The high road to high wages: Denmark's answer to the U.S. model

Original Reporting | ByMike Alberti | Alternative models, Economy, Employment

Sept. 14, 2011 — In the last few decades, Denmark has succeeded in substantially reducing its reliance on low-wage work. The absence of low-paying jobs — a sharp contrast to the employment situation in the United States — is a source of pride among Danes: “Danes do not like to see other Danes struggling,” said Lars Andersen of the Economic Council of the Labour Movement, a union-affiliated think tank in Copenhagen. “We are very sensitive about that.”

The Organization for Economic Cooperation and Development (OECD) defines a low-wage job as one that pays less than two-thirds of the median annual wage in a country. By this measure, about 8 percent of Danish workers are employed in a low-wage job. Researchers estimate the U.S. rate, by contrast, as being as high as 33 percent.

DIFFERENT VALUES, DIFFERENT STRATEGIES

Last week, we started a series on how the Danish experience challenges the conventional American narrative that worker-friendly, state-friendly policies are outmoded and impractical.

The first article looked at the distinctly more positive view of the role of the state that those in the Danish business world take as compared with their counterparts in the U.S.

This week, we continue by examining Denmark’s approach to low-wage jobs: one that rejects the assumption that an ever-increasing number of such jobs is the inevitable price to pay when competing in a globalized economy. 

Once again, the cross-national look at Denmark suggests that a far greater range of alternatives exist — not only in terms of particular economic, labor, health, and education policies, but in terms of what kind of society one chooses to create and nurture.

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That difference has led some American economists to study the organization of the Danish labor market. John Schmitt, an economist at the left-leaning Center for Economic and Policy Research (CEPR) in Washington, has been comparing the U.S. to Denmark and other European countries for years.

What the Danish example proves is that there are two distinct ways to organize your labor market,” he said. “There is a low road,” which relies on low-wage labor, “and there is a high road.” Schmitt said that both methods of organization can power an economy, but they result in societies in which basic aspects of life are experienced very differently by their respective citizens.

 

Taking the high road

In the 1970s, Denmark and most other industrialized nations struggled with a period of high unemployment that coincided with the transition to a service economy, as businesses began to outsource manufacturing operations.

Niels Ploug, an economist and the head of social statistics at Statistics Denmark, the statistical arm of the Ministry of Economic and Business Affairs and the Danish equivalent to the U.S. Bureau of Labor Statistics (BLS), said that, when faced with these dual challenges, the Danish government made a conscious decision to avoid reliance on low-wage work.

It was a specific policy of the unions and the Social Democratic Party to say that we don’t want a low-wage labor market as the solution to unemployment,” he said. “The only other alternative that we knew of then or that we know of now is to increase the qualifications of the workforce and then try to mold the private sector around those qualifications.”

“What the Danish example proves is that there are two distinct ways to organize your labor market. There is a low road, and there is a high road.” — John Schmitt, Center for Economic and Policy Research

An elaborate system of training programs was put in place to raise the qualifications of Danish workers. Currently, Denmark spends more on these policies, known formally as “active labor market policies,” than any other country in the OECD. When a worker loses employment, he or she is required, after a period of six months, to enroll in a state-financed jobs training program, which is customized to both the worker’s skills and aspirations and the condition of the current job market.

If the government sees that there are a lot of openings in a sector, say in health care, then it will push people toward getting trained in that sector to fill the gap,” Ploug said.

If workers are still not able to find a job, the government will often subsidize their pay to encourage businesses to hire them for a time, which Ploug said more often than not leads to an unsubsidized position.

According to Andersen, Denmark has also chosen to concentrate its economic growth as much as possible in high-wage sectors such as electronics, specialty manufacturing, and health care, which are currently among its largest industries. Consequently, there are fewer low-wage service jobs than in many other countries. “There are some jobs that we just don’t want a lot of if we can help it,” he said.

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