Globalisation and flexicurity

Torben M Andersen Department of Economics Aarhus University

November 2016 Globalization

• Is it Incompatible with

– High employment

– Decent wages (no working poor)

– Low inequality

– Extended state Nordic experience

• Routinely classified as ”small, open economies” = highly globalised

• Welfare model developed in a globalised environment; – Common understanding – need to be ”competitive”

• Not politics against markets

• The model depends on maintaining a high employment level -Ambitious distributional goals Globalisation and competitiveness

Globalisation Ease of doing Competitiveness KOF‐index business World Economic World Bank Forum 7 3 12 Finland 11 13 8 Norway13611 Sweden 8 9 9

# countries 204 189 140 Cross country performance

Tax burden: 25% vs 50 % of GDP Trade share: 20% vs 50‐60% of GDP

45000

40000 $ [CELLRANGE] [CELLRANGE] US 35000 [CELLRANGE] [CELLRANGE][CELLRANGE][CELLRANGE]

[CELLRANGE] [CELLRANGE] [CELLRANGE] 30000 [CELLRANGE][CELLRANGE] [CELLRANGE] PPP [CELLRANGE]

[CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE][CELLRANGE] [CELLRANGE] 25000 [CELLRANGE] [CELLRANGE] [CELLRANGE] 20000 [CELLRANGE][CELLRANGE] income, [CELLRANGE] [CELLRANGE][CELLRANGE] 15000 [CELLRANGE] [CELLRANGE]

capita 10000 [CELLRANGE]

[CELLRANGE]

Per 5000

0 0.6 0.62 0.64 0.66 0.68 0.7 0.72 0.74 0.76 0.78 0.8 Income equality: 1‐Gini : Employment dependent model • High tax burden + generous transfers

• Budget very sensitive to the employment level

• Financial viability presumes a high employment level

• Also crucial for living standards, per capita income etc. Employment over the life cycle

100 Employment rate 90

80

70

60

50

40

30

20

10

0 15‐19 20‐24 25‐29 30‐34 35‐39 40‐44 45‐49 50‐54 55‐59 60‐64 65‐69 70‐74

Minimum Maximum Denmark Norway Finland Sweden Low inequality – labour market outcomes are crucial

Inequality 30 above 25 average 20

15

10 average 5 from

0

‐5

‐10 deviation

% ‐15

Inequality ‐20 below ‐25 average NOR DNK FIN SWE NLD GER FRA CAN ITA NZL AUS JPN UK ISR USA MarkedsindkomstMarket income OmfordelingRedistribution Total The Danish flexicurity model

Lax hiring and Combining flexibility and firing rules (EPL) security

Maintaining job search incentives

Maintaining human Generous Active labour unemployment market policy capital insurance (UIB) (ALMP) Unemployment

12

10

8

% 6

4 Low youth unemployment

2 Low long‐term unemployment

0 2000 2003 2006 2009 2012 2015 Denmark OECD EU Main characteristics

• High level of job- 35

turnover 30

• Many affected by 25

unemployment, but 20 most unemployment 15 employment

spells are short of

% 10 • Low long-term unemployment 5

0 1999 2003 2007 2011 2015 • Easy entry for young Inflows to jobs Outflows from jobs Labour market transitions – one quarter

100 90 80 70 60 50 40 30 20 10 0 Italy Spain Latvia France Cyprus Poland Ireland Austria Greece Finland Estonia Norway Sweden Bulgaria Slovakia Slovenia Hungary Portugal Republic Romania Kingdom Denmark

Lithuania

Switzerland Netherlands Luxembourg Czech United Unemployment‐ employment Unemployment ‐ unemployment Unemployment ‐ inactivity Large adjustments across sectors Denmark during boom (2005.1-2008.3) and recession (2008.1-2009.3)

25

20

15

10

5

0

‐5

‐10

‐15

‐20

Increase Decrease Perceptions – jobs and globalisation

Your personal job situation Globalisation 0.5 0.8 0.45 0.7 0.4 0.6 0.35 0.3 0.5 0.25 0.4 0.2 0.3 0.15 0.1 0.2 0.05 0.1 0 Very Rather Rather Very bad Don't 0 Globalisation Globalisation Don't know good good bad know represents a good represents a threat opportunity for to employment and DK EU (NATIONALITY) companies in (OUR companies thanks COUNTRY), to the opening‐up of markets, DK EU Education and qualifications

Strong focus on Indicator life‐long learning education: 40

35

• Public education 30

system 25

20

• Labour market training 15

(life-long learning) 10

5

• Flip-side: ressource use 0 Italy Spain Malta Latvia France Cyprus Poland Ireland

– Education: 6.1% of GDP Austria Greece Croatia Iceland Estonia Finland Norway Sweden Belgium Bulgaria Slovakia Slovenia Hungary Portugal Republic Romania Kingdom Denmark

Lithuania

Germany Switzerland Netherlands – ALMP: 1.8% of GDP Luxembourg Czech United Labour market and qualifications

• Close link between 100 education and 90 – Employment rates 80 Globalisation – Wages 70 New technology …. 60

– Retirement % 50

– Health 40 Policy 30 response • Education and labour 20 market policies - crucial for 10

distributional objectives! 0 Low Medium High

• Important to ensure a high BeskæftigelsesandelEmployment share qualification level for the Andel af arbejdsstyrken entire labour force Share of work force Conclusions

• Globalization has not • Not a ”crisis”-free model implied a retrenchment of welfare arrangements • Need to continously adjust labour market policies • Flexicurity: – Employment remains high • Challenge: to reduce fraction of youth without – Few working-poor labour market relevant education – Copes with large adjustments in the labour market

– ”Active” policy approach • Active labour market policies • Education/live-long learning