Third reform of labour market policy is underway

Denmark's Ministry of Labour held tripartite talks on 17 September 1998 on the basis of a document setting out possible adjustments to present labour market policy, released in August. The talks will serve as a basis for legislative proposals from the Government in October 1998

Adapting to changes

As a consequence of the high level of unemployment at the beginning of the decade and the record low unemployment rate at the end of it, Danish labour market policy has been adjusted several times during the 1990s, first in 1994 and later in 1996.

Together with the favourable labour market conditions in the mid-1990s, the reforms have resulted in a 45% decrease in the unemployment rate and a reduction of more than 50% in the number of long-term unemployed people. As the high level of demand for labour will continue due to expected economic growth, and since the unemployment rate over the last four years has dropped from 12% to 6.6% (1998), emerging shortages of labour and demographic changes today challenge the existing structures and policies of the labour market.

According to the Ministry of Economic Affairs, the total number of employed persons is expected to rise by 47,000 in 1998 and by 21,000 in 1999, increasing the total number of persons employed by 200,000 compared with 1994. The number of unemployed people is forecast at 190,000 (equal to 6.6% of the workforce) in 1998 and decreasing further to 180,000 persons (equal to 6.2% of the workforce). A new government policy document, Denmark - year 2005, sets an an objective of increasing employment by an additional 200,000 persons, thereby reducing the unemployment rate to 5% (3% according to the EU definition), which is considered full employment.

The table below sets out a number of key figures, trends and forecasts for the Danish labour market.

Key figures and forecasts for the Danish labour market, 1994-9
1994 1995 1996 1997 1998 1999
Labour force (000s) 2,869 2,854 2,844 2,878 2,895 2,906
Employment (000s) 2,526 2,566 2,598 2,658 2,705 2,726
Private sector 1,757 1,797 1,814 1,853 1,891 1,906
Public sector 769 769 784 804 814 820
% change in total employment -0.3 1.6 1.3 2.3 1.8 0.8
Unemployment (000s) 343 288 246 220 190 180
Persons on early retirement (000s) 119 138 167 171 173 176
Persons on leave (000s) 51 82 63 47 38 34
Unemployment rate (%) 12.0 10.1 8.6 7.7 6.6 6.2
Unemployment rate, EU (Eurostat) definition (%) 8.2 7.2 6.9 6.1 5.1 4.9

Source: Ministry of Economic Affairs, Economic Survey, June 1998.

Setting the agenda for change

In autumn 1997, the Government established a committee of experts, the so-called "2005 committee", entrusted with the task of listing possible adjustments to labour market policy which could meet the employment objectives outlined in the Denmark - year 2005 plan. The point of reference for the work of the committee - ie the future content of the active labour market policy - had four overall objectives:

  • improving the skills of, or offering new qualifications to, unemployed people so as to match companies' demand for qualified labour and thus avoid bottlenecks and ensure that unemployed people can take up an ordinary job or enter education;
  • strengthening the availability of unemployed people by stressing that they are obliged either to find a job or take part in the "activation" measures offered by the public employment service;
  • motivating unemployed people to look for jobs or vocational training on their own initiative; and
  • helping prevent marginalisation by ensuring that unemployed people at risk of losing their connection with the labour market are offered activation measures which suit their specific needs.

The committee published its recommendations - based on a a comprehensive status report published in May 1998 (Status for arbejdsmarkedsreformerne) - on 24 August 1998. The key points of the document (Videreførelse af den aktive arbejdsmarkedspolitik) are as follows:

  • a right and obligation to "activation" at an earlier point for unemployed people. This should apply to all unemployed people within their first year of unemployment, and within the first six months for all young persons under the age of 25;
  • the use of more individual criteria to select the target groups for early flexible activation and a strengthening of the contact between the public employment service (Arbejdsformidlingen) and unemployed people;
  • improving activation measures, especially for the groups of unemployed people in the weakest position (long-term unemployed people, older people and people from ethnic minority groups);
  • improved education and vocational training for unemployed people; and
  • greater availability for work/activation of unemployed people and improved control of this availability.

New tripartite forum established and talks begin

On 31 August 1998, the Government established a formalised tripartite body, whose overall purpose is to serve as a forum for the development of a common understanding of the need for long-term structural adjustments caused by economic internationalisation and for addressing other challenges to the Danish welfare system. With a view to strengthening job creation and increasing real wages, the Government emphasises in particular the need to develop a common understanding of developments in Danish competitiveness. Initially. the new forum will be used for tripartite talks on the reform of active labour market policy. Thereafter, tripartite talks will continue on a range of other themes, such as the interplay between working life and family life, a "labour market for all" and collective bargaining issues.

The first tripartite talks took place on 31 August. At the second tripartite meeting, which took place on 17 September, two working groups were established, dealing with: statistics relating to competitiveness; and the reform of labour market policy. The second working group had until 24 September 1998 to discuss the proposals put forward by the "2005 committee", which the Government will consider before issuing legislative proposals at the opening of the parliamentary session on 6 October 1998.


Contrary to the traditional modus operandi, the social partners have been less directly involved than usual in the process of this labour market reform. Their involvement has not gone any further than the submission of written proposals to the "2005 committee". The solo approach of the Government seemingly reflects a wish to avoid a situation whereby the agenda and the proposals presented and tabled for subsequent tripartite talks, are too "compromised", reflecting the various interests at stake. The question of time also seems to have played an important role: with the major industrial conflict which lasted for 11 days in April-May (DK9805168F), followed by a general election and an referendum on the Amsterdam EU Treaty, 1998 has been a busy year for both the Government and the social partners. Increasing wages, partly due to looming labour shortage, and a pressing need to adjust labour market policy are the reasons why the Government wants action. This action can be successful only if the social partners live up to their responsibilities.

For the social partners, the need to be involved is more important than ever. With the last decade of decentralised wage bargaining, the confederations of trade unions and employers are in the process of redefining their identity and legitimacy as important political actors at the central level. That this is the case is underlined by the fact that the Danish Confederation of Trade Unions (Landsorganisationen i Danmark, LO) has on several occasions stated the importance of including the social partners in talks on matters of importance for them. In fact, LO has presented the government with a choice: if it includes the social partners, the latter will be constructive participants; if not, the partners will have to behave as straightforward interest organisations with narrow objectives.

It is still too early to say what role the Government will assign to the social partners. Evidently the Government can chose to assign a purely advisory and "legitimising" role to the social partners, thereby achieving a better basis for legislation. Alternatively, it can assign a negotiating role to the social partners, whereby it will create "co-responsible" partners, which can take on the responsibility of finding solutions to the social and economic issues on the agenda. (Kåre FV Petersen, FAOS)

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