Globalisation and flexicurity

Torben M Andersen
Department of Economics
Aarhus University

November 2016
 Globalization
• Is it Incompatible with

– High employment

– Decent wages (no working poor)

– Low inequality

– Extended welfare state

 Nordic experience
• Routinely classified as ”small, open economies” =
highly globalised

• Welfare model developed in a globalised environment;

– Common understanding – need to be ”competitive”

• Not politics against markets

• The model depends on maintaining a high

employment level
-Ambitious distributional goals
Globalisation and competitiveness

Globalisation Ease of doing Competitiveness

KOF‐index business World Economic
World Bank Forum
Denmark 7 3 12
Finland 11 13 8
Norway 13 6 11
Sweden 8 9 9

# countries 204 189 140

 Cross country performance
Tax burden: 25% vs 50 % of GDP
Trade share: 20% vs 50‐60% of GDP

45000

40000
Per capita income, PPP  US $

[CELLRANGE]
[CELLRANGE]
[CELLRANGE] [CELLRANGE]
[CELLRANGE]
35000 [CELLRANGE]
[CELLRANGE]
[CELLRANGE]
30000 [CELLRANGE][CELLRANGE] [CELLRANGE] [CELLRANGE]
[CELLRANGE] [CELLRANGE]
[CELLRANGE] [CELLRANGE] [CELLRANGE]
[CELLRANGE]
25000 [CELLRANGE] [CELLRANGE]
[CELLRANGE]
[CELLRANGE]
20000 [CELLRANGE]
[CELLRANGE]
[CELLRANGE] [CELLRANGE]
[CELLRANGE]
15000
[CELLRANGE] [CELLRANGE]
10000 [CELLRANGE]
[CELLRANGE]
5000

0
0.6 0.62 0.64 0.66 0.68 0.7 0.72 0.74 0.76 0.78 0.8

Income equality: 1‐Gini
 Nordic Model: Employment
dependent model
• High tax burden + generous transfers

• Budget very sensitive to the employment

level

• Financial viability presumes a high

employment level

• Also crucial for living standards, per capita

income etc.
Employment over the life cycle
100
Employment rate
90

80

70

60

50

40

30

20

10

0
15‐19 20‐24 25‐29 30‐34 35‐39 40‐44 45‐49 50‐54 55‐59 60‐64 65‐69 70‐74

Minimum Maximum Denmark Norway Finland Sweden

 Low inequality – labour market
outcomes are crucial
Inequality 30

above 25

average 20

15
%  deviation from average

10

‐5

‐10

‐15

‐20
Inequality
below ‐25

average NOR DNK FIN SWE NLD GER FRA CAN ITA NZL AUS JPN UK ISR USA

Market income
Markedsindkomst Redistribution
Omfordeling Total
 The Danish flexicurity model

Lax hiring and 

Combining flexibility and firing rules (EPL)
security

Maintaining job search

incentives

Maintaining human Generous Active labour

unemployment market policy 
capital insurance (UIB) (ALMP)
 Unemployment
12

10

6
%

4 Low youth unemployment

2 Low long‐term unemployment
0
2000 2003 2006 2009 2012 2015

Denmark OECD EU
 Main characteristics
• High level of job- 35

turnover 30

25

% of employment
• Many affected by
unemployment, but 20

most unemployment
spells are short 15

10

• Low long-term 5
unemployment
0
1999 2003 2007 2011 2015

• Easy entry for young Inflows to jobs Outflows from jobs

 0
10
20
30
40
50
60
70
80
90
100
Denmark
Switzerland
Sweden
Estonia
Norway
Austria
Finland
Portugal
Latvia
Hungary

Unemployment ‐ inactivity
France

Unemployment‐ employment
Czech Republic
Netherlands
Cyprus
Slovenia
United Kingdom
quarter

Lithuania
Spain
Romania
Ireland
Italy
Poland
Luxembourg
Slovakia
Unemployment ‐ unemployment

Bulgaria
Greece
Labour market transitions – one
 Large adjustments across sectors
Denmark during boom (2005.1-2008.3) and recession (2008.1-2009.3)

25

20

15

10

‐5

‐10

‐15

‐20

Increase Decrease
Perceptions – jobs and globalisation
Your personal job situation Globalisation
0.5 0.8
0.45 0.7
0.4
0.6
0.35
0.3 0.5
0.25 0.4
0.2
0.3
0.15
0.1 0.2
0.05 0.1
0
Very Rather Rather Very bad Don't 0
Globalisation Globalisation Don't know
good good bad know represents a good represents a threat
opportunity for to employment and
DK EU (NATIONALITY) companies in (OUR
companies thanks COUNTRY),
to the opening‐up
of markets, DK EU
 system
education:
Strong focus on

• Public education

(life-long learning)

– ALMP: 1.8% of GDP

• Labour market training

– Education: 6.1% of GDP

• Flip-side: ressource use
0
5
10
15
20
25
30
35
40

Denmark
Switzerland
Sweden
Iceland
Finland
Norway
Netherlands
Luxembourg
France
United Kingdom
Austria
Slovenia
Estonia
Spain
Portugal
Germany
Czech Republic
Belgium
Lithuania
Hungary
Italy
Cyprus
Malta
Ireland
Latvia
Indicator life‐long learning

Poland
Education and qualifications

Slovakia
Croatia
Greece
Bulgaria
Romania
 Labour market and qualifications
100
• Close link between
education and 90

– Employment rates 80
Globalisation
– Wages 70 New technology
…. 60

– Retirement 50

%
– Health 40
Policy 
30
response
• Education and labour 20

market policies - crucial for 10

distributional objectives! 0

Low Medium High

• Important to ensure a high Beskæftigelsesandel
Employment share
qualification level for the Andel af arbejdsstyrken
Share of work force
entire labour force
 Conclusions
• Globalization has not • Not a ”crisis”-free model
implied a retrenchment of
welfare arrangements • Need to continously adjust
labour market policies
• Flexicurity:
– Employment remains high • Challenge: to reduce
fraction of youth without
– Few working-poor labour market relevant
education
– Copes with large
adjustments in the labour
market

– ”Active” policy approach

• Active labour market policies
• Education/live-long learning