Government liberalises unemployment insurance funds

From September 2002, a new law permitting cross-sector unemployment insurance funds in Denmark - in addition to the existing trade union-run sectoral funds - has made it possible for employees to choose freely between funds. The result will be increased competition for members between funds, which may lead to structural changes and a 'price war'.

Since coming to office in November 2001, the minority coalition government of the Liberal Party (Venstre) and Conservative People's Party (Konservative Folkeparti) has focused on the theme of 'free choice' (DK0112147F). Indeed, the Prime Minister, in his new year speech, declared 2002 to be 'the year of freedom'. In the labour market area, this liberal philosophy has taken the form of increasing mobility and flexibility, and the government has taken steps such as removing barriers to part-time work (DK0206102N) and banning closed-shop agreements (DK0207103F). The latest development is new legislation adopted in June 2002, which came into force on 1 September, allowing the creation of cross-sector unemployment insurance funds (UIFs) (DK0204101N). Existing UIFs, which are administered by trade unions, are based on individual sectors.

The minister of employment, Claus Hjort Frederiksen, has stated that he expects most people to remains in their sectoral UIF, but highlighted the importance of giving employees the choice of joining a new cross-sector fund.

The new law means that the former atmosphere of peaceful non-competition between the current 34 UIFs has been broken. The new law not only gives workers a possible incentive to 'shop around' for a cheaper UIF, it also puts the funds in a new competitive situation, with the possibility of 'stealing' each other’s members. This situation will most likely put pressure on contribution rates and enhance the need for more transparent and comparable services.

Trade union opposition

The new law was opposed by trade unions and the sector-based UIFs which they run. In an attempt to prevent the new law from being passed by parliament, they produced a series of opposing arguments. The Danish Confederation of Trade Unions (Landsorganisationen i Danmark, LO) rejected the need for new unemployment funds, referring to the UIFs' record of making few mistake and the members' widespread satisfaction shown in several surveys. The LO-affiliated Union of Commercial and Clerical Employees(Handels- og Kontorfunktionærernes Forbund, HK) - which runs Denmark's largest UIF, with 322,000 members - described the idea that the new law would increase mobility and flexibility as an illusion. It stated that people are already moving between UIFs as they find new jobs, without the funds holding them back in any way. HL also expressed concern that the law would most likely redirect UIF members’ focus to the price (ie the contribution rate) rather than the actual product (ie the benefits and services offered).

LO also argued that wider-ranging cross-sector unemployment funds would be in a worse position in trying to help unemployed people back into work than the sector-based UIFs. The cross-sector funds would lack sector-specific knowledge of training options, job development possibilities and working conditions, not to mention the vital connection to primary actors such as companies and related trade unions. Further, LO expressed concern about the possibility of organisations trying to establish themselves as UIFs without the right preconditions or honest intentions.

The new law has also increased the number of members that UIFs are required to have. The number has been raised from 5,000 to 10,000, with immediate effect for new funds and by 2007 for already established funds. LO states that this change will hit even some well-functioning UIFs with close relations to their specific sector. The law could force them to close down or merge by 2007, for no reason other than obeying the law.

Immediate reactions

After the law was passed in June, LO immediately tried to counter its effects by making a common response. Its 17 member unions agreed that they would continue to operate their UIFs on a sector-specific basis for at least a year. This unity, however, soon lost some of its force as the state and telecommunications workers' unemployment insurance fund (Stats- og Teleansattes Arbejdsløshedskasse, STA) - run by a number of LO unions - started work over the summer on becoming a cross-sector fund. Although STA stated that this was not a breach of the agreement among the LO unions, as it will not adopt its new cross-sector status until March 2003, there is little doubt that STA has damaged the spirit of solidarity in LO.

As a result, similar initiatives have been taken by other UIFs. The public employees' unemployment insurance fund (Offentligt Ansattes Arbejdsløshedskasse, OAA) obviously felt that it was forced to follow the lead of STA, given that the two funds' memberships are closely related, and OAA members might be tempted to move to the cheaper STA.

Commentary

The battle for members among unemployment insurance funds has apparently already begun as a result of the new law on cross-sector funds. However, as long as workers do not transfer in large numbers to the alternative new funds outside the more traditional trade union-rooted UIFs, the Danish model of unemployment insurance will probably largely remain unaltered. There are, however, several possible scenarios which should not be overlooked. Since members can change funds only when they are in a job, it could be that employed members might move to cheaper UIFs, whereas unemployed members might stay in the more expensive ones, leaving the latter with no option other than to raise their contributions further. Another likely scenario is that the increased competition may radically reduce the number of Danish UIFs over time. This would change the tradition of close connections between trade unions and sector-related UIFs, which so far has been the strength of the Danish system. (Lene Askgaard Hyldtoft, FAOS)

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