OECD Social, Employment and Migration Working Papers
This series is designed to make available to a wider readership selected labour market, social policy and migration studies prepared for use within the OECD. Authorship is usually collective, but principal writers are named. The papers are generally available only in their original language - English or French - with a summary in the other.
- ISSN: 1815199X (online)
- https://doi.org/10.1787/1815199X
Flexicurity and the Economic Crisis 2008-2009
Evidence from Denmark
A key feature of the Danish labour market is its so-called flexicurity, the coexistence of flexibility
(low adjustment costs for both employers and employees) and security (owing to a developed social safety
net with high coverage and high replacement ratios). This is often believed to have contributed to the
resilience of the Danish labour market and especially to its ability to maintain a low and stable
unemployment rate. The aim of this paper is to examine the performance of the flexicurity system and
changes therein during the previous three decades, including the first years of the Great Recession. We
carry out two types of analyses: at the levels of establishments and employees, respectively. First, we use
linked employer-employee data for the private sector to examine how labour demand responds to output
shocks by a study of firms’ labour adjustment behaviour during economic upturns and downturns. Second,
based on the same data set we examine how the flexicurity system protects workers from income losses
associated with job losses due to plant closures or major lay-offs. In particular, we are interested in how the
transformation of the flexicurity system since the mid-nineties to increasingly emphasise activation and to
reduce maximum unemployment benefit durations has changed employees’ security in case of
displacement. We document large worker flows that exhibit strong cyclical variation giving rise to volatile
unemployment dynamics. External flexibility of firms has remained unchanged for almost three decades.
While we find no clear traces of trend changes in employers’ labour adjustment behaviour, we do find that
income losses of displaced workers have declined over time, mainly due to their faster re-employment.
Although it is still early days to conclude with certainty, there are so far no strong indications of the reemergence
of unemployment hysteresis to the same extent as in previous recessions.
Keywords: flexicurity, hires and separations, earnings losses
JEL:
J63: Labor and Demographic Economics / Mobility, Unemployment, Vacancies, and Immigrant Workers / Labor Turnover; Vacancies; Layoffs;
J3: Labor and Demographic Economics / Wages, Compensation, and Labor Costs;
J2: Labor and Demographic Economics / Demand and Supply of Labor
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