Denmark: New reform targets unemployment

On 16 June 2014, employment reform to promote flexibility and encourage a high employment rate was agreed by the Danish parliament. The aim is to ensure that businesses get the workers they need, and the unemployed can improve their skills and qualifications. The reform will come into force fully by 1 Jan 2017 and is expected to boost the Danish economy.

On 16 June 2014 employment reform was agreed by the Danish parliament with a broad majority that included the government (the Social Democrats and the Social Liberals), the Liberals, the Conservatives, and the Danish People’s Party.

The purpose of the reform is to promote flexibility in the Danish labour market and to maintain a low unemployment rate and high employment. It affects only unemployed people who are insured and who are therefore members of an unemployment fund, unlike the uninsured who rely exclusively on public benefits.

The reform was prompted by widespread consensus in Denmark that the employment system is not efficient enough. The political parties agreed on the need to scrap job ‘activation’ strategies that have had little or no effect. Instead there is agreement that the focus should be on real job guidance and individual consultation for unemployed job seekers.

The employment system has been heavily debated in Denmark for the last four years since a major reform in May 2010 that, among other changes, reduced the insurance period from four to two years. There have been several political initiatives in this area over the past few years, such as temporary labour market benefits for the unemployed and publicly funded flexible working hours.

Implementation of this reform began in the summer of 2014. Legislation is currently being drafted, and is set to be ready before January 2015. The reform will be fully implemented by 1 January 2017.

The reform aims to ensure that:

  • more unemployed individuals find permanent employment as soon as possible;
  • the unemployed receive individual, meaningful and job-relevant assistance;
  • the unemployed get the opportunity to raise their educational level, if needed;
  • the education of the unemployed targets those with the most urgent need and the business sector’s demand for labour;
  • business service and job intermediary is a core task in the Danish Jobcenters (the public jobs intermediary, providing job offers and monitoring unemployed people’s efforts to find work), to ensure that the business sector gets the labour force it needs;
  • rules and bureaucracy are reduced to secure a higher degree of freedom for municipalities, switching the focus to results instead of processes.

The goals are to be achieved through several new initiatives. The most important are described below.

Main provisions of reform

Individual and early assistance

The reform focuses on the ‘rights and obligations’ of the unemployed.

It is now both their right and obligation to attend a 'dialogue meeting' at their unemployment fund. The unemployment fund reviews and approves the unemployed individual’s CV. In the first six months, the unemployed person is obliged to attend a follow-up meeting at the Jobcenter every month.

Unemployed people now also have the right and obligation to participate in one activity, either education or job training. The activity must be offered by the Jobcenter within the first three to six months of unemployment, depending on the unemployed person’s age. Previously the unemployed were obliged to take part in one of these activities in each six month period of unemployment, but now this is mandatory only once in the whole unemployment period. This provision has been received very positively by the Danish Federation of United Workers (3F) and the Danish Chamber of Commerce (Dansk Erhverv).

A chance to reach a higher education level

The new reform also focuses on education. The reform provides those with fewest qualifications the opportunity to raise their education level, based on their prior education and the demands of the business sector. They will be able to choose from a new list of courses based on existing adult vocational training programmes (AMU). Together, the Jobcenter and the unemployed individual decides if he or she should be offered a course and which one, although the course cannot last longer than the two-year insurance period. While training or studying, the unemployed person will be paid up to 80% of unemployment benefit (dagpenge).

Adult trainees

Since 2008, Denmark has had a special apprenticeship offer for adults over 25. The programme compensates businesses that take in an adult trainee at DKK 30 (roughly €4) an hour. The new reform raises compensation to the employers to DKK 40 (roughly €5.30) an hour and the business can receive compensation for the full training period.

Courses in reading, writing and maths

'Unskilled' and 'uneducated' unemployed people will be tested in reading, writing and mathematics. Numeracy and literacy courses will be offered if needed by the Jobcenter. The courses will be within the existing adult education system alongside education for dyslexics (OB) and pre-vocational education (FVU).

More individual responsibility and job readiness

The new reform will place responsibility on the unemployed individual to actively apply for jobs and ensure their constant availability to undertake work. The unemployed person will fill in an interactive joblog either from home or in the Jobcenter. They will be able to book meetings with the Jobcenter through the log and will be responsible for booking counselling meetings with the Jobcenter. At the same time Jobcenters will be able to ensure that the unemployed person is active on the joblog and if they do not remain active, the Jobcenter has the authority to take away some of their benefits.

Better service for business recruiters

The reform contains some measures to increase the service level provided by the Jobcenters to businesses to help them recruit new employees. This includes new cooperation across the municipalities to establish a single point of contact for larger companies, which is expected to make the recruitment of new employees more efficient. This has been acknowledged by the Danish Chamber of Commerce (Dansk Erhverv), but the Danish Confederation of Trade Unions (LO) is not drawing attention to this part of the reform in their official statements. This could be a sign that they do not support this part of the reform.

Reform of wage subsidy system

The existing wage subsidy system for unemployed people in temporary jobs in both the public and private sector is reduced from up to 12 months to up to six months and the subsidy to public employers is reduced by a nominal amount. The intention is to refocus the wage subsidy to encourage its use as a way of helping people get jobs with normal terms and conditions.

The two existing job rotation programmes will be reformed, so the period of job rotation is reduced from 12 to six months. At the same time compensation from the government to the municipalities is reduced from 100% to 60% of the full cost of the job rotation. The intention is to target those among the unemployed who need the programmes’ assistance most. Financing has also increased by DKK 200 million (€26.7 million).

More freedom and less bureaucracy for the municipalities

By digitalising and simplifying legislation, the administrative burden on municipalities will decrease as a result of the reform. This is expected to move the focus of employment administration from rules and processes to results.

Economic impact of the reform

According to the Ministry of Employment, from 2020 the reform is expected to contribute DKK 80 million (€10.7 million) a year to the Danish economy. The surplus will be created by getting more people into work as an expected result of the new reform.

Commentary

The subject of getting unemployed people into work is heavily debated, both in the political and public sphere. There is consensus that the employment system needs reform. Whether this reform will be sufficient to silence critics is yet to be seen. The reform is expected to create a more flexible employment system that meets business demand for labour and upgrades the education level of the workforce. The reform is not a revolution in the employment system and labour market, but is to be seen as an adjustment of the Danish model. Time will tell if the good intentions and the new initiatives will create more jobs and a better employment system in the future.

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