Low wage work in Denmark
Presentation at Lower conference at SandbjergNiels Westergaard-Nielsen,
CCP
Characteristics of institutions in Denmark
• UI – replacement is the highest in the world– UI easily obtainable– Membership of Unemployment Insurance funds is
voluntary– Few youth are covered.
• Wage bargaining used to be highly centralized, but is now widely decentralized
• the membership rate of trade unions and the coverage rate are both high, but lower and declining among the youth
Further characteristics
• No minimum wage legislation, but an agreement between employers federation and unions. 13.8€ an hour + 15% vacation pay
• there is little job protection for blue collar workers and only a modest protection for white collar workers.
• indirect wage costs are low in Denmark, while direct taxation is high – lowest tax minimum 44% plus UI-contributions 3% for low wage earner
Benefits/Danish model
• Welfare goods are free: health, pension, early retirement, school
• Means tested benefits for– housing– child care
• The Danish Model: agreements between employers and trade unions are more important as regulatory mechanisms than legislature and Government interventions compared with many other countries– UI, labor market policies targeted at getting unemployed back to
work – expensive labor market policy– Increasing pressure on the unemployed to accept jobs– Disability pension Called flexicurity
Characteristcs
• Participation rate for women high
• Publicly provided and subsidized (2/3), child care from the age of 1 year. Now good coverage. Full time bias.
• Retirement age used to be high is now lower
Actual hours for men, working
Composition of social programs, those not working:
Unemployed or on leave Welfare PEW
Pension and health related
retirement Others1 Number
1997 30 7 15 24 24 880,149
2002 29 6 15 25 25 826,020
%
Who moves into non-employment
Transfers from active labour market participation to permanent transfer income
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
Year
Lo
w w
age
shar
e
low wage share
normal wage share
Immigrants
Number of 1st and 2nd generation of immigrants
100,000
200,000
300,000
400,000
500,000
1980 1983 1986 1989 1992 1995 1998 2001 2004
Immigrants and labor force participation
Participation
50
55
60
65
70
75
80
85
1997 1998 1999 2000 2001 2002 2003 2004
%
Persons with Danish background Immigrants Second generation immigrants
Unemployment among immigrants
Full time unemployed among the 1st and 2nd generation immigrants
5
10
15
20
25
30
35
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
The 2002 wage distribution and low wage share
0 10 20 30 40 50 60 70 Euro
red line=low wage, blue line=GB
2002 wage distribution
Wage distribution
year 10% 50% 90% 90/50 50/10 obs.
ALL1980 13.0 18.5 28.1 1.517 1.429 1,813,315
1990 14.8 20.9 32.4 1.550 1.412 2,046,360
2002 15.1 21.9 34.9 1.595 1.455 2,206,092
MEN1980 14.8 20.7 31.2 1.507 1.396 974,651
1990 16.4 23.2 36.4 1.571 1.415 1,066,656
2002 16.3 24.2 39.7 1.639 1.488 1,127,755
WOMEN
1980 12.0 16.4 22.9 1.396 1.359 838,664
1990 13.9 19.0 26.3 1.385 1.363 979,704
2002 14.4 19.9 29.0 1.459 1.383 1,078,337
18-60 year
2002 euro
Worker turnover
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
firm_exitrate
entryrate
Turnover is not evenly distributedTenure
(in years)
Movers Stayers Prob. stay-
ing one add.
year
Prob. stay-
ing 5 more
years
Prob. stay-
ing 10 more
years
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
20+
215,638
85,371
50,866
32,284
30,090
13,924
10,274
7,216
5,849
11,934
5,312
3,194
2,816
2,888
2,385
1,962
1,601
1,094
982
836
10,253
292,641
169,124
102,096
73,264
60,748
52,413
44,692
35,145
32,988
35,854
26,475
22,083
18,671
19,189
16,880
14,748
11,786
8,599
7,612
6,666
66,655
0.58
0.66
0.67
0.69
0.67
0.79
0.81
0.83
0.85
0.75
0.83
0.87
0.87
0.87
0.88
0.88
0.88
0.89
0.89
0.89
0.35
0.35
0.42
0.47
0.50
0.51
0.51
0.51
0.51
0.51
0.52
0.53
0.53
0.53
0.54
0.56
0.58
0.59
0.57
0.54
0.18
0.18
0.21
0.24
0.26
0.27
0.27
0.27
0.27
0.28
0.29
0.31
0.31
0.30
0.29
0.29
0.28
0.29
0.28
0.25
Probability staying for 20 years, DK versus US
AGE GROUP DENMARK 1990 DENMARK 2000 U.S. 1978 (HALL, 1982)
20-24
25-29
30-34
35-39
40-44
45-49
50-54
71.3
34.6
26.9
29.3
28.4
14.1
10.6
58.5
29.6
24.5
25.2
25.9
11.0
7.3
36.6
44.9
39.3
35.9
25.2
8.7
4.3
Low wage
• Who are the low wage earners?
