Labour market developments and reforms in Denmark. Torben M Andersen Aarhus Universitet

Transcription

1 Labour market developments and reforms in Denmark Torben M Andersen Aarhus Universitet

2 Danish flexicurity model In focus due to low unemployment prior to the Great Recession How can it cope with a deep recession? Lax EPL, generous UIB and extensive ALMP Large drop in employment = structural change? Overburdened social safety net? How to maintain almp?

3 Great Recession: Change in aggregate demand/labour demand how does the labour market adjust? Unemployment should be seen relative to demand shift Signs of structural problems persistence?

4 Boom-bust pattern Prior to crisis: Overheating economy Housing bubble Unemployment well below structural level Index 29=1 Production Slow down in activity prior to crisis Crisis = radical change in business cycle situation Domestic demand remains low + strong dependence on exports Denmark EURO Area OECD

5 Unemployment % Steep increase in unemployment Fall in employment numerically larger than increase in unemployment Denmark EU OECD 214 This crisis differs from the past: decrease in labour supply Doubble job-holders Education Foreign workers

6 Gross unemployment Unemployed - insured Unemployed - social assistance Activation, unemployed-insured Activation, unemployed - social assistance

7 1992K1 1993K3 1995K1 1996K3 1998K1 1999K3 21K1 22K3 24K1 25K3 27K1 28K3 21K1 211K3 213K1 214K3 Employment adjustment Initial response mostly along extensive margin Employment has become more volatile relative to production Employment Employment drop largest for Men Unskilled Immigrants Young Actual Predicted

8 % Job creation and destruction 35 3 Increase in outflows/firing 25 2 Fall in inflows/hirings Inflows to jobs Outflows from jobs Gross flows are back to the level in early 2!

9 Unemployment dynamics % Survival functions gross unemployment Weeks Many are affected by unemployment Most unemployment spells are short (5% of spells have a duration < 3 months) Dynamics at the same level as prior to the crisis Youth and long-term unemployment is relatively low in OECD comparisions

10 Exit from unemploymen to employment (a) Exit rate for unemployment to employment 5 % (b) Age dependent, 24, 27 and % months months

11 Wage adjustment Wage setting has become decentralizeed Strong wage response in the boom period Wage moderation after crisis Relative unit costs Relative wage share

12 Persistence Employment and age Men Women Employment rate.2.2 Employment rate.1 Standard deviation.1.1 Standard deviation Age Age

13 Employment for age group 3-35 largely independent of previous employment history.9.8 Employment rate Women - Denmark Average Age

14 Impulse responses Impulse response Low education Impulse response Medium education Time since impulse Old men Old women Time since impulse Old men Old women Young men Young women Young men Young women

15 Labour market policies Fiscal sustainability problem Increase labour supply and employment Less expenditures on transfers, higher tax revenue Unemployment insurance Social assistance/activation

16 Employment rate, % Reform strategy increasing labour supply and employment Reform study grants Education aid Labour market reforms Social assistance Sickness pay Disability pension Increased statutoty early retirment and pension age 2 1 Shorter early retirement period Age

17 Retirement reform Step increases in early retirement and pension age % Labour force participation rate 52 Shortening of early retirement period Indexing statutory ages to life expectancy

18 Unemployment insurance 212-reform: Shortening benefit period from 4 to 2 years Reentitlement criterion: from 26 to 52 weeks work within the last 3 years Controversial reform Recovery more slow than expected Exhaustion of uib = transit to social assistance (means tested on a family basis) Should the system be business cycle dependent?

19 Social assistance Social assistance: Age < 3 years Without qualifying education Social assistance = study grant Start on education, or participation in activation programme

20 Activation Labour market reform 215 Flexible Individual focus Labour market needs Qualifications/educaction Shift from relience on activation programme to Job-search/matching Incentives Activation First part of unemployment spell job-talks Programme participation Age < 3 3 months 3< <49 6 months >5 3 months Timing of activation No right and duty to renewed activation spell Right to 6 weeks education

21 Concluding remarks Large negativ shock High level of turnover, short unemployment spells etc. have been maintained No signs of increase in structural unemployment Labour supply Short run: will labour force participation recover? Medium run: effects of reforms on labour supply and employment