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The Danish model pt. 2 - Labour market structure

by JakeS Mon Jul 28th, 2008 at 05:00:23 AM EST

As promised, here's the diary on the structure of the Danish labour market.

It is tempting to jump straight into the nuts and bolts, but I believe that a little bit of history is needed to fully understand the evolution of the Danish labour market:

Denmark was a late industrialiser. To take just one simple metric, our first three rail lines were completed in 1847, 1856 and 1862. By way of comparison, the UK built its first serious railroads in the fist third of the 19th century and the USA built its first transcontinental railroad from 1860 to 1869. Thus, many of the socialist ideas that had painstakingly evolved in the early industrialisers such as France and the UK could be adopted rapidly once a certain concentration of was reached.

In practise this meant that the syndicalists and social democrats (who swiftly became one unified movement in Denmark) started at a level playing field w.r.t. the communists, anarchists and assorted more or less radical and more or less militant movements. It is important to note at this juncture that the term "social democrat" has drifted since those times. To take a very striking example, during most of the late 19th cent. the Danish social democrats were opposed to private ownership of productive assets, a point of view that would be considered hard-line socialist just half a century later.

Edited to put more above the fold - afew


The difference between the early social democrats and the early communists was thus not so much in ends as in means. Where the communists maintained that the democratic institutions were insufficient to achieve the goals of a class-less society and communal ownership of the means of production, the social democrats held that anyone who could count on his fingers and toes should be able to see that universal (male) suffrage and an organised labour movement would mean that social democrats would have a permanent lock on power in a parliamentary system, which could be translated into the desired social change without necessitating the nastiness of an actual revolution.

During the latter half of the 19th cent., the Social Democrats came to increasingly dominate the labour movement (outside a few crafts that remained dominated by communist long into the post-war period). At the same time, the labour movement grew in size, organisation and power.

In 1899, after a series of strikes and retaliatory lockouts that had brought the country to a screeching halt, the September Agreement was signed, which has since provided the foundation of the organisation of the Danish labour market.

The agreement stipulates that the labour movement recognises the right of employers to direct the work and to hire and fire - in other words, the labour movement recognised private ownership of productive assets. In exchange, the employers recognised the right of labour to organise and the right to strike and blockade as well as accepting a prohibition against union busting.

Both parties agreed to enter into overenskomster - binding agreements regulating wages, working conditions, etc. for a stipulated length of time and both parties agreed that strikes, blockades and lockouts could only take place in the absence of a valid overenskomst. A labour market court system (voldgiftsretten) was set up to enforce the overenskomst agreements and a reparations payment scheme was instituted to compensate victims of overenskomststridige (lit. agreement-violating) lockouts, strikes and blockades (i.e. lockouts, strikes and blockades taking place despite the workplace in question being covered by a valid overenskomst).

The September Agreement was eventually replaced by a series of Main Agreements from 1960 onwards, which are more detailed but substantially the same story.

This marked the most significant historical victory of the social democrats over the communists, but is quite remarkable in a couple of other ways as well. To the best of my knowledge, the fact that labour unions and employers set up a separate court system is unique to the Scandinavian labour markets. [I have since been advised that this conclusion had more to do with my lack of knowledge about other countries' labour markets than with reality...] And the fact that the labour movement did not unilaterally recognise private ownership of the means of production also carries a symbolic significance: This recognition is conditioned on the civilised behaviour of the employer side - which implies that it can be reversed if the employers systematically fall short on their end of the agreement.

Thus, we have a separate system of labour market negotiations that is in principle completely independent of the political system (in practise this is not the case, of course, nor was it ever intended to be - the social democratic idea was to dominate both the labour market negotiations and the parliamentary political system).

This means that many - if not most - if the rules governing the Danish labour market are in the realm of agreements between labour and employers rather than the realm of laws and regulation (with unemployment subsidies being the most notable exception). This was initially not so much a conscious decision as a consequence of the fact that the labour unions were more effective in securing the rights of workers than their parliamentary counterparts - often the law lagged behind the agreements already entered into on the labour market, and at some point the politicians stopped bothering with trying to catch up and made a virtue of necessity by insisting (at least rhetorically) that the labour market sort its affairs out on its own.

