Denmark – a model country or something rotten?
Many party leaders referred to Denmark and its exemplary employment record during the election campaign debates. But what exactly is the "Danish model" that everybody is talking about? We visited two unemployment insurance funds and their cooperation body in Denmark in February this year.
Denmark has a much lower unemployment rate than Finland, currently around 5%. However, geographical and other differences make a direct comparison between Finland and Denmark rather fruitless: Denmark is the smallest but also the most densely populated of the Nordic countries. It also benefits from its strong economy and close ties with continental Europe. Its labour market is flexible and the mobility of its workforce is at a very high level.
On our trip, we were particularly interested in the way the Danish unemployment insurance funds help their members in the search for employment. In general, we found that the key to the Danish approach to employment is that it is focused on protecting and supporting employment rather than protecting jobs. As an example, some of the Danish unemployment insurance funds have their own business start-up accelerators that create jobs. Unemployment is not seen as a problem of social security, but rather as a problem of employment. This is also reflected in the ministries: Unemployment and employment issues are the responsibility of the same government department.
Currently, the Danish system has both job centres and unemployment funds operating in parallel. In recent years, legislation has been developed and practices improved, but so far, having two actors coexisting seems to create unnecessary bureaucracy, to the detriment of the unemployed. For example, the unemployed have to attend job interviews with both organisations.
So what can we learn from the "Danish model"?
Denmark is an excellent example of a model where the fund that pays unemployment benefits is also the legitimate body for re-employment support for its members. This is in the fund's own interest, as membership fees are directly affected by members' unemployment: the higher the employment rate, the lower the membership contributions.
Legislation that allows for such a broad remit for unemployment funds also makes it easier to find new and innovative solutions. A good example of this is the business accelerator that operates under the Akademikernes A-kasse, the unemployment fund for academics. In Finland, on the other hand, the law governing unemployment funds is very narrow and restrictive: the funds are NOT allowed to do anything other than provide income security for their members. Our legislation dates from the 1980s and is based on even earlier provisions, making its principles outdated.
However, if Finnish funds were to be involved in active job creation, as is the case in Denmark, the model should be easy for the unemployed to access and attractive for the funds to operate. If the legislation were to be modernised, it should not mean more red tape for large groups of the unemployed, nor should it be mandatory for the funds. As our own target for change in the legislation, we have suggested that the funds should have the option, but not the obligation, to be active in employment support.
Perhaps we Finns should start to see unemployment as part of a longer employment pathway – as a short period between jobs – as another take-away from the Danish model. If we see unemployment benefits only as a form of social security, we miss the opportunity to discuss them in the context of employment and re-employment.
This blog is written by Auli Hänninen, executive director