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CHAPTER 2
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CHAPTER 2 Statistical Analysis and History of Low-Wage Work in Denmark Niels Westergaard-Nielsen At first sight, an outside observer might find that the Danish labor market looks like other labor markets in Europe and North America, but closer inspection would reveal a number of features that differentiate Denmark from other countries and sometimes even make it look more like one of the states of the United States—and sometimes the very opposite. Perhaps the most prominent of those features is the central idea of the “Danish model”: compared with many other countries, agreements between employers and trade unions in Denmark are more important as regulatory mechanisms than legislation and government interventions. These institutions also have more of an impact on incentives and work for low-wage earners than for other wage earners. Second, Danish labor market institutions date back to the beginning of the twentieth century or even earlier, a long history that has given rise to a strong tradition of seeking peaceful solutions to conflict and given all labor market parties an incentive to create resolutions that benefit everyone. A third important feature of the Danish labor market is the growing decentralization of wage bargaining, even as union membership remains high. Fourth, Danish welfare policies are comprehensive , and state expenditures on labor market programs are high; as a result, Denmark spends more on these programs than any other country. Finally, the level of employment protection is low in Denmark; with a level of employment protection comparable to that of the United States, Denmark consequently experiences worker turnover that is in the same league as the United States. This chapter explains the role of Denmark’s labor market institutions and presents evidence and statistical analyses that undergird the following chapters on specific industries. Furthermore, it explains how Denmark’s welfare system and labor market institutions set the conditions for the low-wage labor market. After a brief intro32 duction to the Danish economy, the chapter describes the Danish labor market and industrial relations before going on to discuss its labor market institutions in some detail. After that is a discussion of how low-wage employment has developed in Denmark over the last twenty years, followed by a section on mobility out of low-wage work and the interaction between mobility out of low-wage work and the welfare system. The last section discusses the costs of Danish labor market policies and possible reforms. THE DANISH ECONOMY Throughout most of the twentieth century, Denmark has experienced relatively high and stable GDP growth and maintained a remarkable record of staying among the countries with the highest GDP per capita. Today Denmark’s GDP per capita is about 81 percent of the American level, using purchase power correction (see table 2.1). This GDP per capita is due to an annual work effort measured in hours that is 89 percent of the level in the United States and productivity that is also 89 percent of the American level. As in many other industrialized countries, growth in Denmark became relatively more unstable after the oil crisis of the 1970s. The 1980s started with low growth, which quickly led to an overstimulation of consumption, a subsequent overheating of the labor market, and a deterioration of the balance of payment. A genuine recession ensued, partly created by an austerity policy intended to improve the balance of payment and curb the expectations of wage inflation. The balance-of-payment problems disappeared slowly during this period because firms became more competitive, but unemployment soared. The turning point came in 1994, when employment and economic growth started rising again. From then on, the balance of payment turned positive—partly because of oil revenue from the Danish North Sea sector and partly because of the expansion of markets in Germany and eastern Europe after the fall of the Iron Curtain—the wage drift expectations were curbed, and unemployment started coming down again. The role of oil revenues in the Danish economy has been like a sweetener: oil’s share of GDP increased from less than 1 percent in 1990 to 3 percent in 2004. The important point is that oil and gas revenues have created a nice buffer on the trade balance, accounting for 8 percent of total exports in 2004. On the tax side, 2 to 3 percent of History of Low-Wage Work in Denmark 33 [54.208.238.160] Project MUSE (2024-03-29 02:59 GMT) all taxes are collected through the production of...