History and institutional framework aside, how does all this work? Entire books can and have been written on the function of the Danish labour market, but here are a couple of highlights of what I find important and/or interesting from an ET perspective:

The vast majority of all workplaces are covered by an overenskomst, and those that are not face frequent blockades and other disturbances (and are fair game for strikes, of course). On those workplaces that are covered by an overenskomst, the workers elect representatives (tillidsmænd) among them, who are given time off from their regular duties (as in paid time off) to serve as the labour union's liaison with the management. This usually involves keeping on top of all the rules - general and workplace-specific - governing safety, wages and working conditions that are applicable to the workers at the workplace in question, to serve as the workers' representative in disputes with the management, to keep the labour union's central organisation up to date with conditions on the workplace, etc., etc., etc. If, for some reason, the workers fail to elect a representative, the local union chapter will send a member of their staff (a fællestillidsmand).

Should the employer fail to observe the terms of the general overenskomst or any of the local agreements (lokalaftaler), the labour union will usually notify the employer that they expect compliance. If a stern letter or two doesn't lead to improved conditions, the union has the option of suing the employer in voldgiftsretten, the labour market court system, which can impose fines and compensation on any party found to be in violation of the overenskomst.

The overenskomst is renegotiated whenever the existing overenskomst expires. Typically this means once every two or three years. By tradition, the negotiations take place in mid to late spring. Historically this was because spring was the time of year when labour unions could best afford a strike: In Denmark, you have to heat your home during the winter, so the household budget had more leeway when it wasn't winter, because in a pinch you could cut down on your coal consumption which was often a significant part of the budget.

If negotiations succeed, everyone is happy. If they fail, the parties proceed to forligsmanden (link in Danish), a supposedly neutral governmental mediator who is tasked with striking a compromise between the parties. Forligsmanden can postpone advised strikes and lockouts for two weeks (four if they target functions judged to be vital to the functioning of society or the health of the citizens), and can issue formal compromise proposals.

If the mediation fails - which it, perhaps surprisingly, doesn't always do - strikes (and occasionally lockouts) usually commence. According to the terms of the Main Agreement (found here in Danish), any organisation (labour or employer) wishing to open the possibility of a strike or lockout must advise their counterparts (employer or labour, respectively) of the possibility of a strike at least two full weeks before it is scheduled to take effect. This first notice serves only to put the option on the table - the actual decision can be postponed until seven days before the strike or lockout is launched.

Such preliminary strike warnings are routinely issued by labour unions before negotiations even start, particularly when they expect tough negotiations, but occasionally the need to use strikes or lockouts catches an organisation by surprise. The recent health care and child care strike provides an example of this: The municipalities' organisation hadn't expected to need a lockout - probably because they had banked on government intervention (see below) - and were caught with their pants down: They eventually issued a lockout warning, but the conflict was resolved less than two weeks later, so the lockout never came into effect.

Finally, if the conflict drags on for so long that it becomes a serious problem - or if it affects certain critical sectors, such as transportation - parliament will end the conflict by giving the formal compromise proposed by forligsmanden the force of law. Parliament is usually wary of using this power, however, because it will usually piss off either the captains of industry or a substantial part of the electorate (or both!). And both the labour unions and the employers' unions are rather protective of the Danish labour market model, so even those who got the best cut from the mediation proposal are likely to be wary of such parliamentary action.

The other significant aspect of the Danish labour market structure is the unemployment insurance system (A-kasserne). Any unionised worker has the option to join an unemployment insurance that is 80 % government funded. The compensation in the event of unemployment is 90 % of your wage, but is capped at about 100 € pr. day or 60 € pr. day, depending on the nature of your insurance. Members are eligible for unemployment insurance when they have half a year to a full year of regular, full-time employment (or equivalent number of hours) within the last four years (six years if you haven't actually been drawing compensation for some reason). I've heard a couple of different figures for the latter two numbers, but the ones given here are in the right ballpark.

Another requirement for this unemployment insurance is that one must be "available to the labour market" - which has meant different things in different decades. A couple of decades ago, it meant you had to be more or less actively looking for a job - and were expected to take an offered job. Today it means that you must jump through a number of hoops - you must update your CV regularly, log on to a job seekers portal several times per week and fire off at least two job applications per week.

Oh, and you can turn down only one job. You have to take the second one you're offered, regardless of the nature of the job (well, almost - you can't be forced to take a job as a prostitute, despite this being a legal and recognised line of work in Denmark), as long as it's within a "reasonable distance" - which last time I checked was a total of four hours in commute each day (this was, admittedly the next best thing to ten years ago, but I doubt it's gotten better since). So much for eight hours of work, eight hours of sleep, eight hours of free time...

