Flexicurity – a working model for Europe?

Before moving in to the nitty-gritty of flexicurity; what it is and whether it can work as a universal European labour market model I should take the time to thank the AFOE team for allowing me a spell as a guest-writer here at the blog in the coming two weeks. In terms of presentation my name is Claus Vistesen and I am a Danish student at the BLC program at Copenhagen Business School. For further info I invite you to visit my personal blog Alpha.Sources, which deals with a wide range of topics of my interest.

There is a lot of talk and flurry at the moment about labour market reforms in Europe, notably in France, but also Germany has been struggling with how to reform the labour market and here as well as here.

Looking to the north we find the Nordic countries who seemingly have the best of two worlds; low uemployment coupled with a high degree of security but what is it exactly that the Nordic countries are doing, and could others potentially follow their example?

I have a lot of sources both academic and journalist describing and discussing the Nordic labour market regime called flexicurity, so in order not to spam you with info and quotes (will probably do it anyway :)) I have included one quote from an article by EurActiv.com which pretty well sums up the idea of flexicurity.

The concept of flexicurity rests on the assumption that flexibility and security are not contradictory, but complementary and even mutually supportive. It brings together a low level of protection for workers against dismissal with high unemployment benefits and a labour market policy based on a right for the unemployed to retraining. The concept of job security is replaced by employment security. Social dialogue between employers and employees is an important aspect of the flexicurity model.

For further sources I recommend you see these two posts by NewEconomist, here and here. They provide some very relevant info.

Returning to the Nordic labour markets, let us try to list some of the positive things concerning the flexicurity regime. Well, the most obvious and direct effect the system has is indeed to combine a very flexible labour market with a low unemployment rate. It also shows in the measure of business attractiveness where for example Denmark is number one in the latest release from the Economist Intelligence Unit. Furthermore it stands out that even though workers themselves are not protected only one out of ten workers express concern over job security.

What about the negative sides then? Well, obviously this protection scheme is a heavy financial burden of society as it is the government who essentially picks up the tap for allowing business to regulate the labour pool.

The crucial question clearly remains whether this flexicurity regime is exportable to for example France and Germany which are both experincing and struggling with high structural umemployment rates. On this, which probably will be the main venue of comments, I am inherently sceptical because I believe it raises the classic question of the chicken and the egg. Countries are different not least because of their social models of economy and government which also transcends into cultural and historical legacies. This means that what works in one country does not necessarily work in another precisely because they are different. However, this should not deter us from the fact that the Nordic countries seems to have found a way out of a high structurel unemployment rate which is something Germany and France have not. In this light cherrypicking the virtues of the Nordic model might be worth while for some European countries, it is the how which will proove the big challenge as I see it, but you might have a different view?

16 thoughts on “Flexicurity – a working model for Europe?

  1. According to those on the ground, Denmark is not attractive, and Westerners are leaving with their feet….and as a business owner, it may have a nice work setup, but there is no way that I would move my business there. Costs are too high and the reputation of the country is way too bad.

    From the Copenhagen Post 19.08.2005

    For the first time in 25 years, foreigners moving from the country outnumber new immigrants

    Foreigners are finding Denmark a less attractive land to live in, new statistics suggest. For the first time in 25 years, foreigners moving from the country outnumbered new immigrants in the second quarter of the year.

    National statistics bureau Statistics Denmark said 5,298 foreign citizens moved out of Denmark in the period, while only 4,983 moved in. Most of the people who left Denmark were immigrants from western countries, national daily Jyllands-Posten reported.

    The biggest increase was reported among US citizens holding residency permits in Denmark. Nearly 600 Americans moved out of the country in the second quarter of 2005, compared with only 200 in the same period last year….Radical liberal MP and spokesman on immigration issues Morten Østergaard, said the development was a result of Denmark’s strict line on immigration.

    ‘Not only are fewer getting in, but many are leaving Denmark as well. If Denmark is to attract foreign workers, changing the immigration policy is essential,’ he said.

    The Danish People’s Party’s spokesman, Jesper Langballe, said the policy was needed to restrict immigration from non-western countries.

    ‘But it’s regrettable to lose the Americans and Western Europeans, who can contribute a lot to our society. They’re not the ones creating trouble, but the Muslims,’ Langballe said.

