect – less
search during
participation
• Ex post:
– Improved
qualifications
– More
realistic/efficient job
search
N Den
et m
he a
rl rk
Sw and
ed s
Be en
G l giu
er m
m
Fr any
a
Fi nce
n
N l an
or d
Po wa
rtu y
g
Sp a l
Ire a in
l
Au an d
Bu s tri
lg a
U
ar
ni
Sl ted I ia
ov K ta
a k i ng l y
R do
e m
C
ze H pub
ch un lic
R ga
ep ry
Li u b
th li c
ua
n
La i a
R tv
om ia
a
Es n ia
t
G oni
re a
ec
e
% of GDP
Policy regime comes at a cost!
Expenditures on ALMP as a share of GDP
1,8
1,6
1,4
1,2
1
EU average
0,8
0,6
0,4
0,2
0
Some characteristics of the
Danish labour market
• High job-turnover
• Short average job tenure
• High incidence of short term
unemployment
Firms
Industrial structure:
• Few large firms, many
small- and medium
sized firms
• Collective risk sharing
• Institutional
competitiveness
• The scheme is an
indirect subsidy to
firms/sectors with high
variability in production
• Firms pay uib only the
first two days
• High incidence of
unemployed workers
returning to previous
employer
The test – can the model also cope
with a large negative shock?
Employment adjustment
during the financial crisis
•Not higher employment variability
relative to GDP variations than other
countries
•Possible to sustain effective ALMP
with much higher unemployment?
Employment change relative
to output change
2
1,8
1,6
1,4
1,2
1
0,8
OECD Gennemsnit
0,6
0,4
0,2
IRE
NO
R
SL
O
DE
N
CA
N
CZ
H
UK
SW
E
FIN
JP
N
NE
T
BE
L
FR
A
ITA
AU
T
LU
X
CH
GE
R
0
SP
A
US
A
PO
R
ICE
•Possible to maintain active policy line
when unemployment is
high/increasing?
Can the model be copied?
– Complementarities: EPL, Unemployment
benefits and active labour market policies
– Industrial structure
– Political support (conditioned on low
unemployment?)