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Labour Market Studies : Denmark

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Labour Market Studies : Denmark Series ΝΊ Labour Market Studies DENMARK Employment & social affairs *» * * * European Commission Labour Market Studies Denmark By PLS Consult (Jens Henrik Haahr, Helle Ørsted and Hans Henrik Hansen) and Peter Jensen December 1996 This report was financed by and prepared for the use of the European Commission, Directorate-General for Employment, Industrial Relations and Social Affairs. It does not necessarily represent the Commission's official position. A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server (http://europa.eu.int) Cataloguing data can be found at the end of this publication Luxembourg: Office for Official Publications of the European Communities, 1997 ISBN 92-827-8760-5 © ECSC-EC-EAEC, Brussels · Luxembourg, 1997 Reproduction is authorized, except for commercial purposes, provided the source is acknowledged Printed in Belgium Contents page Executive Summary 6 1. Introduction 18 2. Unemployment in Denmark 21 2.1. Unemployment and its Causes 1980-1995 22 2.1.1. Cyclical and Structural Unemployment 1980-1995 22 2.1.2. Assessments of the Structural Rate of Unemployment in Denmark 24 2.1.3. Real Wage Rigidity 26 2.1.4. Hysteresis - the Persistence of Unemployment 27 2.1.5. Other Explanations of the Rise in Unemployment 28 2.1.6. Conclusions and Assessments 29 2.2. Macroeconomic Policies and Forecasts 30 2.2.1. Current Macroeconomic Policies in Denmark 31 2.2.2. Macroeconomic Targets in Relation to the EMU Criteria 32 2.2.3. The Impact of Present Macroeconomic Policies on Employment 34 2.2.4. Forecasts for Employment and Unemployment 35 2.2.5. Conclusions 36 3. Labour Market Policies 38 3.1. The Historical Development of Danish Labour Market Policy 38 3.1.1. Labour Market Policies until 1993 39 3.1.2. The Labour Market Reform of 1993 40 3.1.3. Changes in Danish Labour Market Policy 1994-1995 42 3.1.4. Measures and Objectives in Recent Danish Labour Market Policy 44 3.2. The Institutions of Labour Market Policy 45 3.2.1. The Administrative System of Active Labour Market Policy 45 3.2.2. The Unemployment Insurance System 47 3.3. Passive and Active Labour Market Measures 49 3.3.1. Passive Labour Market Measures 50 3.3.2. Active Labour Market Measures in Denmark 54 3.4. Assessment of Danish Labour Market Policy 61 3.4.1. Labour Market Policy, Hidden Unemployment and the Leave Schemes.. 61 3.4.2. Labour Market Policy and Structural Unemployment in Denmark 66 3.4.3. Conclusions 74 4. Industrial Relations and Wage Negotiations 80 4.1. The Organization of the Labour Market Parties 80 4.1.1. The Present Organization of Employers 81 4.1.2. The Organization of Employees 82 4.1.3. Assessment 84 4.2. The Regulatory Framework for Industrial Relations 85 4.2.1. The General Agreement 85 4.2.2. Institutions for Solving Industrial Disputes 86 4.3. The State and Collective Bargaining 87 4.3.1. Direct Government Intervention 88 4.3.2. Indirect Government Intervention 89 4.3.3. Assessment 89 4.4. Collective Wage Negotiations 90 4.4.1. Recent Changes in the System of Collective Wage Negotiations 90 4.4.2. The Flexibility of Wage Formation 92 4.5. Conclusions 93 5. Labour Market Legislation 96 5.1. Employment Protection Schemes 96 5.1.1. Individual and Collective Dismissal 96 5.1.2. Temporary and Fixed Term Contracts 98 5.1.3. The Effects of Employment Protection on Employment 98 5.2. Regulation of Working Time 99 5.2.1. Legal and Contractual Limitations to Working Time 99 5.2.2. Flexibility in Work Schemes 100 5.2.3. Assessments: Working Time Regulation and Employment 101 5.3. Minimum Wage Regulation 102 5.4. Conclusions 102 6. The Tax and Benefit System and the Functioning of the Labour Market 104 6.1. The Danish Tax System in Relation to the Labour Market 104 6.2. The Unemployment Trap 106 6.3. Assessment of the Effects of Income Taxes on Labour Supply 108 6.4. Conclusions 111 7. The System of Education and Training and the Functioning of the Danish Labour Market 113 7.1. The Structure of the Education System 113 7.1.1. The Ordinary Education System 114 7.1.2. Adult and Continuing Education 118 7.2. The Relation Between Supply and Demand of Skills 120 7.3. Strengths and Weaknesses in Relation to a Well-Functioning Labour Market 123 7.3.1. Quality of the Danish Education System 123 7.3.2. Mobility 126 7.3.3. Conclusions 127 8. Industrial Policies, Employment and Unemployment in Denmark 129 8.1. The Level and Nature of State Intervention in the Economy 129 8.2. Recent Trends in Danish Business Policy 133 8.3. The Domestic Services Scheme 137 8.4. Strengths and Weaknesses of Danish Business Policy 