Business interests lauding the welfare state?

Original Reporting | By Mike Alberti |

“It makes it very easy to shed workers when sales are down,” Muntzberg said, “which is important because it allows businesses to adapt easily to changing situations.”

Remapping Debate spoke with several unemployed people at a “jobs center” in Copenhagen — where the unemployed come for help searching for jobs and for retraining classes — who said that, notwithstanding their status, the flexicurity model was good for them, as well.

“We don’t think it’s important to stay with the same employer for a long time,” said Johannes Pedersen, who had recently lost his job as a car salesman. “Now, I have a chance to get some new skills, new education, and I think the next job I get will probably be better.”

“The welfare state in Denmark provides many things that are benefits to business. The government is doing business a favor.” — Stine Bosse, ex-CEO of TrygVesta, Denmark’s largest insurance company

The flexicurity model was much touted in Europe and abroad before the recession as a model to follow, but has received some criticism since the recession. John Schmitt, an economist at the Center for Economic Policy Research, a left-leaning think tank based in Washington and London, said that the recession shows that there are some advantages to having job security.

“I think that the (flexicurity) system worked very well when there was abundant demand in the economy,” Schmitt said. “But it’s not surprising that a system that is trying to guarantee you a job, not necessarily your job, is not going to fare that well when you have a collapse in demand.”

Schmitt compared Denmark’s labor market policy to that of Germany, which has fared unusually well in the recession. Germany offers employees strong labor protections, making it more costly for German employers to fire them. Since it was harder to fire employees when demand slackened, Schmitt said, Germany instituted a system called work-sharing, in which firms reduced the hours of all workers instead of eliminating some altogether. That has resulted in a net decrease in unemployment in Germany since the recession, whereas in Denmark, the unemployment rate has increased by about 2 percent since 2009, to about 5.5 percent.

Still, Schmidt said, the Danish system works very well on the whole. “Even when you have this collapse in demand, it still works well in terms of giving workers income supports and training them for something down the road,” he said. Those supports have served to buoy demand somewhat, mitigating the effects of the recession.

According to Muntzberg, in an economic downturn, the government-provided security aspect of the flexicurity model becomes more important.

“We have created this triangle between flexibility and social security and active labor market policies, and all three points are dependent on the others,” he said. “If you lose the security, then the flexibility will only lead to a downward spiral,” as workers who lose their jobs also lose their buying power and their skills over time, further depressing the economy and making it more difficult to rebound.

The challenge, Muntzberg said, is to maintain an adequate level of social security in the face of increasing pressure on both public and private finances.

“Some companies might favor a reduction of social benefits in the short term because it would reduce costs,” he went on, “but in the long term most of them understand that it’s essential to have a strong safety net, because that is what keeps your labor force competitive over time. What happens when you want to hire people again and you can’t find people with enough skills for the job?”


The welfare “burden”

Stine Bosse said that she is often surprised to hear American businesses complain about the “burden” of the welfare state, or the tax rates that finance it.

“The welfare state in Denmark provides many things that are benefits to business,” she said. For example, Bosse said that free higher education, extensive vocational programs, and well-paid teachers all provide businesses with an educated and high-skill workforce to draw from. Additionally, many of the services provided by the Danish government actually relieve the burden from businesses to supply the service themselves, she added.

“Many businesses have long realized that it’s important to have a healthy workforce, because that reduces turnover and raises productivity,” Bosse said. While in the U.S. private health insurance benefits are often provided through the employer (see box below), Bosse said that that responsibility has been “lifted” in Denmark, so that some of the security, which in the U.S. is often the responsibility of employers to provide, is instead provided by the government. “The government is doing businesses a favor,” she said.

Send a letter to the editor