Labour market reform agreed

In October 2002, the Danish parliament approved a government proposal for a labour market reform plan entitled 'bringing more people into employment'. The aim is to create a simplified single system of measures aimed at getting unemployed people back into work, to replace the previous dual system of separate provision for those with and without unemployment insurance. The Danish Employers' Confederation (DA) and the Confederation of Danish Trade Unions (LO) are generally positive over the reform, but the General Workers' Union (SiD) is very critical.

When the minority coalition government of the Liberal Party (Venstre) and Conservative People's Party (Konservative Folkeparti) came to office in November 2001 (DK0112147F), the new Minister for Employment, Claus Hjort Frederiksen, announced that he would fight against bureaucracy wherever it constituted an obstacle to flexible solutions on the labour market. One of the first steps in this direction was to bring together employment measures, including measures in relation to unemployed people, under a single new Ministry of Employment. Previously, measures to bring more people into employment had been divided between two ministries, the Ministry of Social Affairs – which was responsible for measures in relation to people who were not insured against unemployment - and the former Ministry of Labour - which was responsible for measures in relation to insured unemployed people. Non-insured unemployed people receive social assistance, while insured persons receive unemployment benefits through an unemployment insurance fund.

A new initiative launched in spring 2002, entitled 'Bringing more people into employment' (Flere i arbejde) represented a further step in the direction of a single labour market policy system to replace the former dual system for those with and without unemployment insurance. Over summer 2002, the Minister held negotiations over the initiative with the social partners, and in October legislation implementing this labour market reform was passed by parliament (Folketing) after a surprisingly short round of negotiations. The acceptance of the proposal – with a few adjustments – by the opposition Social Democratic Party (Socialdemokratiet) secured a parliamentary majority for the reform.

Quicker and simpler procedures

The 'job plan' introduced by the new legislation will contribute to an overall target of increasing employment by 87,000 people by 2010. According to the adopted text, the most important element of the job plan is a focus on the individual. The labour market measures used should depend upon the needs of the individual unemployed person, rather than whether the person concerned is insured against unemployment or not. The plan also aims to ensure that it will always pay to work (ie it will be more financially advantageous to work than to receive benefits) and that individuals will receive the appropriate services at the same place – the 'one-stop shop' principle. The main purpose of the proposal is to simplify and harmonise the rules on selection criteria for participation in various measures, contacts, placement activities, availability and sanctions. The main elements of the plan are as follows.

  • The distinction between the 'activation' activities (DK0110103F) undertaken by the municipal authorities in relation to people receiving social assistance, and the public employment service's activities in relation to people receiving unemployment benefits has been abolished. All unemployed persons will, in the future, be covered by an individualised tailor-made contact programme. The target group comprises both people receiving unemployment benefits and those receiving social assistance. During the entire period of their unemployment, there will be personal contacts with unemployed people at least every third month.
  • Offers of activating measures will be made only where this is likely to lead to a specific job. As a minimum, all unemployed people are to be 'activated' within six months.
  • Other actors will be involved in the job placement activities of the public employment services.
  • Unemployed people should be offered education or training as part of an action plan, for up to six weeks during the first 12 months of unemployment, or the first six months in the case of young people.
  • The distinction between the period of receipt of unemployment benefit and the 'activation period' has been abolished and replaced by a single benefit period of four years, within a reference period of six years.
  • The amount of social assistance is reduced for all groups, with the aim that it will become more financially attractive to accept a job. The ceiling is now between 60% and 80% of the maximum rate of unemployment benefit, depending upon whether the person concerned is married, has a partner or is single. Here the government made a concession, as it has been guaranteed that the social assistance received by a family may not be reduced by more than DKK 2,500 (EUR 337) per month.
  • A 'job bank' is to be established on the internet, with which unemployed people will have to register their CVs, with a view to facilitating access to data about jobs and bringing the unemployed back into employment more quickly.
  • Taxation on labour will be reduced in a longer perspective.

LO and DA satisfied with reform

The Danish Employers’ Confederation (Dansk Arbejdsgiverforening, DA) is, in particular, pleased to note that concrete steps are now being taken to ensure that work will pay for people on social assistance. DA also finds it very important that the reform introduces a coherent single system for both people receiving social assistance and those receiving unemployment benefits. DA welcomes the clear focus on ensuring that all activation measures are targeted on the labour market and is satisfied with the broad political support for the reform.

The Confederation of Danish Trade Unions (Landsorganisationen i Danmark, LO) also expressed satisfaction with most elements of the reform. LO welcomes the increased focus on the situation and qualifications of the individual unemployed person and the shift in focus from activation to employment. It is particularly important for LO that the new measures aim to achieve a net increase in the number of employees in cases where unemployed people are recruited on the basis of a wage subsidy - the additional subsidised workers must not displace other workers. LO is not in favour of fixing a ceiling for social assistance, as it believes that this may have more harmful effect for families than intended.

However, the General Workers’ Union (Specialarbejderforbundet i Danmark, SiD), the second-largest affiliate of LO, has expressed its dissatisfaction with the reform. SiD believes that the proposal is mainly based on a liberal political ideology and that the increased financial incentive to work actually masks cuts in social assistance payments, and can be seen as an expression of a belief that unemployed people are not seriously seeking work. The reform will, claims SiD, reduce the possibilities for unemployed and unskilled workers to upgrade their qualifications.

Commentary

The aim of the reform is, in the short terms, to bring 20,000 more people into employment. In addition, integration measures and the training system are to increase the labour force by 87,000 persons by 2010. Some economists believe that this is an overly optimistic objective, and that even if the target is achieved, it will not be sufficient. They estimate that more than 100,000 more people are needed in employment by 2010, and the question is whether the proposed labour market measures will significantly increase total employment. It is difficult to provide reliable figures as to how many unemployed people are actually capable of and willing to take a job, even with a ceiling placed on the amount of social assistance.

Other critics argue that the incentives in the reform – ie that it should pay to work – are not sufficiently targeted upon securing more income for those who work, but rather on ensuring a smaller income for those who do not work. A measure which would be useful in this respect might be a higher threshold for income tax, so that it would become clear for all that it pays to work rather than being on social assistance. However, the tax question is a difficult point in the new plan. It is the government’s ambition to reduce taxation on labour in the longer perspective. However, financial experts have pointed to the fact that the burden resulting from the growing number of elderly people will make it impossible to reduce the level of taxes. On the contrary, it may turn out to be necessary to examine the benefits for elderly persons, the early retirement system and pensions, if the government really wishes to increase the labour force. For the time being, the government has no such plans. Politically, the early retirement scheme is a very 'hot potato'. The image of the previous Prime Minister suffered seriously when he introduced the most recent reform of the early retirement scheme (DK9812197F). (Carsten Jørgensen, FAOS).

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