Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: The Role of Unemployment Insurance in Modern Labour Markets - Unemployment Insurance and Flexicurity Tallinn, February 2007 Thomas Mølsted Jørgensen National Directorate of Labour Denmark

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Main functions of Unemployment Insurance Income security for unemployed Flexibility on labour Market Macro economic stability

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: UI-benefits in various situations: Cyclical or seasonal unemployed Modern expansions of classical UI: –Short period between two jobs –Temporarily laid off –Newly graduated –UI-benefit at holidays (after unempl.)

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Unemployed with benefits - and then ? Goals of Modern Labour Market Policy Return to previous / same type of job OR Achieve competence to new job ?

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Ways of Financing UI-benefits: Members fee (flat rate or other) employers contributions or general tax Affects: Income distribution Wage increase (?) Macro economic situation

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Acceptance of Flexibility depends on: Easy access to UI-benefit High replacement rate Low fee / employees contribution to Unemployment Insurance Long duration possible

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: But easy access to high benefits could result in: Less incentives to work Wage-inflation Abuse of benefit-system Black economy High expenditures

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Some solutions: Strict rules on availability Active Labour Market Policy: –Right and duty to accept offers –Job offers and activation as test of availability Monitoring job seeking

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: More contribution to solutions: Realistic sanctions Threat of loosing membership High replacement rate only with low wage Often adjustments of schemes to avoid unintended use

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: The Danish Flexicurity Triangle Flexible labour market Unem- ployment benefits Active LMP 1.Low employment protection 2. Income security 3. Employment security

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: The components of The Triangle The Labour Market –Easy hire-and-fire – low/no job protection –High flexibility and many job openings –High job and worker-mobility –Rapid structural changes Unemployment Insurance –High replacement-rate (but with max.) –Long duration –Individual benefit – no means test Active Labour Market Policy –Emphasis on upgrading skills –Strict rules on availability –Right and duty to accept offers –Activation as test of availability

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Labour Market Situation

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Unemployment trap 2003 (Total Marginal effective tax rate on labour income)

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Active/passive LMP expenditure as % of GDP

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax:

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax:

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax:

Directorate of Labour, Stormgade 10, Postboks 1103, DK-1009 Copenhagen K Tel: Fax: Summing up UI in Modern Labour Market - Flexicurity Unemployment Insurance must work together with ALMP Employability enhancement is the overall goal, achieved by both flexibility and education/training for unemployed and employed Flexibility and security for the employees are not necessarily contradictions. Requires enforced availability for work Flexicurity arrangements can strengthen overall institutional competitiveness by promoting structural change Regular review and revision of schemes etc. is necessary Flexicurity is not a simple recipe – nor a universal medicine It works in Denmark – but it requires many resources.