The high road to high wages: Denmark's answer to the U.S. model
Job satisfaction and mobility
Esbjerg also found that workers in many traditionally low-wage industries reported a high degree of job satisfaction. “They enjoy their jobs because they think of them as temporary,” he said. “The majority of people doing those jobs are students, who value the flexible work schedule. [Working in those occupations] is generally a choice…They are not forced into it by circumstance.”
Entry-level jobs in the service industry are also characterized by a very high degree of mobility, Esbjerg added. This is partly due to the fact that, in most low-wage occupations, employers have implemented a system through which employees can enter the “management track” after a certain period of time. If someone without a college education works for a year in a supermarket, for example, he or she would then automatically be eligible to train for a better-paid management position, Esbjerg said.
Additionally, collective agreements usually stipulate that the employer must provide training for employees, either on-the-job or through the general education system. “We have always thought it was very important to include training in the agreements,” said Jan Kærra Rasmussen, chief economist at the Confederation of Danish Trade Unions. “That has always been a part of the deal.” Rasmussen said that the training component helps to ensure that employees have more options, so that they have the ability to leave their current jobs if they do not like them. That, in turn, puts pressure on employers to pay higher wages in order to retain employees.
“For those few workers who do make low wages, they will generally not make them for very long,” said Esbjerg.
More than 65 percent of Danish workers belong to a trade union, and the collective bargaining agreements negotiated by those unions effectively cover 80 to 90 percent of Danish workers. (In the United States, by contrast, only 11.9 percent of workers belong to unions.)
John Schmitt of CEPR and Esbjerg agreed that the high union density in Denmark was the largest factor contributing to high Danish wages.
What about McDonald’s?
A very high-profile example of social pressure being exerted by both employee and employer unions for the purpose of maintaining high labor standards occurred in the 1980s, when McDonald’s opened several franchises in Denmark but refused to sign a collective bargaining agreement with the union, the only fast-food chain to do so.
Unions demonstrated and called “solidarity strikes,” in which members of other unions were called upon to boycott the restaurants.
Additionally, the Danish employers’ association for the hotel and restaurant sector refused to let McDonald’s join the association until the company negotiated with the unions.
In 1989, McDonald’s relented, joined the employers’ association, and signed an agreement with the union. Rasmussen said that, while there have been some disputes over time, particularly about overtime pay, in general the collective agreements ensure that McDonald’s workers are paid a living wage.
“The key starting point has to be the unions,” Schmitt said. “That changes almost every political and economic calculation that you can make.”
Danish union leaders said that raising wages had been a long process. “We don’t expect wages to go up if companies are not making a profit,” said Lars Lyngse, international council at the United Federation of Danish Workers, another large Danish union. “But when they do make a profit, we are always sure that workers are getting a piece of that cake.”
Schmitt added that employers’ unions — large groups made up of individual employers that bargain collectively with the unions — also played a large and overlooked part. “There is a social pressure that comes into play,” he said. “If a business wants to join the employers’ organization but they pay low wages, then the organization might force them to pay higher wages because they are undercutting the other members” (see sidebar).
Though Denmark has no official minimum wage, the collective agreements often instate a de facto minimum for different types of workers, and are renegotiated ever two or three years. Additionally, several employers said that the high compensation that is offered through the unemployment system (which is also generally administered by the unions) force them to raise their wages in order to attract workers.
“There is always a discussion about whether we should have a minimum wage,” said Lyngse. “It makes sense for you to have it in the United States, but the unions are worried that it will become a maximum wage for the low-skill occupations here. We don’t want that. We want to be able to go up as high as we can.”