Low wage work in Denmark Presentation at Lower conference at Sandbjerg Niels Westergaard-Nielsen, CCP

Characteristics of institutions in Denmark UI –replacement is the highest in the world –UI easily obtainable –Membership of Unemployment Insurance funds is voluntary –Few youth are covered. Wage bargaining used to be highly centralized, but is now widely decentralized the membership rate of trade unions and the coverage rate are both high, but lower and declining among the youth

Further characteristics No minimum wage legislation, but an agreement between employers federation and unions. 13.8€ an hour + 15% vacation pay there is little job protection for blue collar workers and only a modest protection for white collar workers. indirect wage costs are low in Denmark, while direct taxation is high – lowest tax minimum 44% plus UI-contributions 3% for low wage earner

Benefits/Danish model Welfare goods are free: health, pension, early retirement, school Means tested benefits for –housing –child care The Danish Model: agreements between employers and trade unions are more important as regulatory mechanisms than legislature and Government interventions compared with many other countries –UI, labor market policies targeted at getting unemployed back to work – expensive labor market policy –Increasing pressure on the unemployed to accept jobs –Disability pension Called flexicurity

Characteristcs Participation rate for women high Publicly provided and subsidized (2/3), child care from the age of 1 year. Now good coverage. Full time bias. Retirement age used to be high is now lower

Actual hours for men, working

Composition of social programs, those not working:

Who moves into non-employment

Immigrants

Immigrants and labor force participation

Unemployment among immigrants

The 2002 wage distribution and low wage share

Wage distribution

Worker turnover

Turnover is not evenly distributed

Probability staying for 20 years, DK versus US

Low wage Who are the low wage earners? Characteristics

Low wage by age

Low wage by gender

Low wage by education

Dynamics of low wage different definitions

Where do the low wage workers go?

Low wage jobs

Students working

Unemployment

Labor force participation

Internal labor markets?

Social environment Social Contributions and taxes –Tax rates are 8% up to 5000€, then 44%-63% + UI- premium but not other social contributions –25% VAT + ”green” taxes Pension, means tested Maternity leave, Free health care, Subsidized child institutions Family allowances

Conditions for the high female participation Subsidized child care –6 of 10 children 1-6 are in public daycare Many started as part timers Now little part time, 8% for 25/55 years of age Females get now same level educations as men and above. But still somewhat lower wages 7/8%

Job environment UI Collective bargaining –The Danish Model: trade unions and federations of employers negotiate wages, working time, pension, vacations etc. –The Government takes care of employment policy and UI and of getting people back to work through training and job programs Changes in the bargaing system: Late 80’s more and more decentralized wage bargaining. We find a larger and larger firm element The agreed on minimum wage: 13.8€, but some are paid less.

UI-benefits 90% of previous wage Maximum around 1800€ per month –Creates an incentive problem for low wage earners 2 days waiting time 1st year without conditions 2nd-4th year the unemployed has to attend courses, job training or other activity A lot of short spells due to temporary lay offs. 20%+ experience some unemployment during the year.

UI-benefits Members receive UI-benefit But pay membership fee, in return they get a state subsidised ”insurance”. About 80 % of all are members of UI- system and 85% are members of Union The two systems are considered to be the same – increases the membership of unions

Job protection No legislation for hourly paid = manual workers Hourly workers may through their collective contract have a 2 weeks notice, or somewhat longer Salaried employees within administration have by law period of notice of up to 6 month for long tenure In general easy to lay off workers

Changes in wage bargaining Wage bargaining used to be centralized Now much less so 1987 lower level, and after 1993: –many contracts do not mention a wage at all –More and more wages are negotiated between employer and employee directly

Labor market policies