Needless to say, this is a pretty serious item on the finance bills. In fact, this type of unemployment insurance accounts for the next best thing to five percent of Danish GDP.

(As an aside, there is a second safety net - kontanthjælpen - which is available to anyone who is without an income and who is "available to the labour market." But the rates are a sick joke (approx. 1200 € pr. month, half that if you're under 25 or a recent immigrant). That just doesn't cut it for the "security" part of "flexicurity.")

Now, these things go together. If you want to talk about "the Danish model" or "flexicurity," you can't just pick out one or two of these items. You have to have them all for the system to work:

  • Strong labour unions (so the overenskomst negotiations don't become crushingly one-sided)

  • Good unemployment insurance (to the tune of several percent of your GDP)

  • A dedicated court system to swiftly rule in disputes and decisively squash attempts to do an end-run around an overenskomst

  • Good relations and regular liaison between employers and labour unions (this is partly a culture thing, but mostly it's about the employers behaving in a reasonably civilised fashion)

  • Reasonable overenskomster so neither party simply picks up his toys and leaves the system of negotiated overenskomster - both labour unions and employers must believe that they get a better deal by staying within the overenskomst framework than by risking the strikes and lockouts (and blockades) that go with abandoning it (this is possible because strikes and blockades are a negative-sum game - thus, a system that reduces their frequency is positive-sum).

Any proposal that doesn't contain at the very least the first three bullets quite simply isn't "flexicurity" - it's just a bad, old-fashioned power grab by capital at the expense of workers, dressed up in fancy language.

- Jake

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As for the state of the Danish system...

  • Of the five bullets in the bottom, the first is eroding both because employers have started using union-busting-lite techniques (such as "alternative" labour unions that don't believe in strikes), because of a difficulty in convincing modern generations of the need for a strong labour movement - neither we nor our parents have firsthand experience of the consequences of not having strong labour unions, and finally because of several recent rulings by the European Commission and European Court that went against labour interests.

  • The second bullet is being deliberately sabotaged by our neolib government - but hey, what else is new. Unfortunately, the Social Democrats are on board that particular train as well (yes, Nyrup and Lykketoft, I'm looking at you) - in fact, most of the hoops the unemployed have to jump through were instituted by Nyrup II and III. All the Fogh regime had to do was enforce them with all the zeal that comes with fundamentalism.

  • The third bullet is still going strong.

  • The fourth bullet is being slowly but surely eroded by the pressure put on traditionally managed Danish firms by the aggressive short-termism that is characteristic of many new market actors (yes, capital funds, I'm talking about you)

  • The fifth bullet is being chipped away at at a worrying pace, partly by the same forces that are squeezing bullet four, and partly by the fact that even the labour unions buy into the neolib version of wage inflation and "competitiveness."

The overall picture is the same as for the rest of the Danish social model: We have a good system with strong institutions. But they are working despite the political zeitgeist, not because of it.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 22nd, 2008 at 12:57:41 PM EST
... I forgot to mention: While I said at the outset that I wasn't going to focus excessively on the economic aspects of the Danish social model, I cannot help but note that spending upwards 5 % of your GDP on unemployment insurance (paid for by a steeply progressive tax system) is virtually a text-book example of Keynesian counter-cyclical spending. So much for "knowing that the Danish model works, but not why it does."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 22nd, 2008 at 01:03:33 PM EST
Excellent diary.

My own little theory is that, comparatively, the Nordics never experienced the Industrial Revolution as societies. They stepped basically from the agrarian village to the connected village and avoided the social fragmentation and classification of industrialization. This in part might explain the deep penetration of electronic media - just as it may happen in some parts of the agrarian developing world. Admittedly it's not a great theory, but could help to explain the Nordic ethic - whatever that might be ;-)

You can't be me, I'm taken

by Sven Triloqvist on Tue Jul 22nd, 2008 at 01:18:37 PM EST
But we did have two or three generations of industrial economy - at least in Denmark.

As I write in the diary, I think that a more likely answer is that we were late and somewhat slow industrialisers, so organised labour could draw on a bank of knowledge and experience from abroad.

Further, the process didn't happen so rapidly that the capitalists achieved the kind of crushing superiority they did in other places. Even in the latter half of the 19th cent., the Danish liberals were fighting the conservatives - a fight they had won almost a century earlier in the US and UK - so the labour movement never had to deal with the full force of a unified moneyed class - by the time the moneyed classes unified, the labour movement was already firmly in control of the zeitgeist.