    Integration Minister Rikke Hvilshøj said she did not find the statistics surprising, given the government’s immigration policy.

  2. I´m surprised that Claus doesn´t mention the recent report to the government concerning the future of Denmark´s welfare state.

  3. “‘Not only are fewer getting in, but many are leaving Denmark as well. If Denmark is to attract foreign workers, changing the immigration policy is essential,’”

    This is obviosly one of the flip sides of this issue and there is consequently no doubt that Denmark’s immigration policy and general reputation following the cartoon flurry act as a counterbalance to the attractive business enviroment fostered by our labour market.

    “I´m surprised that Claus doesn´t mention the recent report to the government concerning the future of Denmark´s welfare state.”

    I better mention it then :). The report you are talking about was prepared by the so-called welfare-commission to present a framework for a welfare reform. Incidentally this reform was presented yesterday and will be negotiated during the next couple of weeks. From the commission’s pov the release of the report a couple of months ago was dissapointing in the sense that they were snubbed by Anders Fogh and his government. I would also suppose that the final reform is quite watered down compared to the commission’s suggestions; this is a recent event so I can’t be very clear. Moreover the issue has been, quite naturally, politisized which makes the outcome even more difficult to predict.

    In many ways the welfare reform is all about demographics; i.e the government is “stretching” our stay on the labor market. The ratio of “old” people to “young” people is getting bigger and as a consequence students need to get quicker through the education system and the age of retirement is pushed two years. The question is … will this help?

    There is also an objective to get 25.000 more immigrants into a job by 2010 which is more a question of integration as it is about the general employment rate.

    And a lot more … 🙂

    In the end I think the proposal is very watered down. I for one would have liked to see some action on taxes where we have a very high marginal tax. Furthermore, I don’t like the narrative on immigration where we are skimming the inflow so that anything below graduate or PhD level (not litterally but you get the picture I hope) is stopped at the border.

  4. ‘But it’s regrettable to lose the Americans and Western Europeans, who can contribute a lot to our society. They’re not the ones creating trouble, but the Muslims,’

    This is hardly the main issue, but it is interesting. What people like Langballe seem to fail to appreciate is that it may very well be the attitudes of people like himself who consider muslims as ‘creating trouble’ (and the atmosphere that all this xenophobia produces) which makes Denmark a less than attractive destination for outsiders whatever their religion or ethnic origin.

    The numbers shown here really are a cause for concern as to some extent Denamark, like other European countries, needs to attract migrants on all levels. In particular (and this would seem to be the main point of the post) since raising participation rates further may be more difficult given that participation rates are already high.

    So the choice would seem to be either raise retirement ages more rapidly than other EU societies are contemplating, or get more immigrant tolerant.

    The tax wedge point also seems interesting as it raises the question of how sustainable all this is going forward.

  5. The numbers shown here really are a cause for concern as to some extent Denamark, like other European countries, needs to attract migrants on all levels

    On all levels? Pension problems would suggest that we need immigrants making a positive contribution to public finances, which implies certain requirements for those immigrants in the fields of age, education and language.

  6. “On all levels? Pension problems would suggest that we need immigrants making a positive contribution to public finances, which implies certain requirements for those immigrants in the fields of age, education and language.”

    This is certainly the view taken by for example Danish politicians. I.e. we only want immigrants who contribute to finance our welfare society.

    There are two narratives here;

    The one where you acknowledge that immigration is needed as an important (the only?) source of population growth. In this case I believe it is highly unlikely that you can skim off immigration the way Denmark
    wants to do.

    The second narrative divides immigrants in skilled and unskilled and is thus exactly about skimming immigration. However, the fact remains that by doing this the net inflow will remain negative; why? Quite simply because as much as we want to attract brains we are losing them as well. There will always be competition for the best brains but this has little to do with the broader population growth via immigration issue. In fact as Thomas Kooten noted on Demography.Matters lately we might even see a competition in the future in the field of immigration of a more general nature.

    When it comes to almost all politicians they go for the former rather than the latter narrative.

  7. The one where you acknowledge that immigration is needed as an important (the only?) source of population growth.

    Population growth in itself is a stupid goal. We are fearing the consequences of a sudden poulation drop, not the simple numbers. The crisis cannot be cured simply by getting warm bodies. There must be a point where additional people become a burden, not a benefit.