• Characteristics
1996 2002
Overall 7.6 8.5
Gender
Men 5.5 6.4
Women 10.0 10.7
Age
18-25 28.6 35.0
26-35 5.3 6.8
36-45 3.0 4.0
46-55 2.8 3.6
56-60 3.1 4.2
Industry
Manufacturing 4.5 4.6
Meat industry 3.0 3.7
Bakery 26.6 32.8
Construction 6.3 8.4
Service 8.3 9.1
Retail 22.0 23.3
Supermarket 24.2 26.2
Department store29.4 27.5
Hotels with restaurants 24.6 24.6
Hotels without restaurants 21.9 19.2
Health 8.3 9.7
Hospitals 5.0 4.2
Low wage by age
Development of low wage share by age groups
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0.400
0.450
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Year
Lo
w w
age
shar
e
18-24
25-49
50+
Total
Low wage by gender
Share of low wage by gender
0.000
0.020
0.040
0.060
0.080
0.100
0.120
0.140
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
Men
Women
Low wage by education
Development of low wage share by education
0.000
0.020
0.040
0.060
0.080
0.100
0.120
0.140
0.160
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Year
Lo
w w
age
shar
e
Secondary school
Upper secondary school
Tertiary
Total
Dynamics of low wagedifferent definitions
Low wage mobility comparison
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
1995 1996 1997 1998 1999 2000 2001 2002
Year
Sh
are
1 year - exclusion
1 year - non exclusion
2 years - exclusion
2 years - non exclusion
Where do the low wage workers go?
Survivor curve for low wage workers
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
0.900
1.000
1995 1996 1997 1998 1999 2000 2001 2002
Year
Sh
are
missings
perm. transfer income share
temp. transfer income share
normal wage share
low wage share
Low wage jobs
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
Pe
rce
nta
ge
of
low
wa
ge
wo
rke
rs
Total Meat processing ConfectionaryHotels Hospital Food retailElectrical goods retail TWA
Students working
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Hotels & Restaurants Retail
Unemployment
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1980 1983 1986 1989 1992 1995 1998 2001
Un
em
plo
ye
d
0%
2%
4%
6%
8%
10%
12%
14%
Un
em
plo
ym
en
t ra
te
Uemployed
Uemployment rate
Labor force participation
År M&W Men Women 1983 79.6 86.4 72.8 1984 81 87.8 74.1 1985 82 88.5 75.5 1986 83.1 88.9 77.1 1987 82.7 87.7 77.5 1988 83.8 90 77.5 1989 83.6 89.7 77.3 1990 84.1 89.6 78.6 1991 83.8 88.5 78.9 1992 83.6 88 79.1 1993 82.7 86.9 78.4 1994 79.3 84.5 74.1 1995 80.1 86.5 73.6 1996 80.1 86.2 74 1997 80.5 86.3 74.7 1998 80.1 84.6 75.5 1999 81.1 85.6 76.5 2000 80.6 84.8 76.3 2001 80.3 84.5 75.9 2002 81.1 85.5 76.6 2003 80.6 85.4 75.7
Internal labor markets?
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
topquart_xrate
topquart_entryrate
bottomquart_entryrate
bottomquart_xrate
Social environment
• Social Contributions and taxes– Tax rates are 8% up to 5000€, then 44%-63% + UI-
premium but not other social contributions– 25% VAT + ”green” taxes
• Pension, means tested• Maternity leave, • Free health care, • Subsidized child institutions• Family allowances
Conditions for the high female participation
• Subsidized child care– 6 of 10 children 1-6 are in public daycare
• Many started as part timers
• Now little part time, 8% for 25/55 years of age
• Females get now same level educations as men and above.
• But still somewhat lower wages 7/8%
Job environment
• UI• Collective bargaining
– The Danish Model: trade unions and federations of employers negotiate wages, working time, pension, vacations etc.
– The Government takes care of employment policy and UI and of getting people back to work through training and job programs
• Changes in the bargaing system: Late 80’s+ 1993+ more and more decentralized wage bargaining. We find a larger and larger firm element
• The agreed on minimum wage: 13.8€, but some are paid less.
UI-benefits
• 90% of previous wage• Maximum around 1800€ per month
– Creates an incentive problem for low wage earners
• 2 days waiting time• 1st year without conditions• 2nd-4th year the unemployed has to attend
courses, job training or other activity• A lot of short spells due to temporary lay offs.
20%+ experience some unemployment during the year.
UI-benefits
• Members receive UI-benefit• But pay membership fee, • in return they get a state subsidised
”insurance”.• About 80 % of all are members of UI-
system and 85% are members of Union• The two systems are considered to be the
same – increases the membership of unions
Job protection
• No legislation for hourly paid = manual workers
• Hourly workers may through their collective contract have a 2 weeks notice, or somewhat longer
• Salaried employees within administration have by law period of notice of up to 6 month for long tenure
• In general easy to lay off workers
Changes in wage bargaining
• Wage bargaining used to be centralized
• Now much less so
• 1987 lower level, and after 1993:– many contracts do not mention a wage at all– More and more wages are negotiated
between employer and employee directly
Labor market policies
0
100000
200000
300000
400000
500000
600000
700000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Unemployment
Active
Passive