Additionally, the Nordic countries never had any empires to speak of. Which meant a lack of easily exploited colonial (slave) labour that was available to the upper classes in the US and UK (and, to a lesser degree, France).

On the other hand, the liberal revolution of 1846-50 won in Denmark, as opposed to Prussia and Russia, which meant that organised labour never had to face the full force of oppressive power available to the still-sovereign monarchs in central and eastern Europe. This in turn likely prevented the kind of radicalisation and militancy that characterised German and Russian class struggles in the late half of the 19th and early half of the 20th cent.

That's my hypothesis, at least.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 22nd, 2008 at 02:07:42 PM EST
[ Parent ]
Your more nuanced read is much closer to the truth: a real answer is rarely black and white. But I have to deal in theories for the attention deficient offline...

"Finns are natural planners. If you haven't chopped your firewood by October, you'll be dead by Christmas!" - that kind of theorising ;-)

You can't be me, I'm taken

by Sven Triloqvist on Tue Jul 22nd, 2008 at 02:26:14 PM EST
[ Parent ]
To the best of my knowledge, the fact that labour unions and employers set up a seperate court system is unique to the Scandinavian labour markets.

I don't know if there are significant differences in detail, but there are labour courts in other European countries, too - including Britain (they call it Employment Tribunal) Germany (there called Arbeitsgericht) and Hungary (munkaügyi bíróság).

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Wed Jul 23rd, 2008 at 06:46:17 AM EST
Ireland - Labour Court.
by Colman (colman at eurotrib.com) on Wed Jul 23rd, 2008 at 06:52:53 AM EST
[ Parent ]
France - Prud'hommes

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Wed Jul 23rd, 2008 at 07:49:29 AM EST
[ Parent ]
Spain - Magistratura de trabajo

Whether that was set up by the employers and the unions or it was set up by the state I don't know off-hand.

A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith

by Migeru (migeru at eurotrib dot com) on Wed Jul 23rd, 2008 at 08:49:46 AM EST
[ Parent ]
I don't know much about thew origins, either. I looked at one detail, however - if I I got it right,

Germany: an Arbeitsgericht consist of one representative of employers and employees each

  • Britain: an Employment Court consist of one representative of employers and employees each and a normal registered lawyer

  • Hungary: a munkaügyi bíróság is staffed with a normal qualified judge

I wonder how it is in Denmark.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Wed Jul 23rd, 2008 at 08:57:54 AM EST
[ Parent ]
Further reading reveals that we actually have not one but two separate labour market court systems. The first is voldgiftsretten which is a general option in any contractual dispute: Both parties can agree to constitute a legally binding tribunal the members of which are appointed by the parties to the dispute. They can also agree in advance that any dispute over a contractual obligation is to be handled in this way.

The second is Arbejdsretten, which is a separate fast-track court system under the Judicial branch of the Danish government, designed to swiftly resolve disputes arising on the labour market, but staffed with ordinary judges.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 23rd, 2008 at 11:10:42 AM EST
[ Parent ]
In France Tribunaux des Prud'hommes.
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jul 23rd, 2008 at 07:52:17 AM EST
[ Parent ]
That's begging for a bad pun about the TdF directeur.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Jul 23rd, 2008 at 08:28:08 AM EST
[ Parent ]
There is actually one thing I forgot when I wrote this diary yesterday: There used to be a class of civil servants called tjenestemænd. A civil servant hired on this type of contract signed away his right to strike - in return, he was guaranteed either a new job or a lifelong pension in the event that he was fired as a result of work restructuring, plus various other perks (somewhat higher wages being the most obvious).

So what we had was actually a combination of the flexicurity system and a system of tenured civil servants that covered critical sectors of the infrastructure that were determined to be too vital to be subject to the vagaries of the labour market.

Today only a few such positions exist. No new people have been hired on such contracts for ten or twenty years (because it's "too expensive" or "not flexible enough" - well damn right it is expensive and inflexible: Those people signed away one of their basic human rights and should be paid accordingly!), and those that remain are mostly in the railroads and the mail service. The predictable result of this is that we now have strikes in the rail sector, the hospitals and several other key items of public infrastructure - something that would have been the next best thing to unthinkable just a few decades ago.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 23rd, 2008 at 11:21:24 AM EST
The European Industrial Relations Observatory keeps track of this kind of stuff.

You can't be me, I'm taken
by Sven Triloqvist on Mon Jul 28th, 2008 at 06:00:33 AM EST
[ Parent ]


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jul 28th, 2008 at 06:50:06 AM EST
[ Parent ]


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