139 9. The National Debate on Strategies for Limiting Unemployment 143 9.1. The Direction of Present Policies to Lower Unemployment 143 9.2. The Debate on the Future Direction of Policies 145 9.2.1. Increasing Labour Productivity 145 9.2.2. Reducing Labour Costs 148 9.3. Perspectives 153 Appendix A: Population and Labour Force Developments 156 A.1 Demographic Trends: Changes in the Size and Structure of the Population and the Labour Force 156 A.1.1 Demographic Trends: The Size and Structure of the Population, 1980-1995 156 A.1.2 Age and Gender Distribution of the Population 157 A.1.3 Regional Variations in the Development of the Population 157 A.1.4 The Impact of Migration 158 A.1.5 The Size of the Population of Active Age in the Labour Force 159 A.2The Development of the Labour Force 1980 -1995 160 A.2.1 The Size of the Labour Force 160 A.2.2 Labour Force Participation Rates 161 A.2.3 Changes in the Labour Force by Age and Gender 163 A.2.4 Regional Variations in the Development of the Labour Force 164 A.3 Labour Force Projections 1995 to 2005 164 A.4 Conclusions 166 Appendix B: The Structure of the Work Force 168 B.1 Employment in Denmark 168 B.1.1 Employment by Primary, Secondary and Tertiary Sector 169 B.1.2 Employment by Occupational Structure 170 B.1.3 Employment by Qualification Levels 170 B.1.4 Employment by Age and Gender 171 B.1.5 Job Creation by Firm Size 172 B.1.6 Employment by Regions 173 B.1.7 Conclusions 173 B.2 Unemployment in Denmark 174 B.2.1 The Unemployment Rate 1980-1995 174 B.2.2 Unemployment by Age 1980-1994 175 B.2.3 Unemployment by Gender 1980-1994 178 B.2.4 Unemployment by Skill Levels and Education 179 B.2.5 Unemployment by Occupation 181 B.2.6 Unemployment by Region 1980-1994 182 B.2.7 The Rate of Long-Term Unemployment 1980-1994 184 B.2.8 Other Aspects of Unemployment 187 B.2.9 Conclusions 187 Appendix C: Wage and Salary Trends 189 C.1 The Development in Nominal Wages 189 C.2 The Development in Real Wages 190 C.3 The Development in Wages by Gender 192 References 193 Executive Summary This study describes and analyzes the functioning of the Danish labour market. Unemployment has been the single most important problem which has confronted policy makers during the past two-and-a-half decades. Unemployment has remained high and has displayed an upward long-term trend ever since the early 1970s. Against this background, the report focuses on the question of unemployment, its nature, its causes and the contents and effects of policies which seek to lower structural or registered unemployment, or which otherwise directly or indirectly affect the functioning of the labour market. The following sections summarize the conclusions of the study. The Nature of Danish Unemployment Danish unemployment has remained at a high level during the 1980s and the first half of the 1990s. There are clear cyclical elements in unemployment: The recession of the early 1980s resulted in an unemployment rate of 10.3 per cent of the work force in 1983, after which a brief period of economic recovery caused a drop in unemploy• ment to 8 per cent in 1986 and 1987. In the period from 1987 to 1993, Denmark witnessed a steadily growing unemployment rate, with registered unemployment reaching a record high of 12.3 per cent in 1993. From 1993 to 1995 unemployment started to decrease again at a relatively steep rate, almost reaching 10 per cent during 1995. As of August 1996, the unemployment rate has dropped further to 8.9 per cent. Notwithstanding the cyclical elements in unemployment, the overall trend in the unemployment rate from 1980 has been upwards, with the unemployment rate unable to return to the level attained in previous economic upswings. This was most clearly illustrated in the economic upswing in the mid-1980s where shortages of skilled labour in specific sectors caused an overheating of the economy and high inflation, even if the overall unemployment rate was never below 8 per cent. In 1994, structural unemployment, defined as the level of unemployment which is consistent with unchanged wage and price inflation, was estimated to be as high as 8 to 10 per cent, implying that any attempt to reduce unemployment below this level would lead to accelerating inflation and hence be unsustainable. A relatively small group of persons carry the largest burden of unemployment in Denmark. Women, young persons, low-skilled workers, and persons with little or no education exhibit higher unemployment rates than other groups: Since 1984, the unemployment rate of women has remained 2.5 to 3 percentage points above that of men, with the result that for women a record unemployment rate in 1993 was almost 14 per cent.
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