    In this case I believe it is highly unlikely that you can skim off immigration

    Why? Strictly speaking an immigrant should strive to go to the countries that barely admit him. There’s no benefit to him in allowing less qualified (unrelated) people to immigrate.

    It seems to me that you have too little incentive, not too high a standard. Someone else is getting the best people? Why? Probably not because they take everybody.

  8. But here’s the thing…. I don’t mind paying in if I’m going to get back out, etc. But as a talented non-EU citizen, I take one look at Denmark’s policies and say “No Way!” Heck, I don’t even want to visit the place. Yes the restrictions are to prevent welfare scroungers, but the side effect is that the brains are leaving/ not coming. That includes EU citizens.

    Flexicurity may be a good idea for a homogenic local population, and Germany and France sure do need some shaking up. But both of these countries rank behind the UK in attractiveness to talented migrants. How is Denmark supposed to compete?

    If there is job creation and career prospectives in a country, then a non-xenophobic immigration policy will help bring that talent. Otherwise, you’ll get the third- and fourth-stringers who can’t go anywhere else.

  9. Talented foreigners depress the wages of native people while “untalented” foreigners increase the wages of “talented” natives.
    If i were a semi talented native i would choose the Swedish model, in which you let in the untalented immigrants, over the (fictional) British model, in which you let in the talent immigrants.
    I wouldn’t choose the Danish model (network effect is very important in the economy and a shrinking population has a really bad effect on wealth because real estate prices dive)

  10. What is wrong with my model?

    Is it the wage thing? I know that a lot of economist believe that importing foreigners will boost the economy so much that everybody will earn more. Don’t even know if they are incorrect. But with wage i not only meant the amount one can consume but also the status one has and importing talented foreigners will absolutely depress the status of many of the natives.

  11. “There must be a point where additional people become a burden, not a benefit.”

    Obviously, this is very true Oliver. My point is that (this goes especially for Denmark I think) politicians are very well aware of the demographic realities of the future. An ageing population with fewer people to support more. This makes politicians think about financing our welfare systems and the solution is very simple, at least so it seems, as I have said earlier; stretching the time a person spends in the workforce. Another point here is that no politician dare wave the idea that welfare has to go down on account of structural demographic changes in our society nor would it be popular to say to my generation that we need to pay higher taxes.

    What is missing here is obviously that while we can all recognize that pension age needs to go up with some kind of proportion to life expectancy then few of us (politicians that is) realize that they might very well have a declining population at their hands at some point. Immigration becomes crucial here and for example Denmark’s almost structural xenophobia, because of 8 years with The Danish People’s Party calling the shots on immigration, means that no politician would dare to say that we need to ease immigration rules because of a declining population.

    I am obviously not saying politicians are stupid by default but in Denmark at least they are locked in so that easing up on immigration will be very hard in the future even if the need to do so might be very clear.

    I do no support opening up the gates so that all people can wander in but in a world where western societies´populations are declining you want to be a place where people are inclined to go.

    “But here’s the thing…. I don’t mind paying in if I’m going to get back out, etc. But as a talented non-EU citizen, I take one look at Denmark’s policies and say “No Way!” Heck, I don’t even want to visit the place. Yes the restrictions are to prevent welfare scroungers, but the side effect is that the brains are leaving/ not coming. That includes EU citizens.”

    Clearly Hans your point is one which is very important when it comes to Denmarks international rayonnement sort to speak. On a whole I think Denmark remains a very attractive place to do business but admittedly our reputation is not good vis-a-vis the Muhammed controversy.

  12. “There must be a point where additional people become a burden, not a benefit.”

    It takes an awful long time before consumers become burdens

    “pension age needs to go up with some kind of proportion to life expectancy“

    Which life expectancy. At birth or at the start at the working age. The first has increased a lot. The second only a little. Besides the unaffordability of pensions has more to do with an increase in the average age women get their children (the main reason for a shrinking population) than with an increase in life expectancy at the start of working age.

  13. “On a whole I think Denmark remains a very attractive place to do business but admittedly our reputation is not good vis-a-vis the Muhammed controversy”

    Quite contrary. The reputation of Denmark has significantly improved. The visceral hatred of the bigoted Mohamed-worshippers to the Western civilization is another thing.